Lookit, E. Let's take my Yellow Brick Elephant as a for-instance. There is a first trust of maybe $100,000, and a second and third of maybe $60,000 total. The fair market value is at least $240,000, which is what I offered to the owners.
This is in the Commonwealth of Virginia, which is not a corrupt place, not compared to, say, Louisiana.
Under Virginia law, there is a trustee on the deed of trust, which is the mortgage instrument. The trustee is always a lawyer. If the borrower defaults, the trustee has a duty to sell the property at public auction. He/she has a duty to get a fair price. Which is, as we know, what a willing seller will pay a willing buyer on any given day. By law in Virginia, one third of the fair market value is presumptively sufficient, and the borrower can't set aside the sale.
The banks will bid for the property, but they will only bid the least amount possible to get the property. They have no interest in paying more than they have to. They can try to get the deficiency from the borrower, which includes the costs of the sale, which will be in the thousands.
They will then turn around and sell the property for fair market value.
Anyone who buys the property will try to get it for cheap, and many of those have every intention of selling it as soon as they can for fair market value. So, by law, if the bank were willing to accept $100,000 to wipe out its trust, and the second and third didn't bid, I could get the property for $100,000.
Which is perfectly legal.
So what the people I was telling you about do, is, they don't spin their wheels. One of them buys it and flips it that same day. He doesn't get all the profit, he shares it with the guy who buys the property, and the others who could have bought it but didn't.
And I guess there is just something wrong with me, but I don't see why they should give the bank a nickle more than they have to. The bank wouldn't pay a nickle more than it has to. The second and third trust get together and decide how much to pay. What's the difference?
I must have moral blinders. To me it's no different than the farmers who refuse to buy property belonging to another farmer at a foreclosure sale. The willing buyers are not behaving the way the willing seller wants, but that's what makes markets. If you and I get together and form a buying co-op, Walmart might get ticked off, but is it collusion? There's many a small business person who wishes they could stop Walmart from undercutting them. Can't they form buyer's co-ops and undercut Walmart?
I was sitting on the plane coming back from Baton Rouge, next to another lawyer. He was telling me that he and his brother own a rental property in Denver, and his brother called him and told him to meet the police at the house, and bring his keys and let them in, they thought a burglar lived there. The police didn't have a warrant. The lawyer said, and this is exactly what I would have said, we can't just go in there, or let the police in there for that. His brother said, well the lease says we can go it. The lawyer said, yeah, if there is a leak or broken glass or something like that, but not so the police can look for evidence without a warrant. And his brother said, well, give me the goddamn keys, then. And the lawyer said, that I can do.
I think I would have done exactly the same thing.
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