We all need to hire an attorney at some point in our lives. This is especially necessary when you’re in the private lending business. Today, host Keith Baker lists down the eight questions you need to ask yourself when hiring an attorney to do either your foreclosures or draft the documents. You don’t want to miss this episode because, at the end of the day, if your documents aren't right, it can cause a lot of headaches and can expose you rather than protect you.
If you're looking for practical tips and advice on being a successful private lender and building wealth without banks on Wall Street then you're in the right place. If you want to learn from my mistakes so that you can avoid them and not repeat them, pull up a chair and pour yourself a drink because this show is for you. This is episode number 91, almost up to 100. I'm getting excited about that. One of the things that I get asked a lot is how do I choose attorneys to do either my foreclosures or draft documents. Fortunately, I only got one foreclosure and went with the recommendation of a friend.
When it comes to having an attorney draft my documents, I like to have a slate or panel of them. Figured I'd go through that with you and hopefully share some insight into how my process is for doing this. Being a private lender, I want to mitigate as much risk and stay as secure as possible. That's when I want to convey over to you and especially if you're starting out. Even if it's your home state, I would not recommend lending in a state that had a lengthy judicial foreclosure process and low usury rates. That's a given. I wish we could dig a little more into that, but you don't want to lend in a state where there's a redemption period after foreclosure where the borrower can come back and make everything whole again and get the note going.
The odds that they can't do it the first time, they’re not going to be able to even if they reinstated the adds. They’re not going to do it the second time. That's the reason I would suggest staying away from the redemption period states. Stay away from states that heavily favor the borrower or at least they have a very lengthy process to give the borrower a lot of time to make amends or do whatever they can to keep the note going. Since it's like New York, they have a very long foreclosure and lengthy process. It could take a couple of years to get somebody out and to get the collateral back to you. Not to pick on New York, but that is one example of a state that I won't lend in. Lend to a state whose laws are either the same or similar to Texas. It varies from state to state.
What that basically means is you want a state that has non-judicial foreclosures, no redemption periods after the foreclosure is complete. That's one good thing about New York. They don't have a redemption period, but they might as well if it can take 2 to 3 years to get people out. They have a relatively short default period of 90 days, which I believe that's a federal law, not a state law. The acceleration notice period in Texas is relatively short, 21 days, from the time you file until the auction on the first Tuesday every month. That's how quick it can go down. Once the 90 days have been documented to fall to the notice accelerates gone out, all that fun stuff is gone.
[bctt tweet="My money, my terms." username=""]
Twenty-one days from the time you noticed the borrower until when you can get the house back or get your collateral back. Those are the states that I recommend you lend in and do your own due diligence, as always as the biggest caveat. There are 50 states and I only deal with the laws of one of those. That means 49 out there, at least 51 states out there that I don't know the laws. The eight questions and the things you want to consider when you're adding or looking for an attorney, especially for doc prep. This is where the rubber meets the road because if your documents aren't right, then it can cause a lot of headaches. It can expose you rather than protect you.
Not to get used as a fear tactic, but that's why I always insist that I use my attorney or my attorneys will draft the documents to borrow or pay for it. I give them options for the various attorneys that I like. Right now, I'm down to two. I give options like, “This is who I'd like.” I always want to use the title company attorney that I have done before. You can use the title company's attorney to draft documents and they're usually the cheapest. You get what you pay for. You are not the attorney's client. The attorney's client is the title company. You want somebody drafting documents for you or your IRA or your wife's IRA and with their best interest at heart. Here we get down to it. Number one, I want to know how long that attorney has been practicing the law in general. I like to see a lot of gray hair.
I'm being an ageist or some “ist” with that, but I like to see someone who's got a lot of experience and has done a lot of the work that I'm going to be paying them to do. One of the things that you can ask is if they are board-certified with the legal specialization in a bar in their state. In Texas terms, roughly 10% of all attorneys are board-certified of legal specialization. According to the website, there are 256 board-certified residential real estate attorneys. You can check your state government, your state bar to get information on where you are. I bring this up because it's a good way to vet attorneys. However, I’ve never used an attorney that was certified by the board.
That might be a little project that I’ve got to work on as I look into this because, in one way, it is a way that you're getting a good quality of attorneys. The other way is it's okay, they've paid the work. They have to do X. They have to do many hours of continuing education every year and have to pass an exam. Their work has to be 30% or 40% specifically real estate related or whatever specialization they're going for. There are only 256 in the whole state. That's another episode and I'll look into that. That's a place where you can start, check your local bar in your local state. Number three, how many deeds of trust have they drafted? I want to know how many they've done in the last week, in the last month, in the last year.
[caption id="attachment_2681" align="aligncenter" width="600"] Attorney For Drafting Documents: If your documents aren't right, it can cause a lot of headaches and expose you rather than protect you.[/caption]
This will hopefully give you a better level of assurance that they work in this area of drafting trust documents and notes. I'm going to know how many they've done. The idea is to give you a broad example, paint with a very wide brush. You don't want to use the attorney that sets up your LLC, handling your uncle's divorce and once you're writing your deed of trust and your promissory note unless he's good at promissory notes and real estate. Be careful with jack-of-all-trades. That's my advice and consider that. The follow-up question to that would be, what percentage of their work is note-related or deed of trust-related? That goes back into the board of legal specialization, but ask them how much they do? How much of that work is constant? How much did the paralegals do?
The lawyer is going to sign off on it, but most likely a cheaper laborer is going to do the work upfront. That is one question that I like to ask them. Another question I'd like to ask is, have any of their deed of trust and mortgages been found unenforceable in court? If they have, why? My understanding is that attorneys are bound by strict code. If you ask them specifically if they've had an unenforceable document, they have to tell you the truth and you can go back and look and see. You can always do a quick legal check and see if your attorney's name has ever showed up in a filing or a motion or somebody getting sued to try to get out of a foreclosure.
