Investing in Foreclosures For Beginners

by Lex Levinrad Copyright © 2008

If you are thinking about investing in foreclosures there are some key points for you to consider before you begin investing.

The first step for you to understand is how the foreclosure process works. The foreclosure process can be broken down into three key components.

Pre-Foreclosure Foreclosure Auction REO

 Pre-foreclosure

The first step in the foreclosure process is called pre-foreclosure. When a homeowner has not paid their mortgage for more than ninety days the bank that owns the mortgage on that property files what is called a “lis pendens” which means “suit pending” in Latin.

A “lis pendens” is a written public notice that a lawsuit has been filed concerning real estate. This notice is filed in the county public records against a piece of property. This notice is also often listed in the classified ad legal section of certain newspapers. Filing this public notice alerts any potential purchaser or lender that the title to this property is “clouded” or unclear.

When a property has a “clouded” title then the title is not “free and clear” which makes the property less attractive to potential buyers or lenders. In reality, once a “lis pendens” is filed, a property cannot be sold or refinanced without the buyer being fully aware of the fact that the “lis pendens” has been filed.  The only way to get rid of a “lis pendens” is through foreclosure which wipes out a “lis pendens”.

Once a lis pendens has been filed the property is considered to be in pre-foreclosure. If you subscribe to a public database like foreclosures.com, realtytrac.com and many other similar sites you can get access to the properties that are in pre-foreclosure. You can also get a list directly from your county clerk by visiting your county courthouse. In some counties these lists are even available online.

If you are investing in pre-foreclosures you are buying a house directly from the homeowner. This negotiation with the homeowner is usually done without the banks knowledge. If you are investing in pre-foreclosures you will need to negotiate directly with the homeowner about purchasing their house. Since the “lis pendens” filing is public knowledge investing in pre-foreclosures is very competitive.

If the house has no equity then you will need to negotiate a short sale with the bank. A short sale is where a bank agrees to take less than the full amount owed to them. This occurs when a buyer is only willing to purchase the property for less than the amount owed on the mortgage by the seller. In the case of a short sale the bank is aware of the process since you will need to negotiate with them. The department at the bank that is responsible for negotiating short sales is called “loss mitigation”.

There are numerous online sources of pre-foreclosure lists which make the barrier to entry in pre-foreclosure investing very minimal.  Anyone can become a pre-foreclosure investor simply buy purchasing a list of homeowners in foreclosure. Since the information is public record it can even be obtained for free by visiting your county courthouse.

For this reason, pre-foreclosure investing is fiercely competitive. Since there are so many potential pre-foreclosure investors, the homeowners in foreclosure are literally bombarded with offers to purchase their homes. This makes it difficult for investors to differentiate themselves from one another to the homeowner. Additionally there is often hostility and anger from the homeowner since they do not want to be bothered by “foreclosure sharks” or people that they perceive as trying to take advantage of their situation.

For the above reasons, pre-foreclosure investing is a difficult and competitive are of foreclosure investing. If the homeowner cannot do a loan modification or sell their house to an investor then the house goes to the foreclosure auction.

Foreclosure Auction

The foreclosure auction is a public auction that allows any member of the public to bid on a house. Typically you need to register prior to the day of the auction and you need to have a cashiers’ check made payable to the clerk of the court for at least 5% of the purchase price.

If you bid on a house and win the auction you are expected to pay the balance of the amount either later that day or within 24 hours. In the event that you do not pay the balance in time then in most counties you forfeit your deposit.

You cannot get a mortgage to buy a property at the foreclosure auction. You need to have the ability to pay cash for a property and you need to be able to produce both the deposit amount and the full amount within no more than 24 hours after the auction. Since so much cash is required, investing in foreclosures by buying at the courthouse is difficult for new investors.

Investing at the courthouse is also full of risks. When you buy a house at the courthouse you do not get free and clear title. You get a property as is. If there are liens, judgments or code violations recorded against the property then these will not be wiped out by the foreclosure auction. If your property has squatters or unwanted tenants you will need to go through the eviction process prior to even entering your property. In most cases there is no inspection of properties sold at the courthouse so any damages that there might be are your responsibility. You also might purchase a property only to find out later that all the cabinets, appliances, and fixtures have been stolen out of the property.

