--- Page 1 --- Cameron Walker: All right, you're watching the Boomtown podcast, a podcast about Huntsville's explosive growth, both on and off the arsenal. I'm Cameron Walker, your host. I'm the broker/owner of Cameron Walker Realty, located right here in Huntsville, and I'm so excited today. I have a special guest, Craig Paulus with Paulus Law Firm and Foundation Title and Escrow. So, thank you, Craig, for coming out to hang out with us today and share your expertise. Craig Paulus: Thanks so much. Glad to be here. Cameron Walker: Absolutely. So, most of you won't know Craig, but Craig, when you call me at 8:29 at night on a Sunday, I don't call you. You call me at 8:29, 9:00, I'm talking to the clients, right? They call me with a question at 8:29; I call you at 8:30. Craig Paulus: Yeah. Cameron Walker: So, there's a difference between a realtor, a broker, and an attorney question, and that's my job to know those differences. And Craig is the one I go to when I get beyond the scope of my job. Craig Paulus: I'm glad you do. Yeah, absolutely. Cameron Walker: Well, thank you again for joining us. I really want to dive into those questions that people have, that I get all the time, that now I have the opportunity to share with a bunch of people at once instead of just one. Okay, and those are really the differences in the Alabama contracts versus other places around the U.S. Craig Paulus: There's a lot of them. Yeah. And the most important is that, you know, everybody says "all real estate is local," and it really is. And Alabama's got some features and its laws that are unique, so the contracts are unique. And really in this area, in North Alabama, you're going to see one of two contracts right now. The Huntsville Area Association of Realtors has the contract that's my favorite, because I'm most familiar with it. It's been evolving for, well, for as long as I've been in town—and I'm a native, but I practiced law elsewhere for a while, came back, hung a shingle, and started doing real estate law, and I love it. But it's been coming along for time out of mind. Everybody who's in real estate knows it well in this area, and it has a lot of features that protect clients and keep deals together. The other contract is sort of promulgated by the Alabama Association of Realtors, the AAR. And the AAR contract has a lot of different features, and we're seeing more people use it now than they used to for various reasons, coming out of the NAR settlement last summer. So, a lot of the practice changes required changes to the contract, so that's what that was about. But we have unique laws here in Alabama. We're one of the last buyer-beware states. We have a unique law on the right of redemption, and that has a lot of legal implications. There's been some recent changes that have to do with co-ownership, joint tenants, and common ownership where you have more than one owner of a piece of property. And all those things are addressed in our contracts, and you can get into the weeds pretty fast --- Page 2 --- on these contracts because they're addressing things that are kind of unusual and what newcomers don't always expect. Cameron Walker: Yeah, one of the things I really focus on when it comes to that buyer-beware aspect is the difference between here and, like, say, the coastal states and the big cities. That's where you seem to have more seller disclosure laws, and here we have so few. You really have to thread the needle to warrant having a disclosure versus getting out of one, which is what we see in other states. So, is that something you hear a lot? I know I'm a small microcosm; you've got a bigger global view. Craig Paulus: Right. So, I do see this, and I can tell when somebody's dealing with an amateur or a newcomer realtor. So, everyone's got to start somewhere in real estate, right? But real estate's got more fakers than a middle school band concert. I mean, last year, I think the National Association of Realtors did a survey, and I think over 70 percent of real estate agents didn't do a single closing. I heard that, too. And I think it's in the 80th percentile range—you know, around 80 did less than two. So, you know, there's lots of realtors who are hobbyists. They aren't professionals like you. They aren't professionals like you see. And so, they'll come here, and maybe they think they've gotten a referral from their local person they trust. The trouble is, that guy's just looking for a referral fee, and he found somebody who's in his network and he doesn't know this person for real. So, they'll come here, they'll get connected with an amateur who hasn't prepared them for the differences in Alabama. Something gets a little sideways, and this prospective buyer who's used to California, or New York, or something, will come in and say, "Where's this seller disclosure form? Why didn't somebody tell me about this?" Well, welcome to Alabama, a buyer-beware state, and everything that's important to your decision to buy, you need to ask ahead of time. Yes. Everything. And don't make any assumptions. Right. So, my favorite example—and you know, sometimes it's just people getting cold feet and trying to wiggle out of a contract—but you know, my favorite example is an agent called me, and he had a client who got cold feet and got really mad because he was looking at the covenants for the