Archive for August, 2008

How to Make Money from Foreclosures

Published on August 21, 2008 in Uncategorized. 0 Comments

Foreclosures work differently from state to state, but the basics are pretty standard: When a homeowner starts missing mortgage payments, the bank gives notice to the homeowner and to the local government that the loan is delinquent. After a time, the bank is allowed to commence a repossession process that can result in the house being auctioned off to the highest bidder. The process can take weeks or months to play out; anywhere along the way, a homeowner retains the power make good with the bank. Frequently, homeowners in trouble with the banks are willing to sell their homes to private buyers at a discount to market value in order to preserve what little equity they have left.

Let’s backtrack just a little bit in order to examine what happens just before a property goes to foreclosure: Whenever someone purchases a house, the normally obtain a mortgage with a small down payment for the price the house. The mortgage is secured by the property, and if the buyer defaults or is unable to payback the loan, the bank (or lender) has the right to foreclose and take ownership of the house. At this point, most banks sell the house to recover their loan principle. Banks do not like doing this because it costs them money and they are not equipped to really sell houses.

This means that the savvy real estate investor can take advantage of the foreclosure proceedings by closing a deal at the stage before which is called pre-foreclosure.

Pre-foreclosure is the period of time just before the bank repossesses the house in question. During this period, the bank is filing the required paperwork to become the lawful owner of the house. Each state has its own laws regarding foreclosure, and the pre-foreclosure period can be as short as 21 days in Texas, to as long as 3 months in California. At the end of the pre-foreclosure period, the house may go up on auction at the “courthouse steps,” where many investors go looking for a good valued investment property.

To invest in a pre-foreclosure property, investors must get the property before the public auction or the bank actually takes title to the house. This point is the perfect time to negotiate with the homeowner, and structuring a lucrative deal without having to compete with other investors. Without having to bid against other investors, pre-foreclosure specialists are often able to acquire properties far below market prices.

There are techniques, tips and workarounds which I cover in my courses and my workshops and which every real estate investor really needs to know. At this stage though it is sufficient to point out that the successful real estate investor is good at making a rapid assessment of a deal’s value and then getting and getting out in the shortest possible time with the greatest amount of money.

It really is that simple, if you know how. 

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How Mortgage Foreclosures Work

Published on August 20, 2008 in Uncategorized. 0 Comments

If you want to buy a foreclosure property at a bargain below-market price, you need to know how foreclosures work.

STEP 1—LENDER RECORDS A NOTICE OF DEFAULT OR FILES A JUDICIAL LAWSUIT AGAINST THE DEFAULTING HOMEOWNER
The first step in a foreclosure on a mortgage, deed of trust, mechanics’ lien, income tax lien, judgment lien or homeowner’s association lien is to record a notice of default or file a judicial lawsuit against the defaulting homeowner. Exact procedures vary in each state.
The homeowner is given a reinstatement period in which he or she can attempt to cure the default. The speed of the actual foreclosure sale varies widely by state law. It can be as short as 21 days in Texas to as long as six to 12 months in a few states. Three or four months is typical for most states.

During this first step of the foreclosure procedure, the homeowner is free to sell or refinance the property. This period can be a great buying opportunity for purchasers, but they should be aware that they will be buying the home subject to all existing encumbrances on the property.

STEP 2—THE FORECLOSURE AUCTION
The next step occurs when the reinstatement period ends. Then the foreclosure sale takes place.

Depending on the type of mortgage, deed of trust or lien being foreclosed, the foreclosure auction might be conducted by a judge, sheriff, court referee or independent trustee. Foreclosure auction locations include courtrooms, the steps of city hall or even in front of the property.

If there are no bidders at the auction, the foreclosing lender or lien holder usually submits a credit bid for the amount owed, plus legal fees and other foreclosure charges, and obtains title to the property.

Bidders at foreclosure auctions should be aware they are buying the property subject to any prior existing liens, such as a first mortgage if the sale is being conducted by the second mortgage lender.

If there is a recorded Internal Revenue Service lien on the property, the IRS has an automatic four-month redemption period after the sale during which it can buy the property from the high bidder for the amount paid.