In some cases beginners at the courthouse are not even aware that they are not bidding on a first mortgage. I have seen bidders bidding on a second mortgage only to find out that there is a first mortgage ahead of them. If you are going to be investing in foreclosures by buying them at the courthouse it is imperative that you understand “position” and which mortgage you are bidding on. It is also imperative to do a very thorough title, lien, utility and code violation search. It is also important to do your homework in understanding the condition of the property, the value of the property and the estimated repairs that the property will need.

Investing in foreclosures at the courthouse is not for the faint of heart and certainly not for beginners. You need to be very knowledgeable about real estate law, the foreclosure process, and have access to a good title agent that will run title searches for you. Since buying at the courthouse requires cash it has a high barrier to entry. Anyone without access to cash cannot buy at the courthouse. This effectively eliminates a lot of the competition. If you are willing to be diligent and do the work, buying at the courthouse can be very rewarding. However this is not an area for beginners. Anyone can watch a foreclosure auction by going to the courthouse on the day of an auction. You do not need to be a bidder to enter the room where the auction is being held.

Buying at the courthouse can be frustrating since foreclosure auctions are often cancelled at the last minute. Auctions can be cancelled because one or both of the parties was not served correctly, the seller has filed bankruptcy or the seller has negotiated a loan modification with the bank. Doing a lot of research on properties and then watching them get cancelled at the last minute can be very time consuming and frustrating.

Usually the bank is prepared to let a property get sold at the courthouse for eighty to ninety percent of its market value. Depending on economic times, this number can be higher or lower. The attorney representing the bank will protect the banks interest by bidding up to the value of the amount that they are willing to sell their property for. It is a myth that foreclosures get sold at the courthouse for pennies on the dollar. In reality, the bank will protect their interest up to almost the full amount that is owed to them. This is another reason why bidding can be very frustrating at the courthouse. If the bank is the highest bidder, then the property goes back to the bank and becomes a bank owned or REO property.

REO

 Real estate owned or REO properties are properties that are owned by the bank. Since banks are not landlords the first thing that they do with a property that comes back to them is they try and sell it. The way that they do this is by using “asset managers” or asset management companies which are companies that represent the banks in dealing with their REO properties.

These asset managers submit their REO properties to pre-established realtors that only work with REO properties. These realtors give their asset managers a “brokers’ price opinion” (BPO) which lets the bank know at what price the realtor thinks the house should be listed. Usually bank owned properties are listed at competitive prices in order to facilitate a quick sale. REO properties are cash only deals meaning any potential buyer needs to be pre-qualified by the bank and needs to show a “proof of funds” like a bank statement. Buyers need to show that they have the cash available to purchase a property.

Buying REO properties is not as competitive as pre-foreclosures but is more competitive than buying at the courthouse. The reason is because all of the properties are listed on the multiple listing service (MLS) so any member of the general public can have access to REO properties through websites like realtor.com and zillow.com. This makes purchasing REO properties fairly competitive although the barrier to entry is high since you need to be a cash buyer.

You cannot get a mortgage to buy a property that is owned by a bank. In fact if a bank is faced with two offers they will always take the cash offer even if it is substantially lower than any other offer. The reason is because banks need to liquidate REO properties quickly in order to avoid a bottleneck of owning too many properties. Federal regulations limit how many bad loans a bank can have on their balance sheet so banks try and get rid of their REO properties as quickly as they can.

For this reason, cash buyers that are prepared to close quickly and waive contingencies like inspections will always get the best deals. One big advantage of purchasing REO properties is a relatively free and clear title. I use the word relatively since the banks use their own title companies to close on their REO properties. Sometimes these title companies do not search for code enforcement and utility bill liens. However the marketability of the title is never in question.

The popularity of purchasing REO properties changes depending on the current state of the real estate market. Presently in 2008 the best opportunity for buying foreclosed properties is with REO properties. In some situations these houses are being sold at ridiculously cheap prices. Since there is so much turmoil in the banking sector many banks are reluctantly being forced to “dump” properties are very low prices. If you have the cash to invest you should begin looking for an REO bargain while they are still available. It is estimated that there is enough supply still entering the market that you can probably purchase an REO property relatively cheaply and easily over the next two years.

For patient long term real estate investors, buying REO properties directly from the bank could have significant upside potential.

 



Sell and Rent Back

Raleigh, North Carolina – 2009

Homeowners looking for a fast sale in Raleigh and surrounding areas isn’t going to happen with listing your house through a real estate agent.  According to the numbers home sales are down to a whopping 709 homes sold in the month of February.  Those numbers suggest that out of all the houses in Raleigh on around 700 actually sold and real estate agents were the ones that contributed to such a low number of homes sold.