property. And he said to his agent, "When were you going to tell me I couldn't park my boat in the driveway?" And he's like, "I didn't know you had a boat." And he's like, "Well, I don't have a boat, but I might want to get one." So, the point of that story, what I like about it so much, is not that it's ridiculous and it's true, but also that it illustrates why I think buyer-beware is not a bad approach. If something's important to you, ask. If something's important to you, find out. If you want to park your boat in the driveway, figure out if you can do that. Because I don't know if you have a boat, and your agent doesn't know if you have a boat, and your agent doesn't know if you want to raise chickens in the backyard, right? If you do, you should ask some questions. If you want it to be an Airbnb, you need to be really careful in this area. That's not really easy in Huntsville. And there's things like that. If it's important to you, ask. I can go through a hundred examples, but ask. Cameron Walker: Yeah. I mean, those are great points that you make. Some of the things I talk to people about is buying new construction versus used to get around some of these challenges. The other thing is getting those HOA covenants and restrictions in advance. And if --- Page 3 --- you're buying an older home, you think it might need some updating, we really want to know what that updating is—any real repairs that are necessary. So, perhaps even getting like a pre-inspection before you make the offer, because it's very limited, once we're under contract, what the seller's obligation is based on the inspection findings. And what I tell people is it always opens up a new round of negotiations. If we're in a slow market where buyers are hard to find for the specific house, great, we have more leverage in the negotiations. If they've got three offers on this house, they're going to tell us to "kick rocks" and take the next one, you know, particularly if one of the later offers is higher or better than our offer, right? So, a lot of that comes down to strength in negotiation. And where people are coming here from those coastal cities or larger cities, they're just accustomed to getting everything they want when they ask, or they can walk. And this is a conversation I have to have up front. In Alabama, when you make an offer on a house, it's kind of like being in the army and firing a shot; that bullet's downrange. So, we need to make sure we aim before we pull the trigger. Craig Paulus: Yeah. And you can put in contingencies for them—you know, "I want to, it's contingent on making sure that it appraises for enough, that we get the financing that we like, the inspection, that the repair estimate doesn't equal more than..." Sure. And sometimes you do it regularly in a commercial setting, but in the residential space, it's okay to say, "Hey, give me some time to evaluate this." And I want to back up a little bit on the "buyer-beware." It's not a free-for-all for sellers to lie to you. They can't conceal anything. And once they start telling you stuff and giving you assurances, they're kind of on the hook for everything, right? But I'm giving you the "kinda" and the "maybes" because, you know, the law is great. You learn the rules of contract on the very first day of law school. You show up, you read what we call the "hairy hand case"—you don't really want to know—but anyway, and then the rest of the three years is figuring out those things that are exceptions to the rule. You know, a deal's a deal. There's lots of exceptions. Sure. So, put a contingency in there if you've got a concern, or if you need a little more time. And you know, we see that all the time. It's regular. That's something I have to explain to people, too. There's federal fair housing laws and other restrictions, then there's state-level laws, there's local rules and regulations, and all of these are in the mix. And then there's also contract law. So, real estate and contract law kind of get dumped into a bucket and mixed together, but there are differences between the two. And there's also old-fashioned land laws, right? Yes. Covenants are a big, important part of that. Condo rules can be different; sometimes people assume, "Oh, I can bring my Great Dane in here," and sometimes condos say you can only have a 20-pound dog. Yeah. And I would move if my Labrador couldn't move in. Yeah, he was—I lost him, it's the worst. But the covenants—people make assumptions, like, "Oh, it's not in the subdivision, there's no covenants." That's not the case. It's very common in certain areas that Grandpa's got the farm, and he's going to finally part with a little corner of it to sell to somebody. He goes, "Well, I don't ever want X to be on that," so you can never have, you know, whatever, or you can never re-subdivide it to a lot that's smaller than five acres because I want to keep it looking like a farm. And those things are enforceable. And guess what? Grandpa's kids live next door to you still, and --- Page 4 --- everybody knows. So, when you go in there and say, "I'm going to—I really want some pot-bellied pigs and a fleet of goats and roosters that wake everybody up in the morning," they might not like that, and they might have anticipated it and put a covenant in place that will stop you. Cameron Walker: Absolutely. We actually