Buyers Are Liars

From the training and marketing perspective as a salesperson, the 'buyers' are actually the 'sellers' in the real estate investing business. That is to say the sellers are clients in most cases, whereas in traditional selling, the buyers are the clients.

This makes sense when you think about it because as a real estate investor, you are constantly selling. Whether you are trying to convince the seller to sell at loan balance or borrowing private money at 12 and 2, you are selling.

Paul Goldman, a master in direct selling and a renowned sales trainer from Australia, had a mantra about what to expect from buyers: "Buyers are liars." He said it repeatedly during the several months he trained us in direct selling.

And you know he was right.

Buyers are liars.

He wasn't being vindictive when he said it, he was saying from his extensive selling experience that people would often say anything to avoid doing something. He was also saying not to listen to the 'no' and keep shooting for the 'yes'.

You can't get upset when you find out that there is more debt and less equity than the seller told you when you signed the purchase and sale agreement - or the option or whatever - because BUYERS ARE LIARS (the clients are liars)...

It is common for things to change over the course of a real estate transaction.

This is particularly true in a distressed property situation because the sellers are often depressed, discouraged and generally confused. In addition, I have found that it many cases they are unclear about the actual terms of the deed(s) of trust they signed.

Recently, I ran title on a pre foreclosure property that I was buying 'subject to'. The property was refinanced about a year and a half prior as a sub prime loan. My intention going into this deal was to bring it current and then resell the property after a property line adjustment was completed and recorded to my benefit. The goal of this deal was to end up with a free and clear buildable lot as my profit in the transaction.

As it turned out the title report showed a 'second deed of trust' recorded against the property. I also read the terms of both deeds of trust in detail and to my surprise there was also a prepayment rider of six months minimum interest penalty attached to the 1st deed of trust.

I contacted the seller by phone and the wife said this to me:

"You mean I signed a second deed of trust? I thought they consolidated the prior loans into one - that the payment was supposed to cover."

I said, "Whether the payment covers both or not, there is a second deed of trust against your property that will have to be paid off at closing. Combined with the prepayment rider of 6 months interest, my purchase price just went up about $30K."

In this particular case, the lender did consolidate - except they didn't.

The second was called a 'piggy back' loan. This means - the best I can tell - that the second was actually deferred prepaid interest the seller could not afford to pay during the refinance. So effectively, the lender agreed to take payment at a later date and then recorded a deed of trust as security.

Since the seller never got the actual cash for the 2nd deed of trust, it sort of makes sense that they didn't think they owed it. It was effectively an obligation to be pay points and loan origination fees upon resale of the house.

Legitimately, the sellers didn't understand this. So, they were not sandbagging me. They thought they only owed on the 1st.

In reality, I'm ok because I did get it in writing going into the deal - but it would have been sweeter had I found out all the details earlier.

My assumptions in this agreement were based on what the seller told me.

And they believed what they told me.

You can not base financial decisions on what people say. You need to find out what is already in writing and recorded against the property.

Moral of this story: get the title report done and read all the loan documents early in the game.

In the distressed property business, I have met all types of people from walking breathing full-fledged creeps to really cool single moms doing their best to survive.

Sometimes they really deserve to be in foreclosure and ought to be in jail.

It's up to you as a real estate investor to do your due diligence and cover your 'assets'. If you don't it's your own fault. Try to remember that buyers are liars, then you can always prepare for the worst and create alternative courses of action going into the deal.

This is often referred to as the 'exit strategy' which you must be clear about before you buy - not after - because...

that's right, you got it:

BUYERS ARE LIARS!!!