The foreclosure crisis and housing market bust is leading the Raleigh to a five year low, as far as, houses sold are concerned.  That means homeowners that need to sell their house fast because they are facing the threat of foreclosure need to make their house stand out from the houses on the market. The number 709 houses sold are at a really low number and the only thing that can help a house sell faster is by having the lowest price on the market.  The only problem is home values have been pretty stagnate over the years which means most homeowners have little or no equity.

Owners with little or no equity that are behind on their mortgage payment only hope to sell their house fast is something called a short sale.  Short sales are becoming the leading method to help homeowners avoid the foreclosure process.  The current state of the Raleigh housing market more homeowners behind on their payments will have to short sale their house if they want to seriously stop foreclosure by making their house more marketable.

A short sale is when the homeowner’s mortgage lender agrees to reduce the mortgage balance owed to a price that makes the house more marketable.  Lenders agree to short sales because they can cut their losses early and recoup their money as soon as possible.  Lenders will rather get their money now rather than take a house back that may decrease in value, resulting in a lower bottom line.  Plus a short sale can cut cost such as foreclosure fees, attorney and realtor fees.

Homeowners benefit from a short sale as well because they can avoid foreclosure and qualify for a home quicker than allowing their lender to take their house.  Freddie Mac will lend to a homeowner that went through a short sale in as little as 2-3 years versus 5 years for a foreclosure.  Owners can also negotiate the balance which can become a judgment to a zero balance which is impossible if they let their house go to foreclosure.

 

 



Repossession

In order to get your mortgage company to work with you to stop house foreclosure, chances are that you will need to provide them with a whole lot of documented proof of financial hardship. Financial hardship requirements and paperwork varies by mortgage company but here are a few things you should be prepared to provide them.

1. A current overview of your income and expenses. In order for them to decide if they are willing and/or able to work with you, they will need to know what your current financial picture looks like. Here is where you are going to need to get honest with yourself and your mortgage company about what your financial picture really looks like. Doing this exercise might also help you figure out where you can cut back on your expenses. If you want to stop house foreclosure, you will need to find areas to cut back.

2. Documented proof of your current income. If you have a job, this will mean getting pay stubs. If you have incoming coming in from other sources, you will have to provide proof of that as well. I had child support and maintenance payments that I had to provide proof of. Sending them copies of checks worked in my case.

3. Tax returns for the past few years. My mortgage company required the past 3 years of tax returns. If you file a 1040, just to be on the safe side, I would provide them with any schedules (A, B, etc) and any additional forms as well as the 1040 form itself.

4. Hardship letter. Here is where you explain what your financial hardship is. Here is where you get to make your case. Explain that you want to stop house foreclosure and what your situation is. Some things that many mortgage companies will accept as financial hardship is divorce, job loss or disability.

Every mortgage company has different requirements and in order to stop house foreclosure, you will need to get the requirements from your bank.

A helpful tip: Fax or email all of the paperwork that they want all at once. They are busy and it is very likely that your information could get lost or misplaced if you fax or email your paperwork in separate batches to them. Also always reference your loan number on everything that you send to them.



Real Estate Professionals

If you are facing foreclosure, then you have seen the ads for short sales. Real estate agents all over the country are jumping on the short sale bandwagon. However, most are not experienced in short sales and their advice on complicated legal and tax issues can be dangerous for you.

What is a short sale anyway? You may be facing foreclosure and think that selling is a way out. However, you find that you owe more than your house will sell for. A short sale is when the bank, instead of foreclosing on you, agrees to take less than the amount you owe on your mortgage just to get it sold and off their books. Banks don’t like to foreclose on you any more than you like to get foreclosed on. Many times they would rather take a little less today then wait sometimes up to a year before they can get a house foreclosure off their books.

Real estate agents have unfortunately figured out that a short sale option is a great way to get listings. Almost everywhere you look these days is advertisements for real estate agents to take care of your problem with a short sale. However, most agents have never even done a short sale.

Short sales are nothing new to the market. They have been around a long time. They require some work and negotiating with the bank. Most real estate agents only sell an average of 5 houses a year but all of a sudden, they are an expert on short sales.

The problem with using a real estate agent is they have no relationship with the bank. The bank wants to work with someone who is experienced. The bank wants to know that if they agree to a reduced payoff amount, then they will get their money fast.