That's why I bring that up is if they tell you, "What happened?" The dates got crossed or a lot of times that's it or there's a typo. There's some technical issue, something in the grammar or something in the information provided that will make a document null and void, especially if it's signed the day before the debt existed. There’s a new case out of one of the Carolina's where they found the lose a deed of trust. He mentioned the debt that was created, but the debt wasn't funded until the next day. I’ll make a case study on that. I'll say, “How many have been unenforceable?” I'd like to know what their policy for errors are, both my errors and their errors. I have had an attorney I still use. I gave him the information. The documents came back. They have errors.
I’ve raised the question, they went back to the information I provided and said, "No problem, no charge. Here you go." That's the way it should be. That's the way I recommend you work with other people. If it's my mistake, I don't have a problem. If I give somebody bogus information even if it's the best available legal description at the time that we have, but it's going to change. You’ve got to know that if it's wrong, it's going to cost you a set fee, rightfully so that you provide bad information. That's what you're going to get. If it's got to be corrected, it's not the attorney's fault. That's what I would ask them for their policy on their errors and the cost. What's it going to be?
[bctt tweet="It's great to have third party advice and education when you're using someone else's money. " username=""]
I ask them if they can represent you in foreclosure on that particular loan or that document that they are drafting. Not always but if they do, then they always have a copy or they should have a copy of the originals so that they would be able to file in a foreclosure setting. Sometimes they're not willing to travel so far. I like to say that I lived in different counties down here in Southeast Texas. I know some attorneys who won't leave Harris where Houston is at all. They will not go outside of it. I've hired an attorney for foreclosure and he was extremely reasonable. I believe he lives in San Antonio. Anyway, it’s money well spent. It’s always good to have a panel.
In that way, when you give somebody the loan documents or say, "I'm going to loan to you." Give them 2 or 3 choices of which attorneys they want to use and to show them that this guy charges this much so on and so forth. It's going to be specific what type of loan it's going to be. If it's a straight flip or maybe if it's an owner finance deal that requires something else a little different, but you want to find out what they can do, whether they're willing to go and give your borrower's options by having a panel. When I get the documents, I keep that panel on the front page so that if there is a problem, I know who drafted the documents and I know who I can call to process a foreclosure.
The number eight and the final, this one is a no brainer. This ought to be yes immediately out of every attorney's mouth. You ask them, "Can you provide me with your document requests prep sheet?" They'll be glad to do it because it's going to be a word document that's going to ask for the borrower's name, legal entity name, all the T’s and I’s of the borrower, of the lender, of the property in question that's being held as collateral. Provide the document preparation sheet and that's going to have everything that they need in order to make your documents for your loan. Make sure you fill it out correctly and completely. In my case, when there was a typo, I could prove that it's not mine, so I didn't get charged for it. If I can't prove that it's mine, then the odds are I'm going to get charged for it.
Any reputable attorney, no problem, they'll do that. It should be the case and it most likely is. I digress again. If you can get that loan doc prep sheet, what you can do is hand it over to the borrower and say, "You want the loan. This is what the information that I'm going to need from you." They know exactly what the attorneys are going to be dealing with upfront. What type of personal information they're going to have. If they want anything that’s taken from the recorded record such as Social Security number. That's rarely ever included in documents, but the driver's license number, Social Security is very personal information. They can remove before it's recorded at the county level. My understanding in Texas anyway, I assume it's like that with a lot of the states across the land.
[caption id="attachment_2682" align="aligncenter" width="600"] Attorney For Drafting Documents: Any reputable attorney will request for the document preparation sheet that's going to have everything they need in order to make your documents for your loan.[/caption]
This is why I like private lending. It seems very cumbersome and a lot of work upfront, but the borrower pays all these legal fees. If I need an inspection, they're going to pay. The borrower was going to pay that. They're going to pay for the appraisal, which I don't usually do an inspection. I either do my own appraisal myself or I have somebody perform it. If I'm uncomfortable with the property, I always get an appraisal and the borrower pays for it. They’ll pay for the lawyer doc preps and even my IRA custodian fees. You want to make sure your attorney puts that into the note and the documents that the borrower is going to be responsible for everything and, “Here's the interest rate. It's my money, my terms,” that's my new hashtag. I'm going to start trying to pump it out.
I might even try to get one of those hip hop hooks made. We'll see how much money they got and see how much they required and see if Santa is good to me this year. We'll see. That's it for now. This will be marking the end of the second year of the podcast. I am going to ask you if you could help me get the word out. Increase awareness for this show by sharing or forwarding or even direct messaging this episode to someone who you think could benefit or someone who you believe may be interested in becoming a private lender for one of your deals. It's great to have third party advice and education that doesn't come from you when you're using someone else's money. That’s another way you could help build trust. Please connect with me at Facebook.com/capn.baker or over on Instagram Private Lender Podcast, and Twitter is Private Lender Podcast.
I'm also getting on TikTok. I've completely embarrassed my daughters with it. It's been great. I'm learning it. It's a different type of social media, but it's been great. That's going to be coming up, maybe even Snapchat, who knows? I'll get back to you on that. Please do connect with me on social media and always please leave me an honest rating and review over at iTunes and Google Podcast. It is the best thing you can do to help me out to get that stuff running out there and getting some more awareness for the show. It has been years and I'd like to see the numbers starting to creep up and not so much the cost to produce this thing. I'm getting some headway. I want to wish you a Happy New Year, Happy Holidays. As always, I wish you safe and prosperous private lending. I'll catch on the next episode.
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