HomeVestors
Have you seen this gaudy yellow billboard like in your neighborhood? It could be a sign you’re on the radar of a HomeVestors franchise. The company touts itself as ‘America’s #1 Home Buyer’ but is actually a network of over a thousand house flippers, run through an elaborate franchise system, ultimately owned by a private equity firm. HomeVestors collects a percentage of revenues and monthly fees, which can put financial pressure on franchisees to perform. Which can lead to situations like this:
One HomeVestors franchisee falsely claimed to a 72-year-old woman suffering from a hoarding problem that city code enforcement officers would take her house, according to court documents. An Arizona woman said in an interview that she was forced to live in her truck after trying unsuccessfully to cancel the sale of her home. One court case documented the plight of an elderly man in Florida who was told if he sold his condo he could continue living there temporarily. But he spent his final days alive waiting to be evicted when — after the contract was signed — the franchise owner informed him the homeowners association rules didn’t allow it.
Grim! Let’s rewind a little and discuss the HomeVestors ‘sales’ strategy. While the company charges for ‘centralized marketing’ services - running Facebook ads, billboards, etc - most independent owners are expected to do their own on-the-ground sales. This often means combing neighborhoods looking for signs a homeowner may need to sell. What kind of signs?
The company’s training manual teaches franchisees to build relationships with those who interact with people in difficult situations: nursing home administrators, probate officers, divorce lawyers. It also instructs them to comb neighborhoods for clues of distress — water shutoff notices, police tape, boarded-up windows, burn scars — and pounce on signs of desperation. If a family’s belongings are on the curb, for example, the directive is clear: “Quickly pursue the property where the trash pile indicates eviction.”
Yikes! The HomeVestors model encourages flippers to pounce on unsuspecting homeowners in financial or emotional distress and offer them a quick, ‘cash’ sale at a steep discount. Even the company’s innocuous billboards and ads are targeted with pain in mind:
You’ll [HomeVestors’ mascot Ug] him on ads near homes slammed by hurricanes or charred by wildfires. He’s on mailers blanketing ZIP codes with a high concentration of homeowners who have lots of equity. He’s on postcards sent to people that public records indicate have recently divorced or had a death in the family. To family members trying to navigate probate, HomeVestors promises: “We can help.”
[…]
In an interview, a former employee of the ad agency hired by HomeVestors recalled discussions about how to serve online ads to people in the vicinity of nursing homes and rehabilitation hospitals. The goal was to catch families who needed to sell assets so Medicaid would pay their nursing home costs.
Intense pressure to close deals and the vast array of tools available to a coordinated, well-funded organization give flippers an advantage over distressed, or sometimes mentally compromised seniors:
In 2020, a 78-year-old man in Atlanta was convinced to sign a sales contract for $97,000, about half what it later sold for. Eight weeks later, a cognitive exam showed he was unable to write a sentence or name the year, season, date or month…
[…]
That same year, a 77-year-old woman in Glendale, Arizona, who could no longer manage her finances signed a contract to sell her house for under half what it was worth, according to court documents.
[…]
And in 2021, the lawyer for an elderly man in California accused a franchisee of taking advantage of the man’s “weakness of mind due to age” to convince him to sell his house for $175,000 below market value.
The company insists these are isolated incidents, touting an internal '96% satisfaction rate’ which means four in every hundred homes it buys are under questionable circumstances, but sure, whatever. It’s no accident nearly a third of the homes purchased are from seniors over the age of 65.
When some of the unhappy four percent realize they’ve been hoodwinked and try to fight back, flippers pursue aggressive lawsuits, ‘cloud’ home titles by attaching contracts of sale, and secure liens on properties. Often, the homeowners are unable to fight these claims, even when they’ve been duped into signing documents.
Perhaps, hidden deep inside the HomeVestors business model, there is a grain of legitimacy. Maybe the country needs a large company with nationwide reach to step in and offer quick cash deals to distressed homeowners trying to dispose of assets to qualify for Medicaid (grim) or to sell an inherited home they can’t maintain or repair. Maybe.
The problem with house flipping is it’s zero sum - every dollar a HomeVestors franchisee extracts from a poor elderly client adds to the bottom line. They aren’t helping distressed sellers because why would they? There’s no money in that! Many sellers may not even consider themselves distressed before a HomeVestors vulture shows up on their doorstep making promises and shoving a contract of sale in their face.
Will the company clean up its act? It says it has - in fact the CEO is stepping down this summer, though he claims it’s not due to the ProPublica article or the CFPB’s sudden interest. Maybe he’s right - maybe HomeVestors will tighten up its rules and stop pushing aggressive tactics in its training materials. Maybe it will stop bombarding infirm seniors with lawsuits or cruising neighborhoods looking for piles of belongings on the lawn. Given its track record, deep reflection on the morality of its business model seems unlikely.
Realtors
Maybe you’re not in unfortunate circumstances, but want to sell your home through normal channels. What are your options? You’ve got one, maybe two. The first is to hire a realtor and sell through them, like the vast majority of sellers. The second is to list your home ‘for sale by owner’ which dramatically decreases its visibility to the public. Why? You can’t get it on MLS, the system realtors, buyers, and sellers use to track what’s on the market.