Agents use a short sale to get a listing. By promising to negotiate with the bank and get your house sold, they get to list your house. They also promise all kinds of things in their ads. I saw an ad the other day where they listed all the benefits of a short sale. One of the things they listed was a tax benefit.

The IRS does not consider a short sale a tax benefit. If you owe money and a portion of the money you owe is forgiven, then the IRS considers that like income. It is money you got to keep and it may be a tax liability not a benefit. Agents are salespeople and their ads are for selling. They are not equipped to give legal or tax advice.

Many agents also charge a higher commission for a short sale. They approach the bank asking them to take less for their payoff but at the same time pay the agent an inflated 10% commission. The bank may not want to reward the agent for their greed so they reject the offer.

You may not even know why the bank rejected your short sale proposal and your agent won’t tell you it was because they were too greedy. That is one reason the bank does not like working with agents on short sales. The other is no buyer. Most times when an agent goes to the bank with a short sale proposal, they do not have a buyer for your house. They just have the hope of getting a buyer for your house at that price. The bank is not excited about agreeing to take less if they don’t know when or if they will get their money.

To find out if a short sale is an option for you, contact an attorney and ask them what your legal rights are if you get foreclosed on and also if you attempt a short sale. Then contact a tax professional and ask what your tax ramifications are for both.

Never take any legal or tax advice from a real estate agent. Their main goal is to get a listing. If you do sign a listing agreement, never sign a six month exclusive listing. You want the ability to work with other investors to sell your house and not have to pay a commission to the agent if you sell your house yourself. Always sign an open listing agreement. You may lose precious time with an inexperienced and greedy agent who roped you into a six month exclusive listing when you had other options.

A short sale is definitely an option but only if you have all the facts and only if you use the right party. There are experienced real estate investors out there who specialize in short sales, have a track record of successful ones, and have relationships with the banks already. A real estate agent who just wants a piece of the action right now is probably not the right one for you.

Good Luck!



Quick Property Sale

A Fannie Mae foreclosure is a great help to the many people in the USA who cannot afford a house of their own. The cheaper price ensures that there will also be a smaller monthly payment, reducing the risk of default and repossession of the home. This is good for the lender and homeowner alike. It also means that a real estate agent can buy a house at bargain prices and sell it for a profit. They can still keep the house below the average price while making money on it.

What is a Fannie Mae foreclosure?

It is a shareholder company that buys up repossessed property. It then turns around and sells these homes at a cheaper price. The aim of the company is to provide cheaper homes to people who might otherwise not be able to afford it. They will also arrange mortgages and negotiate prices for the homes. They provide a good alternative to people who cannot afford a regular priced house.

How can you find Fannie Mae foreclosure property?

You can find this type of property by 2 methods. Firstly you can look on the fanniemae.com website. You will find many options here to choose from. There are listings of many different types of homes. However be very careful of some properties, as they will require some repair. The second method is to go through a real estate agent. They have multiple listings and can find you one of these properties if you request it. They can also help you to spot any repairs that are needed in a home.

How do you buy a Fannie Mae foreclosure property?

You usually go through a real estate agent. They will contact the company and negotiate a reasonable price for you. They will do this by presenting your offer to the company. The company will then either accept or reject your offer. They can also come back with a counter offer. When they do this you and your agent will then negotiate a price that you can afford for the home of your choice. Once the price is settled you sign the sales agreement to show your good faith in buying the home.  Once this is done you will go through the mortgage process.

Qualifying for a Fannie Mae foreclosure property:

Sometimes it is hard to know if you can really afford a new home. The company website can help you with this. They have a special page on their website that will help you assess your income. You can also see if you pre qualify for a mortgage here. Just fill in the financial information that is required and you will be able to get results within minutes. This will save you a lot of time and disappointment. Once you know what you can afford you can then narrow down your search to the properties within your price range.

So do not despair when you look at all those high priced houses. You can still get the house of your dreams by going through Fannie Mae foreclosures.

HUD Real Estate Foreclosure

Investing in HUD real estate foreclosure can be a lucrative business, but you need to know how to take advantage of this program, to make a profit. There are substantial profits to be made on repossessed houses. However you need to be knowledgeable and time your buying and selling right to take advantage of these properties.

Initially you will not be able to buy these types of properties for monetary gain. This is because these programs are specifically designed to help needy families afford to buy a home and investors are barred from buying these repossessed houses. Only when they have not been sold for a certain length of time can investors and agents buy these properties.

