There has been a firestorm behind the scenes on the proposed legislation HR 1728.  To recap:  This is a bill that has already been passed by the House and is now being heard in committee at the Senate.  The House quickly and overwhelmingly passed it.

People love it, hate it, or don’t know about it.  Not too many people are ambivalent about it, after they learn the real facts about it.  On the surface of it, this Bill does good things - cuts down on predatory lending.  

But it’s more than the surface, it also lumps anyone who sells a property more than once every 36 months into the same category.  You can only finance with 30 year fully amortizing loans, have to provide stacks of incomprehensible “information” and can’t do second loans, balloons, or any of the mainstays of creative real estate investing. 

It also has a section tacked on that allows the govt to seize any multi-unit (ie, apartment) building that is in default or risk of default.  And, in committee reports and the brief that accompanies the Bill, goes on to state that the purpose is to convert to low income housing.

OK, that’s where the Bill is.  And it’s now being discussed, blogged about, commented about by knowledgeable, sophisticated real estate investors and some people who don’t have a clue.  

This is crowdsourcing at its worst.  Crowdsourcing is a cool term to describe getting a bunch of people together to work together to design, fix or otherwise do some kind of project.  The Internet makes that possible.  In a lot of cases, it’s a brilliant tool.  

The problem that occurs is like my friend Megan says, “Everyone’s John Wayne behind a keyboard.”  They also have the same ring of authority in whatever they talk about.  

So, the guy I know who has done at least 100 property deals is shouted down by the fast typist who has never done anything.  I read a comment where one guy posted, “Well, that’s what investors should have been doing anyway.”  What?  Are you crazy?  I wanted to wade into the fray but then realized I’d just be one more voice in a forum where people are all “equal.”  

When it comes to opinions, yes, we all are entitled to our opinion.  But when it comes to understanding something a little more concrete, like how law historically works, bills are written, passed and implemented, and how specific investment techniques are done, you need a little more than an opinion.

I had a comment at another one of my blogs that one real estate guru didn’t think it was a big deal.  Now, that’s a valid comment.  That’s because I know the guy referenced and I know he knows his stuff.  Of course there are at least 100 other real estate gurus who don’t agree.

Me?  I know that something like HR 1728 is going to pass.  And I know that the really sharp guys will see opportunity in this problem. In fact, the first guy to develop a system around the new law will make a fortune because he just lost all his competition.

The part I find more ominous, though, is how easily private property rights are trampled.  Or at least, threatened to be trampled.  They are going to take my apartment building away because they THINK I might default?  When you read the info behind that, you can see the discussion was about determining default risk based on the neighborhood (I’ve frequently invested in fringe areas, waiting for the change - so I’m at risk now?), what others in that same area have done (you’re judging me based on the guy down the street?) and whether the property is upside down (I know a lot of people who are upside down in real estate and still making payments).

That’s the part that is concerning me.  And my real fear is that hoorah created by the current crowdsourcing model for everything under the sun and where everyone who has an Internet connection and keyboard has an equal vote, is going to get this really wrong.  

And then one day we wake up and ask:  What happened to the America I used to know?  Answer?  It didn’t get outsourced.  It got crowdsourced.

Oh, and just for the record, I think HR 1728 is an example of bad law wrapped in a shiny wrapping of protecting those who can’t protect themselves.