closed with you guys last week on a lot out in Tony, and it was surrounded by an actual subdivision, but three lots within it were not part of the subdivision, although they did have their own deed restrictions; they weren't subject to the covenants. So, it was a really unique situation. I think we had 56 inquiries on that lot, and we cut off half of them just because it wasn't in the subdivision they wanted to be, and we cut the others in half just based on the deed restrictions. So, knowing that going in, right? And being able to disclose that to buyers allowed us to find the right buyer and have a lot smoother process than we would have if we had not disclosed those things. So, to your point a moment ago, it's not that the sellers have a free-for-all and don't have to disclose anything. And we also are required to answer honestly and ethically when somebody does ask. So, that's another thing on the buyer side—as an agent, if we have specific questions: the age of the roof, any foundation issues, the age of any of the appliances like the HVAC. We ask those going in so that we can get an honest answer going in, so that we know what we're looking at, right? If we're buying a house with a 50-year-old AC, we got to take into account you've got to replace that pretty soon. So, if it's got a three-year-old roof, we're probably in good shape on the roof, right? And something that's customary—and you talked about that second round of negotiations—is it's customary to get a home inspection. A lot of people say, "I want an inspection." When things were crazy hot during COVID, you know, it was like, "Just give me the house, I'll take it." Yeah. And if it's terrible, I'll just sell it to the next guy in 20 minutes. I mean, it was going so fast. But now, get a home inspection. And you raise a point: one of the things that you always see in a home inspection report is totally unenforceable. It's back-end, and it says the liability for preparing this report is limited to the cost of what you paid. So, you pay 400 dollars and you're like, "Oh man, I need a new 12,000-dollar HVAC," and I only get 400 bucks from this home inspector? That's not enforceable. Craig Paulus: Yeah. And a friend of mine, who was a real estate attorney, was actually involved in the case that turned into that, the maybe-no rule. It was—the Alabama court said that's unconscionable, that somebody could limit their liability on something so important to just the cost of preparing the report. Cameron Walker: Yeah. Well, I mean, like, so we talk about the home inspection and what their liability is. A lot of people are like, "Oh, I'll just get a home warranty." And you both—I mean, you and I know—those are about as good as toilet paper when it comes to the quality, depending on the provider. And there's so many stipulations. So, one I ran into maybe two years ago with a seller, he had a leaky water heater on his way out the door, so he's like, "I'm just going to have them replace it." Well, they had stipulations within their warranty agreement that he had to drain it once every year. It was four years old, and he'd never drained it. So, they declined his claim. And it's there in black and white; there's not really an argument against it. --- Page 5 --- Craig Paulus: Yeah. There's so many terms and conditions. I call—I won't name names—but it was Lowe's, and I called them the other day and I had to listen to 45 seconds of terms and conditions before I could get through the robot to start punching buttons to get to, you know, talk to a human. That's going to... I love that. We actually have some incredible technology here at our company at Foundation Title and Escrow. Our advanced algorithm, developed here on the arsenal by NASA, has determined that if somebody calls us on the phone, they want to talk to a human being. So, we have human beings, and we try to answer on the second or third ring every time. It rolls backwards to a whole lot of people. But, you know, if something crazy is happening, if a human isn't picking up the phone... I don't even know if you guys have voicemail because I've never gotten to it. Jasmine takes my call and I go right through. Cameron Walker: Yeah, that's true, that's true. But if it's not an attorney question, if it's just a closing or a time or coordination, you know, I must talk to Peyton or Dana. So, yeah, I go through the proper channels. It's not to call you at night and say, "Hey, can you handle this for me tomorrow?" I bug you when it's really important. Craig Paulus: Well, you're always welcome to. So, yeah, that's... There's, you know, these expectations that you have, they're always, you know, there's always maybe some... there can always be a problem. There's frequently a problem in real estate. You know, I think Morticia Addams said it best when she said, "What's normal for the spider is chaos for the fly," right? We have that up on our refrigerator at work, and I try to remind my staff that, you know, the clients feel like they are being—they're trapped in a web and they're being devoured by a venomous arachnid, and that's what real estate is for those people. So, you know, that's why you need good professionals helping you and making it uncomfortable and a little more transparent, because it's a difficult process. Cameron Walker: Absolutely. And coming into it with the right