How to find HUD real estate foreclosure properties:

You can find these by using special lists of repossessed properties. You can find them through real estate agents, registered with this agency, or online at websites that are registered with this agency. With the advent of the Internet it has become much easier to find these properties and take advantage of the huge savings you will be able to get. However it does take a little time to find these properties on your own, so it is often a good idea to find an agent who can handle this for you.

Investing in HUD foreclosure real estate:

Initially these repossessed properties are not available to real estate agents and investors. However after a certain length of time, if they are not sold, the houses will be available to investors. You need to keep up to date lists to catch the properties as soon as they come on the market. You can then resell the houses for a substantial profit.

As you can see there are obvious gains to be made from these HUD real estate foreclosures. However you have to be quick as there is a lot of competition. One of the best ways to get fully updated lists is to subscribe to a newsletter that supplies daily ones. Some sites will update their site daily; these are usually membership sites but are worth it. Explore all avenues to get ahead of your competition in this competitive field.

How to make a profit with HUD real estate foreclosure properties:

The real way to make a substantial profit with these types of houses is to buy those properties that are in need of repair. Understand the actual market value of the property before you buy. All you need to do is to calculate what you paid for the house, plus any repair costs and subtract it from the market value. This will be your profit. You can start with properties that need minor repairs at first and when you have saved up some money go on to the ones that need more repair and investment. This is because you will be investing in the house plus repairs before selling and making your money back.

Plan carefully and do your math, by this means you will be able to make a good profit investing in foreclosed HUD real estate.



Sell and Rent Back

 Due to the presence of a string of problems, such as rising rates and falling prices, several bad credit loans and also a heavy rate of mortgage fraud, the concentration of foreclosure has increased in Atlanta, Georgia. When analyzing foreclosures by state, the state of Georgia presents itself as one of the hardest-hit markets for the huge foreclosure mess that’s happening lately, with the concentration being in DeKalb and Fulton counties and in the capital city Atlanta. This abysmal trend has begun in 2001.

 

There are a lot of connected problems with foreclosures in Atlanta. It is not just about making someone homeless. With so many foreclosure homes in Atlanta, all occurring in a concentrated form in various parts of the city, they lead to the problems of homelessness, crimes in these empty homes, depreciation of the neighborhood in which the empty homes are present, loss of the tax income the state gets and a general loss of face for the city.

 

Subprime loans may seem to be a good option for people with bad credit to get their homes, but they are turning to be a problem where the overall economy of Atlanta is considered. Due to defaulting subprime loans, the rate of foreclosure houses in Atlanta has increased immensely. People who file for Chapter 13 bankruptcy in Georgia do so thrice faster than people on a nationwide level. A major reason of these bankruptcy filings is a defaulting subprime loan.

 

Another disturbing trend seen in Georgia, and notably Atlanta, is the large number of African Americans who are bearing the brunt of increasing foreclosures. In present times, most of the foreclosure homes for sale used to belong to African American people of the state who took the benefit of the riskier loans due to their affluent status and the privileges accorded to minorities.

 



Sell and Rent Back

There are several advantages of purchasing vehicles and various types of vessels through government foreclosures car auctions. When it comes to this type of auction, you are purchasing merchandise that has been seized by various types of government agencies. Rather than purchasing from an individual, or a standard business, you are making a direct purchase from the government. The products that you can bid on and win may be new, sold in a large batch, or slightly used – but of high quality. You may purchase by bidding as in a traditional auction setting, or simply by purchasing at a fixed price. Here, I will introduce to you some of the advantages of government foreclosures car auctions.

The first advantage to purchasing from government auctions is that you can purchase just about any high ticket item that you can think of! This includes commercial and residential property, boats and recreational vessels and vehicles, personal types of property, jewelry, and even foreclosures cars! The government collects a lot of different types of property through various types of agencies. These agencies may include police departments, sheriff’s offices, mortgage companies, and finance agencies. This is why a lot of different items are offered at this type of auction. Now, you can find the products that you want and/or need!

The next advantage to purchasing from government foreclosures car auctions is that you can purchase various types of real estate and vehicles for a fraction of the cost if you were to purchase them from other websites, catalogs, and/or store fronts. Many auctions on residential homes, commercial properties, vehicles, and more start right around $100.00! Imagine if you were the only one to bid on a brand new automobile with the starting price of just $100.00! That makes for a great deal, right? If you engage in government auctions, sooner or later, you will end up with some type of product, land, vehicle, and/or vessel that will cost you just about nothing at all! That is a major advantage to engaging in government foreclosures cars auctions!

