PROPOSED TEXAS LEGISLATION MAY CREATE MORE FORECLOSURES
In an effort to protect homeowners from foreclosure rescue scams, Texas Attorney General Greg Abbott is asking the Legislature to expand his authority to crack down on fraudulent practices under the Texas Deceptive Trade Practices Act. Sponsored by state Sen. Craig Estes, R-Wichita Falls, the foreclosure protection legislation is supposedly designed to curb growing problems with “scam artists” who prey on homeowners facing foreclosure.
So far so good, except the proposed legislation is so seriously flawed it will create more foreclosures, which is what we do not need in Texas.
If enacted, the law would require an investor to pay at least 82 percent of a home’s “fair market value” (FMV), and that just doesn’t make economic sense.
I have paid less than 82 percent of FMV for a distressed property on numerous occasions, and so have all of my more than 200 professionally-trained HomeVestors franchisees, as well as thousands of other real estate investors across the USA. We are not scam artists, but this legislation would prevent us from purchasing properties. That would be a shame because we are responsible for revitalizing neighborhoods by purchasing properties that, often times, no one else will buy. We rehab the properties, put them back on the tax rolls and provide affordable housing for homeowners and tenants.
As real estate investors, we protect American neighborhoods by improving the quality of housing and the quality of life in the communities we serve. Since 1996, HomeVestors franchisees in Texas have purchased 12,406 houses and sold 10,420 of them—we have purchased almost 40,000 houses nationwide. Our franchisees are required to conduct business ethically and pay a fair price for properties. If we had to pay at least 82 percent of FMV we would not be able to buy most properties. Thus, more houses will sit empty and deteriorate. Neighborhood values will decrease. Vagrants will move into the houses. Crime statistics will increase in these neighborhoods. Eventually, lenders will be forced to take back houses, rehabilitate and sell them, but the homeowners protected by this legislation will still be left with no money and a foreclosure on their records! That’s a great disservice not only to our franchisees, but to Texas homeowners.
Here’s why requiring payment of at least 82 percent of FMV just doesn’t work. At HomeVestors, our model is to pay 60 percent of the retail value of a property, less repairs. For a $100,000 property that needs $25,000 of repairs, we would pay approximately $45,000. Our total investment, with numerous affiliated closing fees and expenses, would be approximately $89,250, leaving us a reasonable profit of $10,750 if all goes well. And in today’s economy, there are more surprises than not. Things usually don't go well.
If $45,000 doesn’t sound like a fair price in exchange for a franchisee risking his money to acquire, repair and market a property, I can provide a long list of satisifed customers who gladly welcomed our cash offers. In many instances we saved them from foreclosure, dings on their credit scores, potential bankruptcy and more.
This proposed bill may protect Texans from unscrupulous foreclosure advisors and investors, but it will also create more problems for homeowners and communities. Stop Senate Bill 354. Tell the Attorney General that we’re all in favor of protecting Texans from scam artists, but we don’t want to prevent honest investors from rescuing ugly houses and enhancing our neighborhoods. If investors can’t buy houses in foreclosure and make a reasonable profit, they won’t buy them at all.
John P. Hayes, Ph.D
