Due Diligence

Due to experience I have had in the legal arena, not as an attorney, but as a participant, I wanted to share some information on doing due diligence when doing real estate deals.

I was involved a couple years ago in a deal where the presenter ended up being a shady character and had stolen thousands of dollars from investors he had been working with. I didn't know it at the time of course, but by doing business with this individual, it compromised my financial safety, as well as that of some of my partners and personal contacts. Therefore, I have done extensive research and worked with state authorities on how to do this due diligence.

In a variety of situations, there will be times when you need to check on people with whom you are doing business. I have had experience with mortgage brokers, agents, hard money lenders, and private investors, and I have needed to know a little bit about their backgrounds.

Keeping in mind that it is usually not feasible to do full background checks on everyone you do business with, if you are in a particularly important deal, or a high dollar deal, you may want to take some extra precautions when dealing with people you don't know.

The first place you should start is your State's division of commerce. They will usually have a division for securities, as well as a division for real estate. Usually a part of their mission is to protect investors and participants in the market. By touching base with them, they can tell you if the participants in your project have had any shady dealings in the past, or if there are any outstanding problems. They can also tell you if there are any other ways to research backgrounds or obtain public records on individuals. And best of all, this information is usually free. Just look online at your State's website, or do a search for "department of commerce" for your state.

There are also multiple paid services you can use, but I would recommend using this avenue first, since we always try to keep our costs down. It also is a good idea to have these contact and people involved in your power team, just for when you need help in any aspect of your business.