You Are Breaking The Law – Did You Read The Dodd-Frank Act?

Read Transcript for “You Are Breaking The Law – Did You Read The Dodd-Frank Act?”

“I was wanting to know if one can still use all of your methods with the Dodd-Frank Act like land contracts or for rent methods or subject-to.” – Billy Shumway

Joe: First of all, I’m going to direct you to an article that I wrote on my blog. If you just type in Dodd-Frank into the search on my blog, you’ll be able to find an article that I wrote about this. But the thing about Dodd-Frank, first of all, is that it’s 1000 pages long. It’s been in effect for a while and new pieces keep coming along, but most of it still has not been implemented and almost none of it has actually been contested in court, so we don’t know exactly how it’s going to play out.
 
Joe: It wasn’t designed for people who are doing an honorable business. It was designed to keep people from taking advantage of the system. It was designed from keeping mortgage companies from running amuck like they did right before the crash. It was just crazy what was happening and the way people were doing predatory lending and the stuff that was going on at the time. These banks were abusing the system. And so, Dodd-Frank is set up to try to stop that.
 
Joe: Any time you try to stop something, you always end up going overboard or at least most of the time the government does, so Dodd-Frank creates some problems for us. One of the things that you need to look out for (and there’s several things) is putting private money together, pulling it together, being a general partner and managing this money for these people and doing deals with their money in that structure as a general partner. With an LLC, it’s different, but as a general partner, you have control of that money, so you have to be very careful about not intermingling those funds.
 
Joe: So there’s the question of whether you might need to have some kind of securities license in order to do that type of deal, but we don’t do those types of deals very often. What we’re doing is just flipping properties outright, so I don’t think you’re going to have problems with the Dodd-Frank the way we’re doing it right now. We’ll have to wait and see what comes before the court in the future, if anything does, to see if we have to modify what we’re doing.
 
Joe: One of the things that we’ve learned in the past and that I’ve seen over and over again because I’ve seen these types of legislations come and go a lot, was with lease option laws in Texas. Those lease option laws made it very difficult to do lease options in Texas. We found a way to do it that complies with their process (and we still comply with their process).
 
Joe: But I also know a lot of people that are doing lease options in Texas the same way you normally do them all over the country and I don’t know anyone who’s come afoul of that regulation or has had to pay the price all of the attorneys and experts said were going to be popping up on these folks if they did lease options.
 
Joe: So, none of it was actually implemented. None of it has been brought to court as far as I know. I haven’t seen it. I do business in Texas. I have properties in Texas and I have a lot of students who are in Texas, so I’m watching this stuff all the time. I would suggest that you comply with the rules as they are needed but also – don’t be afraid of the rules – just make sure that you’re following through with the process the way you need to that still makes you money.
 
Joe: I also was in a situation once where I talked to my attorney and my attorney said, ‘No, you can’t do business this way because if you do, you come up to this situation’ and I’m not going to get into it because it’s not directly related to real estate, but it was just attorney advice. I looked at the way he was telling me to do business and I knew that by doing it that way, it would shut me down. It would completely destroy the way I was doing it because there was no way I could really comply with what they wanted.
 
Joe: Everything I was doing was perfectly legal, ethical and moral and I was watching out for the people and not hurting anyone, but he was telling me, ‘In order to comply with this particular rule, you are going to have to change your business.’
 
Joe: Instead of taking his advice, I went and talked to another attorney and they said, ‘Well, ignore that situation and just keep doing business the way you’re doing it and see what happens.’ And that’s what I did because the risk of stopping my business and shutting down my business was much higher than complying with that particular regulation.
 
Joe: So, we did it the way we had been doing it and we took a few steps to make sure that we didn’t run afoul of that problem again. That’s been quite a few years ago and I’ve not had any problems with it since. So, you shouldn’t necessarily take the advice of the first attorney that you talk to because that attorney might be giving you advice that is highly protective (“yes, you won’t have any problems at all if you don’t do it this way”).
 
Joe: Being in business means that there are going to be problems – you’re going to run into issues where people will try to sue you or try to come up against you or try to fight you, or maybe you’ll have a government regulator that’ll come and try to say you can’t do business that way. Well, you have to learn how to do business and get around those issues and still do it in a way that is not going to get you into trouble.
 
Joe: Now, I’m not saying to do things that are unethical. I’m not saying to outright break the law. I’m saying that you should make sure that you continue to do the things that you know you need to do in order to make your business work and then have an attorney that you can talk to that’ll give you some advice and say, ‘Well, if you do it this way, these are what the risks are. Are these risks acceptable to you?’ and if they are, then move forward; take an attorney’s advice.
 
Joe: Again, a disclaimer: I’m not an attorney – I don’t even paly one on TV. I can’t give you legal advice. I’m just giving you my experience from my many years in this business. Alright, good luck. Bye, bye.