The next advantage to engaging in auctions that are held by the government is that you can go to one in person, and if you can’t do that, you can go to one that is held online. This makes it very convenient for you to discover what is available and bid on your time! Many individuals who auction online with government events find that they enjoy the flexibility and convenience of being able to log on anytime to check to see what types of products are available, and bidding on those products. If you are interested in auctions, and have a computer with an internet connection, this is definitely an advantage that you will have!

As you can see here, there are many different advantages to participating in government foreclosures car auctions. Whether you are interested in purchasing products to resell, or keep for your own, these types of auctions will allow you to do so at the fraction of the cost. The advantages mentioned here are sound and legitimate when it comes to government foreclosures car auctions. If you are interested, you should definitely pursue this!



Quick Property Sale

It’s an epidemic that hasn’t been seen since the great depression; houses are being foreclosed at three times the normal rate in some counties across America. As a result of this sudden rise in foreclosures a new type of business has sprung up within the real estate market called the “short sell.” If you are considering bankruptcy or foreclosure it is extremely important to understand this practice that helps and hinders many at the same time.

Have you seen the ads that say “stop house foreclosure” online, in your mailbox and on billboards? Chances are these are make-shift investors offering to negotiate a short sell in lieu of foreclosure for you. A short sell is when an uninterested party negotiates with your mortgage company for a lower payoff for your home instead of foreclosure. Most of the times these people are looking to “scoop up” cheap houses or they already have an investor/buyer lined up to buy the home. The end result is that you have to move or rent from the investor.

When banks foreclose it’s rarely a profitable situation for them, very rare in today’s market. Most often the properties are in disrepair, dirty and littered with unwanted household items. The bank has to clean, repair and then discount the home to put it on the market. After the discounts, repairs, appraisers, real estate commissions and other added expenses banks are usually losing around 35% of the amount that was owed by the homeowner. This is why a lot of banks are using the short sell option more often as their foreclosure departments are maxed out to capacity.

Short sell experts simply attempt to handle all of the aforementioned headaches and skip to the discounted price. The person that negotiates the short sell will either make money by having the house pre-sold for a higher price than they negotiate or will be keeping the property as an investment and renting it. Either way they stand to earn a nice profit and while helping their clients circumvent foreclosure. If you are significantly behind on your mortgage and cannot see the light of day this may be a good avenue for you depending on your particular situation.

There are a few things you need to be aware of before executing a short sell to stop house foreclosure. The first thing is to know is if you are considering bankruptcy you definitely want to seek advice from council before executing a short sell. Selling property for a loss can sometimes be considered income by the trustee and complicate the bankruptcy. Also, if your primary goal is to avoid foreclosure to preserve your credit, it may not matter whether the bank forecloses or not. If you fall four months behind (120 days) on your mortgage this is considered to be a foreclosure by all mortgage lenders regardless of the fact.

According FHA loan requirements, borrowers must be out of a foreclosure for three years with little or no negative marks since the foreclosure to be approved for a new mortgage. If after three years you can prove adequate income, that you have established new credit and manage a 3% down payment you will almost certainly be approved for a new home. So if homeowners look at foreclosure from a three year perspective the picture is not quite so gloomy if they plan ahead and manage their finances well. In certain situations it becomes a viable option for many people in today’s housing market.

Your home is an investment; businesses cut their losses on bad investments every day as a cost of doing business. If you bought a home for $200k with little or no money down within the last 5 years chances are that you still owe somewhere around $195k on the home. If you are in an area where property values have dropped significantly you may find yourself upside down in your home. For example, you may still owe $195k on your home and it’s only worth $175k on the market. When this happens you need to look at the reality of the situation much as a business would and consider cutting your losses.

Consider this, if you are $20k upside down in the market and behind on payments, how long will it take you to catch up on your payments and at what cost? More than that, how long will it take for your house value to catch up with what you owe on it? Will you have to refinance to get out of a bad mortgage and what costs will be associated with this? By all estimations today it may take 3 years to 5 years for the housing market to catch up with today’s losses and regain momentum. In Japan’s case it took ten years when they went through a similar crisis.