mindset, and being, you know, setting those right expectations, prevents you from feeling like you're in the web in most cases. No transaction, no matter how easy, is always going to hit bumps, and having an expectation that those bumps are coming—how we're going to adjust to those, how we're going to react, what is due to you in the contract versus the other party, and what responsibilities you have within the contract—if we've covered those in advance, when we hit these bumps, it's so easy to go over them. Where I find, particularly when I'm on one side of a transaction and another, newer agent is on the other side, is they have a calamity, and I've got a bump, and we're both in the same contract trying to get the same house sold to the same clients and get to closing. And my clients are prepared for what's going on, and they're overreacting as an agent because they did not prepare their client. So, they're having a whole set of negotiations between the agent and the client instead of just the agent advocating for the client. Craig Paulus: Yeah. And I like to tell agents—and good agents know this—that, you know, you are a trusted advisor, and you give advice and let clients make decisions. Don't try and make it your --- Page 6 --- deal, and don't force anybody's hand on anything. But you're right, it's—you know, what is... Stuff does go wrong. And the best advice I got when I was getting married—and about coming up on 29 years married, the most wonderful woman in the world—but when we were getting married, you know, it's tense. I mean, yeah, let's face it, she's been, you know, walking down the aisle in front of her dolls since she was like six years old, I mean she's planned out this wedding. And somebody said to me, "You know what? Three things at least are going to go wrong, but at the end of the day, you're going to be married." So, in real estate, usually a couple of things are going to go wrong. You know, a tree is going to fall on it, the hot water heater is going to break the day you're moving, somebody's going to scratch the hardwood floors getting the refrigerator out, somebody's going to say, "Wait, that refrigerator is supposed to stay." Yeah, you know? The contract will tell you what happens when those bumps... Cameron Walker: Absolutely. That's a top-three question for me, because I include it in so many videos, because it is market-dependent. About that refrigerator: in our contracts, it does not specify the refrigerator. It specifies the built-in appliances. So, the refrigerator is built-in, sure, otherwise we need to write it in. And in the "built-in," like you think it's built-in because it has a front panel that matches the rest of the cabinet? Huh, it'll slide out. Yeah, I mean, they all do, so you can maintain them. Be more specific. Yeah. Absolutely. Window treatments, chandeliers. So, I just had a client that we went under contract with last week; they really love the chandelier in the dining room. So, although it's a fixture and it should just come with the house per the way the contract's written, to make it smoother, we said "ensure that the chandelier transfers and conveys in ownership." Right. And if you're selling, before you take pictures, before you list it, before you let anybody look at it, if you're taking a chandelier with you, take it down. Yes. Put something else up. Yep. Absolutely. Same thing with anything else in there. Right. So, something else that kind of stroked my brain right there: a lot of times we reach out to you for how to phrase something within the additional provisions. So, as an attorney, as an agent and a broker, I am not an attorney; I do not need to be practicing law, and I do not need to just write in my own provisions, although that seems to be the standard practice around here. So, one of the things we really look to you for is: we have some just saved verbiage for things like the appraisal contingency, but when we run into something new, we do go to you guys. You're our go-to to ensure that we're writing it into the contract correctly. So, that's something else I want people to know: just because you want it written a certain way as the client doesn't mean we put it in the right legalese. Craig Paulus: We'll help. It's pretty routine to help people navigate something new or unusual. You know, we do a lot of closings. We've done a gajillion closings, and at Foundation, I think we hit... let me... it's a, sorry, dog that won't wag his own tail—we hit 100,000 closings last year, and that was in the first 12, 13 years of the company. And I've only been with the company for four years. Yeah, and you know, I've probably done 15, 16,000 in my career. And it's... we see, you know, more than, you know, there's those, you know, countersigns that you see up on the billboards like, "I've done..." So I'm going to clear them, I have done more. Yeah. And there's --- Page 7 --- attorneys who've done more than me, and they're a great resource. We want to help everybody. Yeah, that's why we do this. Cameron Walker: Absolutely. It's an industry, and it doesn't have to be combative. It's always going to be competitive, and it should be; that's what America's built upon, and Alabama really engages in that strongly. And I myself am, right? But it needs to be cooperative competition, right? We all need to be working by the same