Scott Gelman and Doug Norberg

Colorado Real Estate Attorneys Scott Gelman and Doug Norberg Present at CAREI Meeting in Colorado Springs, Colorado on the Ten Most Common Mistakes to Avoid

On June 20, 2012, Attorneys Scott Gelman and Doug Norberg were invited to present at the CAREI (Colorado Association of Real Estate Investors) at the Marriott of Colorado Springs. Mr. Gelman and Mr. Norberg have more than 45 years of combined real estate and legal experience, chose to share with CAREI members the 10 most common mistakes that they see time-after-time with real estate investorsand how to avoid these very costly mistakes. Mr. Gelman and Mr. Norberg had a wealth of information to share with CAREI members; their combined experience was a benefit to both the beginner and to the seasoned investor. 

 

“Where there’s a Will.” The list begins with something that is critical to all age groups, yet is avoided and postponed by many. Estate planning and asset protection are critical to real estate investors. Yet, many investors never consider estate planning as part of real estate investment strategy. 

 

“Bad Flip = Courthouse Trip.”The next mistake deals with repair and disclosure issues with investment properties. Fixing a property the right way is of utmost importance, as the seller is liable for hidden defects of which seller is aware. Pull permits where required, and avoid temptation to cut corners. A defect is no longer a defect only when it has been fixed properly, and then there is nothing to disclose….unless required by the Seller’s Property Disclosure form.

“It’s Only a Matter of Time.” Here they discussed Buy-Sell Agreements and their importance. While nobody wants to predict unfortunate events for their business, it is almost guaranteed that an emergency will affect everyone’s life or business at some point. Death, disability, partner disputes, divorce, bankruptcy and retirements are all reasons to make sure that your business documents contain exit strategies.

“Look, But Fail to See.”This point focuses on the practice of home inspections and inspectors. Home inspectors are generalists, and may not be qualified to accurately assess major components such as structural, electrical, plumbing, roof, mold or stucco damage. Damages claimed against a home inspector for negligence or breach of contract may be fairly limited, as the liability of the inspector may be limited by the terms of your contract with the home inspector.

“Show Me the Money!” This topic relates to the Construction Trust Fund Statute, which protects you in the event that you pay the contractor and the contractor fails to pay subcontractors or fails to pay for materials. Colorado has a special Construction Trust Fund Statute that provides the contractor holds money that you pay for the benefit of subcontractors and suppliers and if the contractor fails to do so, contractor may be criminally liable or be liable for three times the amount of money taken by the contractor. 

 

“Do Not Pass GO, Do Not Collect $200.00.”Here, they address the proper way forreal estate investors, wholesalers, and bird-dogs to managing real property for others, collecting fees for locating properties, negotiating purchases, and selling, exchanging, buying, or leasing real property without being considered an unlicensed real estate broker.

“Follow the Yellow Brick Road.”This section deals with the importance of having the terms of the “deal” reduced to writing, making sure the contract contains the required terms, and then following the terms of the contract. 

 

“Go to Jail; Directly to Jail!” This mistake is one that often tempts owners in distress, but can end them in jail – equity skimming. This term means collecting rent from a tenant and not paying the lender or HOA. In Colorado this is a Class 5 Felony and the investor could be sued for civil theft. If an investor is in distress, there may be other options besides collecting the rent and not paying the lender. 

 

“The Sinking Ship.”Having options for distressed properties is very crucial, and it is important to always have a plan. Anyone can get stuck in a nightmare where they can’t sell, are over budget, or the combined stress of not being able to sell or find a tenant. Consider the possibility of a distressed property in the beginning, have a contingency plan, and always have an exit strategy. Lease options, bringing in financial or credit partners, short sales and foreclosures are all options in these unfortunate situations.

“Give Credit Where Credit is Owed.” Finally, the associates handled on business relationships in which investors are asked to provide their “credit” for use to acquire loans to purchase property. They urged attendees to control the use of their credit in business transactions, and to carefully consider the ramifications of overextending credit. The most important aspect is to know your partner, and to be involved and informed throughout the process.