Two class action lawsuits ask: is the MLS legal?
The plaintiffs, representing a large swath of home sellers around the country, are accusing the National Association of Realtors and some of the country's largest brokerages of using MLS rules to charge exorbitant fees and unfairly prop up agent commissions.
In order to use MLS, realtors agree to a fee-sharing agreement - the buyer and seller’s agent split a commission typically between three and six percent of the sale price, paid by the seller. Why does the seller pay the buyer’s agent? Who knows! That’s just how we do it here.
Really though, the process was designed to shift costs to the seller to make it easier for people to buy homes. If you knew you’d have to cut your realtor a substantial check when you bought a home, it might make you think twice before upgrading to a bigger McMansion. Instead, make the person who’s just received a giant check pay it. Simple as.
The lawsuits argue that MLS services - actually a conglomeration of around 600 local listing databases around the US - requiring sellers to pay fees is anticompetitive. If sellers were ‘decoupled’ from paying buyer agent fees, realtors would be encouraged to be more competitive with their fees and services:
"They not only have to pay a buyer's agent commission, but they can't negotiate that commission," Brobeck said of sellers. "Because if they lower that commission, research has shown that the house is less likely to be shown by the buyer-agents." One study found that properties listed with sub-2.5% commission rates were 5% less likely to sell and took 12% longer to sell.
Under the current system, buyer agents hold the cards - they can steer their clients away from homes with lower commissions, even though the seller ultimately pays them. Not a great system when the person with the most power over whether your home will sell is actively working against you!
The goal of the lawsuits is to decouple commissions, meaning buyers and sellers pay their agents individually. Proponents of the changes say they could save consumers as much as $20 to $30 billion dollars a year, which explains why every hotel I stay in seems to be hosting lavish realtor conventions, all the time. There’s no guarantee either lawsuit will win, since the US is stubbornly resistant to any change that impacts the profits of superfluous middlemen.
Softbank
It’s hard to think of a wilder investment rollercoaster than the repeated rise and fall of Softbank’s fortunes. CEO Masayoshi Son is known for his big bets, a few of which have paid out handsomely enough to keep his shop running despite a dismal recent track record.
The guy who invested billions in Adam Neumann based on a half hour conversation could perhaps be fairly characterized as susceptible to charismatic people telling him what he wants to hear.
With that in mind, it makes perfect sense the latest huckster to convince Son of his investing bona fides would be a chatbot:
Son said he has been focusing on making his own inventions in artificial intelligence after soul-searching late last year. “There were times when I felt a real emptiness,” Son said. “I had a big cry. The tears didn’t stop for days.”
[…]
He said he used ChatGPT every day for brainstorming and has come up with more than 600 ideas. He described one lengthy exchange—at around 3 to 4 in the morning—in which he pitched an idea and then answered the AI chatbot as it raised objections.
“After we repeated this several dozen times, I really felt great because my idea was praised as feasible and wonderful,” he said.
Ahhhhhh, yes. Of course. One of the world’s most brazen billionaires decided the future of his massive investment portfolio based on a bunch of conversations with an LLM literally designed to respond affirmatively to his ramblings. I love it.
Fortunately for Son, markets are still obsessed with AI and everything is very, very dumb and Softbank’s share price is the highest it’s been since November, despite its paper losses.
It is probably not a good thing the VC filter bubble has become further inflated by AI toys like ChatGPT, because if anything the world of investors needs more dissenting voices, not less. Can’t wait to see which AI startups Softbank piles astonishing amounts of money into based off Son’s late night meanderings.
In related news, one of this newsletter’s favorite ill-fated Son-backed ventures shut its doors last month. RIP Zume, the pizza robot-cum-packaging startup. We hardly knew ye, though ye blew through almost half a billion dollars chasing an idyllic, robot-powered future. Someone should ask ChatGPT what it thinks about an AI pizza business.
The Supreme Court
Mercifully, the Court issued its last opinions of this term, and can go on its three month vacation presumably via private jet to private islands belonging to its benefactors. Unfortunately, the miscreants running our legal system have issued not one but two sham decisions, which we should briefly address in these pages.
The shammiest of the two was 303 Creative v. Elenis, concerning a web designer in Colorado named Lorie Smith who sought an exemption from the state’s anti-discrimination laws because she didn’t want to build wedding sites for gay couples. A few key facts in the case:
Lorie Smith’s design company did not make wedding websites
Also, no one ever asked her company to make a wedding website, because
The gay couple Lorie Smith cited in her case does not exist
You might be saying - huh? what? The plaintiff in a case the Supreme Court found in favor of completely fabricated the underlying facts of her claim? Yup!
Yes, that was his name, phone number, email address, and website on the inquiry form. But he never sent this form, he said, and at the time it was sent, he was married to a woman. “If somebody’s pulled my information, as some kind of supporting information or documentation, somebody’s falsified that,” Stewart explained.
“I wouldn’t want anybody to … make me a wedding website?” he continued, sounding a bit puzzled but good-natured about the whole thing. “I’m married, I have a child—I’m not really sure where that came from? But somebody’s using false information in a Supreme Court filing document.”