rules, trying to achieve similar goals of getting the house and the deal closed, although we're advocating for one side or the other. And that's especially true for me; it's essentially... I came from a litigation background, and I did that for a few years. I feel like I served my time. And coming into real estate, it's... I love real estate because it's kind of like a math problem. You've got land records, and you've got law, and here comes the answer of what you need to do to get a deal closed. But when we work in these land records, they're public records. I get to see everybody else's homework. I get to see what everybody else's work product looks like. Yeah, and there's... I'm really happy to say I practice in a town where I can, you know, look at the most recent deed, and if I see a certain name, I'm like, "Yeah, this is probably right." Yeah. And I hope that people say that; I think people say that about us, too. Our work is really good. But that's not the case universally. Sometimes you go to places and you're like, "This guy doesn't really have a high understanding." But increasingly, you know, everybody specializes in the law now. You know, the real estate... there's not a lot of part-time, "I do real estate and personal injury" or "I do real estate and whatever." It's: you do real estate, you probably do real estate. I've run into a few of those, and they've always gone wrong. And then there's, they're small-town practitioners who have the, you know, old-school approach, and some of them are super attorneys. The difficulty that really has driven the specialization has been the technology, sure, the requirements for insurance and fraud protection. And we have to be absolutely on top of our game with that. So, when you're doing that, it's demanding and expensive to even, you know, get your foot in the door in real estate. Cameron Walker: Yeah, absolutely. I mean, you're looking at being bonded for higher dollar transactions, and somebody that's in a 20,000-dollar lawsuit when you're talking a million-dollar home—right? So, there's a significant difference between the two, and there's a significant cash outlay for the buyer in those two. You put down 2,000 on a car versus 120,000 on a home—that's a significant difference for people. And that's what I always try and keep in mind, is how many commas and zeros there are in these transactions. Craig Paulus: Yeah. And you bring something up—I mean, it dovetails with what I said earlier about home inspectors can't limit their liability to the 400 bucks they cost. I don't... we don't even try, right? It's silly. But it brings to mind the difference between title insurance and these opinion letters that are gaining in popularity, and people act like there's some new innovation. So, the difference is: we search the land records, and I can give you an opinion saying, "I'm a lawyer, I've --- Page 8 --- looked at land records, I think this is who the owner is, and that person should sign the deed to you." Great. And that's what that says. The trouble is: what if I'm 100 percent correct on that, and the guy who does it is a fraud? Or there was a mistake in the land records? Or something got filed after we closed but before I could record the deed—there was an intervening lien? What if it turns out this guy lied to me and he has a bankruptcy proceeding, a divorce proceeding, a judgment that hasn't been filed yet? What if the abstractor made a mistake when they were searching the land records, right? Those are the things that really keep me up at night, and those are things that title insurance covers. So, you talk about the contracts: the AAR contract I mentioned earlier doesn't automatically give title insurance. The Huntsville Area Association of Realtors contract, the HAR contract—the one that I said I preferred earlier because I'm more familiar with it—it gives owner's title insurance by default and splits the cost evenly between the parties. That's all negotiable, but man, you want it. I mean, you need title insurance. And the fraud that we see, and the seller impersonation, is rampant. Yep. The idea that people would say, "I've got this new idea. Listen, we're going to do title opinions." Title opinions are not a new idea. No, they're the old, bad idea that title insurance was created to replace more than a hundred years ago. Yeah. And I'll tell you what: if I were to give a couple bad title opinions and sue me, I'm out of business. Yeah, you know, I can't absorb too many of those hits. Okay. But the title insurance underwriters—you know, Foundation Title and Escrow's a big company. We've got 28 offices, we're from Cleveland, Ohio, down to the panhandle, Florida, and everywhere in between, but we are an agent like a broker, an insurance broker, and we sell insurance for these First American, Fidelity, Stewart—and, you know, they're not as common as what you hear, like Allstate, State Farm, and Geico, but they're that big. I mean, they're multi-billion dollar companies with huge reserves that can absorb these problems. Yeah, that's why you get title insurance. Cameron Walker: Absolutely. And there's been a big, I'm going to call it the "DIY movement" online, about selling your house yourself or self-insuring throughout everything in life. Or is it... not in the self-insurance, yeah? Yeah. And it's, it's buzzwords, right? People