STEP 3—BUY AFTER THE FORECLOSURE AUCTION
If you don’t have enough cash to buy at the foreclosure auction, you’re not out of luck. You might still get a bargain wholesale purchase price.

If there were no bidders at the foreclosure sale, the foreclosing lender then would take ownership the property, wiping out any junior liens. Now is the time to reach the lender and bargain.

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Ways to Stop Foreclosure

Published on August 19, 2008 in Uncategorized. 0 Comments

When the lender files a Notice of Default, your options are limited. That is why it is better for you to call your lender before falling behind on your payments, because lenders are often reluctant to work out repayment schedules after foreclosure proceedings have been commenced.

You will be given a certain time period to bring the payments current, pay the costs of filing the foreclosure and stop the foreclosure. This is called reinstatement of your loan. If you cannot make up the missed payments and the lender will not work with you, here are a few other options to stop foreclosure:

    * Sell Your Home.
      Interview real estate agents to get an opinion of market value and average DOM to sell your home. You might be tempted to hire a discount broker, but many sellers feel they need the exposure and marketing that full-service brokers offer. Compare both to determine which best meets your needs and time frame.

    * Consider a Short Sale.
      If your home is worth less than the amount you owe, you might be a candidate for a short sale. A short sale affects credit but it’s not as bad as a foreclosure. You or your agent will need to negotiate with your lender to find out if the lender will cooperate on a short sale. This is called a pre-foreclosure redeemed.

    * Sign a Deed-in-Lieu of Foreclosure
      This is called deeding the home back to the lender. The homeowner give the lender a properly prepared and notarized deed, and the lender forgives the mortgage, effectively canceling the foreclosure action. Lenders tell me that deeds-in-lieu of foreclosure affect credit the same as a foreclosure.

Whatever you decide you should usually not make a single move before speaking to a foreclosure expert. Because they deal in this area day in day out they have a much clearer understanding of the foreclosure process and the way it can be stopped or ways you can be helped to move on from a home that’s dragging you down than any real estate agent or lawyer.

Real estate investors who are actively involved in the foreclosure market have the right connections, motivation and knowledge that’s needed to make sure things get done right, move fast and stay legal.

Facing foreclosure is never a pleasant thing to have to go through but, provided you have a real estate investor who is adept at foreclosures by your side, it can be a lot less painless than many would have you believe. 

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The Global Real Estate Investment Market Depends on Foreclosures

Published on August 18, 2008 in Uncategorized. 0 Comments

What I will explain here seems, at first, to fly against the face of logic but it has been born out of my own very direct experience of the foreclosure market and the real estate business and it actually represents the way these things work far more closely than market analysts would have you believe.

The global real estate investment market depends on foreclosures because it is foreclosures that are responsible for releasing properties from a kind of limbo where they are locked in a ‘dead money’ debt-ridden zone and generating cash for investors, lenders and even existing home owners.

Under these conditions the real estate market begins to see movement in areas which used to be inert and what’s more the influx of these foreclosed properties back into the market regenerates local communities at a micro-economic level as these houses then need to be renovated, which means that their new owners spend money with local DIY stores, local house-fixing experts, furnishing stores, furniture shops and even garden supply centers.

The effect this has on the economy micro-economically is matched by the macro-economic impact of continued real estate buying and selling through foreclosures. As a matter of fact foreclosures seem to be delivering value, sales and investment as well as profits at a time when the traditional channels of selling property seem to experience either a freeze or a severe slow down.

It is for exactly this reason that the global real estate market depends so much on foreclosures. When I explain this in my workshops I also explain the vital role played by real estate investors active in the foreclosure market.

While the rest of the real estate industry seems to slow down or stop and the economy itself is then affected the foreclosures market presents us with opportunities which, when taken, end up in real estate deals that generate wealth for many of those involved in them and then wealth for the community as a whole.

As a real estate investor very much active in the foreclosure front I cover many of the necessary elements in my courses which enable real estate investors to recognize a good deal, move fast to close it and put in place the kind of set up that generates good value for everybody. This way, while making money, they also do a lot of good to the local economy as well as positively affecting the larger economic picture and so help this great country of ours continue to set an example to the rest of the world. 