A very likely scenario is that in three years you will owe exactly what your house is worth and still not have any equity in your home. In housing markets like we are in rental houses are cheap and plentiful. In fact, in Atlanta $300k homes are renting for roughly half of the cost of what that mortgage would be. If you were to accept a foreclosure and move to a rental home of equal value you could likely cut your home expenditure in half. If you were to save the difference between the payments for three years you would have a nice down payment for a new home. According to FHA loan requirements, as of today, you would be able to buy a home.

In closing, the point of this article is not to encourage foreclosure but to demystify it. Foreclosure is bad for you, the lender, and the economy. However, treading water on a bad investment for the sake of good credit or avoiding the stigma of foreclosure doesn’t make sense. In three years time you will most likely be able to buy the same home you are in now and have a lower note with more equity. Banks and businesses cut their losses on bad investments everyday while planning for their next venture, you can as well.



Sell and Rent Back

The economic stimulus bill formally called as HR 5140 was approved by the senate with an overwhelming vote of 60-38. The stimulus package amounted to a gargantuan $787 billion, it is an ambitious package of federal spending and tax cuts designed to revive the United States economy and save or create millions of jobs.

There are many hopes riding on the package and it is generally viewed as the savior of the US economy and the world economy as well. Last week, President Barack Obama signed it into law in order to start the economy down the road to economic recovery.

In summary, the stimulus bill will provide one-time rebates to roughly one hundred and eleven million families, provide tax breaks to businesses, and ease mortgage loan limits. Now what’s more important to most of us if you agree is about the provisions of the stimulus bill and its effects homeowners. The housing bubble has been considered by many as the root cause of the economic downturn.

First the bill is aimed to create about 3.5 million jobs, providing respite to homeowners who have lost their jobs.

Second, the bill can provide homeowners the much needed cash via tax breaks. Tax breaks can amount to $400 for individuals and $800 for couples on the first payment alone.

Third, there’s a homebuyer tax credit provision which provides a $7,500 tax credit to first time homebuyers up to a maximum of $8,000. The good news is, you don’t have to repay the $8,000. The credit is available to homeowners with gross income of $75,000 to $95,000 for individuals and $150,000 to $170,000 for married couples. The definition of “first time” homebuyer is someone who hasn’t purchased a house in the last 3 years. As a form protection, the bill will force a recapture of the entire $8,000 tax credit if the home is sold within 3 years of purchase.

And lastly, the bill extends the increase in loan limits that were passed in 2008. The limits are 125% of the median home price for the local area for FHA and $417,000 for Fannie and Freddie. Giving people access to more credit will help people feel they are in a better financial position and help spark an increase in home purchases.

The positive effect of the stimulus bill on housing doesn’t end there. President Obama also hinted of a $50 billion plan to help stem foreclosures in heavily affected states like Arizona. The president’s economic team will be providing the public, the details of the plan to prod the mortgage industry to do more in modifying the terms of home loans so borrowers have lower monthly payments.

All these provisions are aimed at alleviating the house foreclosures which have increase to a record high of 81% from the year 2007 and might increase further depending on the effectively of the economic stimulus bill.

Last February 12, the 30-year fixed-rate mortgage averaged 5.16 percent which is 0.56 percentage points off from last year’s. This has lead to an increase in mortgage refinance applications. At the same time, it also shows the positive impact of the stimulus bill.



Repossession

It is worth to note that foreclosure is a sort of process under which the lender is allowed to recover the amount (in the form of loan) that is pending on the borrower by taking ownership or selling his property that secures that loan. Thus the foreclosures are started when the default is made by the borrower or lender and a public default notice is filed by the lender.

Foreclosures are treated as best investment option here the property that is worth of millions is sold at unbelievable cheap prices. So with less money you can get very good returns. Not only that, in addition unlike other investments options where you need to wait for a longer period of time in order to get the returns, foreclosures can be sold with huge profit anytime on the desire of the owner.

There are five steps in order to buy a foreclosure:

1. Look for the appropriate property: It is the first step in the process of foreclosure, where the person intending to invest in foreclosure is required to first look for the appropriate property.

2. Look for the way to get finance: The second is definitely to look for the way to get financed in order to buy that property.

3. Look for a proper agent: The third important step in the process of foreclosure is to look for an agent.

4. Look for the owner: It is the fourth step wherein you are required to contact the real owner of the house and to get all useful information you want.

5. Give an offer: It is the last step where you are required to make an interesting offer so as to get what you are looking for.



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