saw it on Reddit, they saw it on YouTube. Somebody cut out the 90 percent of the info you needed and gave you the buzzwords and the "hot take." But it sounded... they were very confident when they said it. So, where I see it a lot is actually in these—is these, taking over somebody else's mortgage. I forget the term for it. Pace is the guy on YouTube that talks into this, and every time I have a listing, I get those calls—a dozen of them—like, "Hey, would there be one?" Yeah, the assumption... you know, but it's not an assumption. Oh, not the assumption, no, no, no. The other one, but the wrap mortgage. Yeah, the wrap-around. So those, here's what that is, okay? So you come to me, and I've got... I've got a house that I bought in at the bottom of the interest rates, and I've got a 2.8 interest rate, and you come in and go, "Look, man, I know you got some equity. I'll pay you for that, but let me take over your mortgage payments." Yeah, all you really want is your equity and your mortgage payment off your plate, and I want your tiny, super-low interest rate. It's a win-win. And it would be, but for the fact that that's not the whole story. Yeah, the rest of the story is: you and I just got married, right? I just gave you my credit. I loaned you my credit, so that my credit is dependent upon you making that payment. And if I go turn around to buy another property, that debt-to-income ratio is messed up because that money is still really primarily my responsibility. --- Page 9 --- Insurance gets complicated. You lose your... if you own my house, I've... you know, the homestead's changed because you're probably not living there; you're an investor, you're going to put a tenant in the property. Taxes are going to double. And I've seen somebody do one of these; they came to me after the fact, and they had cut it so close that when the property taxes doubled, she was losing money. And she sold her house, and she's still having to pay for it. It was a wreck. And I'm like, "Well, and is there insurance on it?" Craig Paulus: Well, and they'll... I've seen some of these contracts, right? Because I do receive them on the regular, and it'll have a clause in there that's like, "Oh, if we don't make your mortgage payment effectively within 30 days, then you have the right to foreclose on us." What average human being in the U.S. knows how to foreclose on something? What laws are around it? And then, now, if you've got a tenant that's not paying, you've got to deal with the eviction laws. And so, you've got all these multiple layers of complications that you as a lay person just do not understand. So, you've gotten into hot water because your agent wanted to get a hot sale, get their commission, or you did it DIY, and nobody was there to advise you. And the other wrinkle they'll throw at you, and this is probably the biggest thing we didn't talk about, is on those assumptions: your mortgage—in my example—my mortgage has a "due-on-sale" clause, yes. So, if I transfer an interest in the property, which I do when I get it to you, the lender has a right to just go, "Okay, pay me the whole balance. We have to do on sale right now," because they're not in business with the other person. So, the investors have very cleverly come up with an answer for that concern. They say, "Well, actually, there's a federal law called the St. Germain Act that says if we do a trust, if you put it into a trust, we get around that." Well, what they aren't telling you is this: that's true, except that I have to remain the beneficiary of the trust, and that is not how these transactions are structured. On paper, everything that goes into the land records says I am, but when the dust settles, I'm supposed to assign my beneficial interest to the investor, to the buyer. And we've violated the St. Germain Act, just playing a shell game. And to me, you know, when you're obscuring what you're doing, you're not doing something right. Of course, don't do that. Cameron Walker: Yep. Absolutely. So, we run into that, but it kind of tied it back into what you were talking about with title insurance. A lot of people feel like, "Oh, I don't need title insurance because there's such a low percentage of claims on those." It's like, "Well, that's just because the attorneys are doing their job." You never want to call in on your insurance, whether it's your life insurance, your homeowners, your car, or your title. So, if the attorney is doing their job correctly, you aren't going to—more than likely you aren't going to have to use it. And it's a low, low cost compared to the potential loss you have. Craig Paulus: It is. I mean, it's the cheapest insurance you can get. You pay for it once, and here in Huntsville, if you use the standard contract, the HAR contract, it's split 50/50, and it covers you forever. And it covers the living trust you might do in your estate planning. And if you get the enhanced policy, which is default in Huntsville, it increases by 10 percent per year in the face value up to 150 because your property is hopefully increasing in value. But the... you know, title --- Page 10 --- claims are going up because of the rise in, you know, impersonation fraud and other fraud. And the claims go up when the market is down. Yeah. So, when lenders go to foreclose and they look at the records, that's when you get kind