Editor's Note: Barney Zick passed away in 2005.  This article is from his now-defunct web site.  While the laws have changed, the article contains much good advice.  Enjoy!

Get Them Out of the House!

I get this all the time... "I have a super deal. The person is behind on payments and they will give me their equity if I will bring the loan current, but they really want to stay in the property. Tell me how to do that."

Well old pockets are full of money. I will give the warning one more time.

My rule is to never let them stay in the property. Never. Why? There are many reasons. Before you decide to go ahead, and before I tell you the exception to the rules, read the reasons.

1. You take a very real risk that the former home owner will later claim that he or she did not understand. They thought the money was a loan or worse yet, a gift. When they take it to court, the judge will call them "stupid" (without using those words). In the same breath he will then tell them they won their case because the Judge will not take the chance that they really believed they would get to keep their home! (No Judge wants to kick a home owner out due to something an investor did!)
2. Many states have homestead laws that say no matter what the homeowner does, they still have lots of rights. Be careful. Many states have laws concerning buying from people in foreclosure. If you leave them in the property, you double the chances of confusing what you were doing and running afoul of one of those laws. In both cases, you are better off if you get them out of the property.
3. If you stop to think about it, you are leaving someone in the property that has proven that they don't pay for their housing. Dumb move.
4. How are you going to let them stay? Are you going to have them sign a lease? Kicking the person out (evicting someone) that used to own the place gets complicated. That is when they file a suit saying they did not understand!
5. Are you going to let them cancel your purchase by buying you out? That will most likely violate usury laws. It is easy for an owner to say that you hid the fact you were making a loan by a lot of paper work. The courts will agree with the former homeowner. They will say it was a loan and usury has been violated. (Usury law sets limits for interest charged and penalties for charging too much. Top of the line is Federal statutes called the "Rico Act" that will send you to prison for being in the rackets!).

So what do you do? Get them out of the house, that is what. No money, no nothing, until they are out of the house. Oh, I give them $10 and I have a document I have them sign that protects me, but only $10. Tell you what... if you are so interested in this that you are still reading, go to www.zick.com/Sample-OptionAgreement.pdf for a copy of that agreement. Remember, just get them out of the house first... even if you rent them another of your rental houses, to prove that they really do have a sale and not a loan or a gift or whatever.

(c) 2004, Barney Zick