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Why Do Foreclosures Happen?

Published on August 15, 2008 in Uncategorized. 0 Comments

So much attention has been given lately to the number of foreclosures that we should expect to see in the United States over the coming years that few people have stopped to consider why exactly foreclosures happen in the first place.

I am going to be a little glib here and say there are about as many reasons why foreclosures happen as there are home owners defaulting on their loans but that would not help answer the question so I am going to take a more general view and see if the reasons a foreclosure happens can be fitted into different categories.

So let’s take things from the beginning and see if we can form a good picture. The obvious answer of course is money, or rather the lack of money. But the reason a home owner who has attained the Great American Dream of buying his own home can no longer afford it is a lot more complicated.

Broadly speaking the reasons area: 1. Ill-Health. A change in the health of the family, an accident, serious illness or anything similar can so adversely affect the finances of a family that they then begin to go into a tailspin and that can very easily lead to missed mortgage payments and foreclosure.

2. Loss of a job. This is common and it only leads to foreclosure if it is so catastrophic that it places the home owner in a new income bracket where he is unable to get another job equal in pay to the one he has lost.

3. Bad finance management. This is more serious than it may at first seem and it does not reflect just on the home owner. Quite a few home owners took advantage of adjustable rate mortgages (ARMs) which allowed them to buy a home and borrow money at very advantageous rates which, however, after six months or a year began to sky rocket and the rest is history. Here the fault often lies with lenders who make it difficult for borrowers to understand what they are getting into and, which, have over the past year been found guilty of using high-pressure tactics to sell mortgages at any costs.

These three reasons, collectively account for more than 90% of the foreclosure cases that we see come into the market.

It is evident from them that foreclosures are never a cut and dried affair of someone being unable to make payments and left to themselves, they never really manage to get out of this morass. It is exactly at this point that the savvy real estate investor steps in and acts as a catalyst in a situation that often finds him creating a win-win scenario for everybody and that is what is satisfying about being involved in the foreclosure market.

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Is a Recession Going to Increase Foreclosures and is that a Bad Thing?

Published on August 14, 2008 in Uncategorized. 0 Comments

We have got to a stage of our global economy where it looks likely that there will be a recession. While no one really wants to have to face one and while some economists still argue that what will happen will be a sever economic slow down rather than a full-blown recession, I take the view that they are hair-splitting.

Whichever happens the results will be largely the same: tough times for the economy and for everyone involved in the service industry and that includes real estate. Which means that it will be harder for people to get credit (and here is already evidence of this) it will be harder for them to get mortgages and it will be harder for them to meet their payment commitments.

All of this brings us around to the ‘F’ word. Will foreclosures go up or down? Logically, you expect them to increase but logic and the economy are not always synonymous and a tough financial market may force many mortgage providers to do what they have not been doing up to date which is negotiate with some of their borrowers to arrange for better terms in repayments so they do not go into default.

This is not the same as granting a license for everyone to renegotiate their payments and some defaults will inevitably happen because this is exactly how our economic model has been set up. But it does mean that there will have to be a dialogue and a carefully worked out set of criteria to help those who may just need that little bit of a helping hand.

Naturally a recession puts everyone under pressure and foreclosures present real estate investors with a golden opportunity to set up the perfect conditions which will benefit not just themselves and the lending institution but also new home buyers who may not be able to afford to get on the housing ladder at today’s exorbitant housing prices and tough lending conditions.

An increase in foreclosures, as long as it is a natural reflection of the real estate system rather than an abnormally high number brought about by indiscriminate lending practices, is just the ‘shot in the arm’ that the economy needs in order to start reviving.

It releases ‘frozen’ properties back into the market, it helps to create new future spenders as people buy properties which then need to be upgraded, furnished and then perhaps sold on as they move on to better and bigger things and it allows the economy to start moving forward again.

An economic recession, or a slow down, is just another set of opportunities for savvy real estate investors to help create the conditions that generate wealth for everyone concerned and that is, surely, a great thing.
 

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