of an outsider looking in—these foreclosure attorneys going, "Do I really want to advertise this and go to the foreclosure sale and then, you know, push somebody out of the property, eject them from a property? Or can I just write a letter and go, 'Hey, I don't have good title'?" And boom, my money comes back. That's when claims go up—is when the foreclosures go up. Sure, makes sense. Cameron Walker: Absolutely. And so, you actually tangentially touched on something there about foreclosures, and early on we were talking about right of redemptions. A little different in Alabama, too. So, let's touch on that, too. Craig Paulus: Oh, boy. Okay. So, I'll try to give you the synopsis. All right. Here we go. So, typically, in... if there is a foreclosure—you haven't made your payments—they'll advertise your name in the newspaper for a little while to give you notice and say, "Hey, we're going to sell this thing at the courthouse steps." Yeah. And normally, and in most other states, that sale is final. Okay. In Alabama, the former owner—certain people for a certain period of time—have a right to pay a certain amount of money, and they get the property back. Right. Okay. So, the certain people are the guy who owned it, his spouse, his children, his heirs, his judgment creditors, junior lienholders, and judgment creditors who become judgment creditors during the period of time. Right. The period of time can be... it's typically a year or six months, depending upon when the mortgage was executed and whether or not the property was a homestead. There's another wrinkle in there, and we won't go down that way at all. And the price that they have to pay is what was paid at the courthouse steps plus taxes, insurance, interest, and the value of permanent improvements. Sure. The value of those permanent improvements is where we start to argue. Because, did it really need new marble floors? Did it really need, uh, whatever... did it need a roof? Probably, probably. But did it... did it need, you know, totally made of solid gold? I don't know, you know? So, those are the arguments. But the point is, when an investor buys something at the courthouse steps for 100,000 dollars, and he puts 50,000 dollars in it and sells it for 250, somebody could buy it for 150. Yeah, right. They could for the bid price plus the taxes, insurance, value of permanent improvements—150—and then you're buying up. So, there's a risk. Yep. We mitigate that risk with—there's different techniques, indemnity bonds. The bonds don't always cover the buyer; they can cover the lender, right? So, borrow a lot of money when you do these, except the risk. Getting something from the seller says, "I'll pay you back," yeah, if it does get redeemed. Because redemptions are rare. Yeah. And that seller agreement to indemnify... Title insurance companies get nervous, right? Yeah. So, they get nervous about those things, so they want to vet the seller, make sure that they're financially secure. It's another form of self-insurance, right? And this is where, as a real estate agent/broker, it's not my job to make that decision for my clients. My job is to inform them of what the risks are, right? That way, they go in making an educated decision. But they are rolling the dice every time they go in and buy one of these foreclosures. And I'll say in the four years I've been selling real estate in Alabama, and the six previous in Virginia, I had zero people buy a foreclosure, because once you become --- Page 11 --- educated on it, the average person doesn't want to take on that risk. Well, I see a lot of people like to buy foreclosures, and in the 20-something years I've been doing this, I've also seen people do redemptions. Yeah, and the redemptions are... man, that's an ugly conversation I have with the client. And it's not as hot as it was, sure. You know, after the mortgage crisis, there were so many foreclosures, so many, there were investors running around. And there was a very active investor here in Huntsville who was buying rights of redemption and then going and doing a hold-up afterwards. They go, "Hey, I hope you love your new home, because it... here's your money. I want it now." And you just have to pay him off. Yeah, he was very active. And he hit somebody who had closed with us, and that guy was... that guy had all the facts, and he knew it, and he took the risks, and it didn't work out his way. So... Cameron Walker: Yeah. Well, that's, again, I don't make the decision for him, just educate him. Right. And I mean, I'll give him my opinion, but at the end of the day, it's my opinion, and I'm not stroking the check borrowing the money. So, that's really important, that clients go into it informed. So, last thing I want to touch on in this area, because it is relevant to these other discussions, is what happens with earnest money in Alabama, because this is... if you do go under contract and you do run into an issue of either non-proper disclosure or maybe it was properly disclosed by Alabama law but you ran into a problem down the road, what happens to that earnest money? Craig Paulus: Well, there's a lot of misunderstandings. But like I said at the beginning, a deal's a deal, right? So, and there can be reasonable people who differ on whether or not a deal has been broken. So, suppose there's... it's usually a condition of the