A journalist - for the first time in the seven years since the case was filed - thought to reach out to the alleged client of 303 Creative and found out that Lorie Smith had taken his contact information from somewhere, entered it into a (fake) form on her (nonexistent) wedding design website and asked for a gay cake (he’s not gay).
None of this dissuaded the Court, which had undoubtedly made up its mind well before the news broke, and they found that Lorie Smith’s right to be a bigot towards imaginary gay clients was, in fact, enshrined in the Constitution. How nice for her. Will anything happen to her and her attorneys for lying in court documents? Probably not!
The second decision the conservative Supremes conjured out of thin air concerns the Biden administration’s attempts at student loan forgiveness. Here is a succinct summary:
The Supreme Court’s decision in Biden v. Nebraska, the one canceling President Joe Biden’s student loan forgiveness program, is complete and utter nonsense. It rewrites a federal law which explicitly authorizes the loan forgiveness program, and it relies on a fake legal doctrine known as “major questions” which has no basis in any law or any provision of the Constitution.
In 2003 Congress passed the Heroes Act (in response to the country’s endless appetite for war post-9/11) which gave the Department of Education wide powers to ‘waive or modify’ provisions of student financial aid provisions in the event on a national emergency - which pretty much everyone agrees the pandemic was.
How did the Roberts Court decide the Dept of Ed had violated this wide mandate? Redefining words!
The chief’s primary attack on the Heroes Act’s statutory language is that he reads the word “modify” too narrowly to permit these changes. As he writes, the word “modify” “carries ‘a connotation of increment or limitation,’ and must be read to mean ‘to change moderately or in minor fashion.’” And then he faults the Biden administration for doing too much, attempting to “transform” student loan obligations instead of merely making “modest adjustments.”
He also leans on the major questions doctrine, a made-up conservative argument that judges should be able to decide how governmental agencies can enforce laws and regulations, a cynical political tool which we’ve previously discussed.
The Vox piece thoroughly debunks the unserious legal premises used to toss out student loan forgiveness which would help millions of borrowers. One last point worth noting is that - much like 303 Creative - the loan servicer providing the basis for standing for the case to be heard at all wanted nothing to do with it:
Internal documents from the company at the heart of the Supreme Court case on student debt cancellation reinforce that it did not file, did not solicit, and indeed had nothing to do with the case at all.
The case, brought by the Missouri AG and a rotating cast of the usual right-wing legal ghouls, argued that MOHELA, Missouri’s student loan servicer, would be harmed by the debt cancellation. This isn’t true either - the servicer would receive fees for the cancelled loans, and stood to make more money after cancellation than before.
Like nearly all conservative legal efforts, the goal is to harm those the people funding the movement don’t like. Punishing people out of spite - or perhaps to help keep wages low by making debt-laden college grads more desperate - with made-up legal arguments upheld by a court so unserious it found in favor of a two plaintiffs claiming imaginary harms. It’s a shame our country is effectively run by a small, unelected cadre of its most spiteful and malevolent assholes.
Short Cons
WSJ - “Investigators helping prosecute impeachment charges against Texas Attorney General Ken Paxton have expanded their probe to examine a property-buying spree that began after he came under federal investigation for alleged abuse of his office, according to people familiar with the matter.”
Daily Beast - “A New Mexico woman is blaming an internet-famous contact lens start-up for the “total loss” of her right eye, accusing the company—which has faced an avalanche of consumer complaints—of delivering a subpar, ill-fitting product that left her half-blind after less than 10 wears.”
Reuters - “New York's attorney general on Wednesday accused nursing home operator Centers Health Care and its owners of stealing $83 million in government funds while understaffing its facilities, resulting in widespread neglect, illness and death among residents.”
CNN - “The Justice Department announced a sweeping enforcement effort Wednesday aimed at health care, telemedicine and illegal prescription schemes totaling of $2.5 billion in alleged fraud.”
NBC News - “Federal authorities are reviewing complaints filed against Mario Nawfal, an entrepreneur who has emerged in recent months as one of Twitter’s biggest audio stars, according to two people who said they spoke with FBI and SEC officials this week.”
CNBC - “Publishers Clearing House will refund $18.5 million to customers and make changes to its online business practices as part of a settlement reached with the Federal Trade Commission, the agency said Monday.”
Rest of World - “Meta has struggled with moderation in conflict zones before, most notably in Myanmar and Sri Lanka. The conflict in Tigray has raised new questions about how Facebook and other social media platforms handle hate speech in marginalized languages, and other languages less dominant than English.”
NYT - “But the weathered photo of Officer Venable had not actually spent decades in the mayor’s wallet. It had been created by employees in the mayor’s office in the days after Mr. Adams claimed to have been carrying it in his wallet.”
Know someone thinking of becoming a house flipper, targeting the elderly and infirm? Send them this newsletter!
The 303 Creative v. Elenis decision blows... my... mind. I have no comprehension how there was ever a basis for this when literally nothing happened and basic facts were fabricated. What a fucking sham court we have.