property thing, right? Or with something disclosed and say, "Hey, I'm not buying this thing." And a lot of people, buyers from other states, I guess they think that it's kind of my "walk-away money," yeah, and they say, "Hey, look, you just keep the earnest money, I'm out." That's not it, because remember, a deal's a deal. Yeah. I agreed to sell my house for 350,000 dollars. I want 350,000 dollars—that's the deal. And if you make me go sell it to somebody else for 300, I'm still entitled to 350. I'll get the 300 from them, but you owe me 50,000. And this thousand dollars earnest money ain't gonna cut it. Yeah. So, it is not your walk-away money; it is good faith money, just to show I got some. All right? And we hold that money, and we will, if there's a dispute that kicks up, we'll interpret it to the courts and let them decide who it belongs to. But, you know, if as a seller, if somebody backs out on a deal and we feel like they breached the contract, you know, we say, "Look, they can't have their cake and eat it and say, 'Give me the earnest money' or 'You can't sell the house to somebody else.'" No, you have a duty to mitigate your damages, right? Say, in my example, you bargained for 350; go try to sell it for more. Because to succeed in a breach of contract action, you have to prove there was a contract, it was breached, and it caused damages, right? So, you had a contract, it was breached, but if you go sell it to somebody else for more than 350, you don't really have any damages. You get that earnest money back. Yep. So, you can't go sell the house for a dollar to be spiteful. No. You have... the way I explain it to people—and correct me if I'm wrong here—is let's say with earnest money, everything goes smooth: we go to closing, it goes towards your closing costs, your down payment, or if you're due more back, then it's refunded to --- Page 12 --- you. Or both parties agree to separate: they decide who gets that, mutual release is signed, says seller or buyer gets X amount. Or, third, if they can't agree and they didn't go to closing, then it does go to the courts. Craig Paulus: Right. I mean, ultimately, we're reluctant to do that. We try to push people... because I get to use the money to pay the court costs to... and the attorney to file it. So, I got, you know... and that costs about a thousand dollars. So, if you give me a thousand earnest money, you can fight over the 20 bucks that's left over. Cameron Walker: Right, exactly. There's nothing left. So, we encourage people to just... sometimes it takes a little time for people to cool off. And sometimes people, it's on principle, you know? And this is one of those areas where agent reputation comes in a lot. So, people know through my YouTube channel I've reached a lot of agents locally, as well as the clients who move here that work with me. And sometimes I walk through the door, whether it's new construction or resale, and now, while I have not worked with that other agent, they're aware of me through my videos, and they're aware of what I know and don't know. Right? So, they have an assumption that I've already educated my client, because I've literally been doing that for four years on the internet. And so, they're going to play it more straight with me because they know I know my stuff and they know that my client knows their stuff, because I educated them. Versus sometimes I know who's on the other side, like, "Oh, even my client's going to... but hey, you know, if we get into any kind of contention here, we may be in a deeper hole than we should be." So, let's take that into account when we build our offer. I'm not saying "don't buy the house"—the house is the house regardless of whose name's on the sign—but here's some additional challenges we may run into; we need to dot our i's a little more tightly, cross our t's a little more level. Craig Paulus: Well, yeah. And that's where, you know, I said it before, I'll say it over and over and over: that local expertise is huge. Yes. Because it's not just about the other agents and who knows what; it's the builder reputation, the qualities of the home, you know, just the... I mean, real estate... oh, real estate's like kissing: it's all about location, location, location. You need to know what you're doing. Okay? So, if you... you need to know that in this neighborhood, there are transfer fees; in this neighborhood, there's an HOA fee that's expensive, but that doesn't even include the pool—you've got to pay separately for that, which is a nice way of saying it's also optional. So, if you don't want to go to the pool... but those are the things that, you know, local expertise is where customers need that, clients need that. Cameron Walker: Well, cool. Amen. I appreciate your time today. We've covered a lot of the things people wouldn't know coming in that they really do need to know. So, thanks for coming on, talking about these ones. If anybody needs to reach Craig, his information, how to get his office, will be in the video description. Thanks so much. Thanks for watching or listening. You can always catch us on audio wherever you get your podcast, be it Spotify, Apple, or you can --- Page 13 --- watch our video on YouTube. We really appreciate you guys being here. Ask that you subscribe so we can keep you informed of everything going on here in Huntsville.