My regards to the community, I would be seeking your advice on some matter. I have some interests in real estate and have read that foreclosure is an efficient way to gather up profits. I would like a little more thought on this…as to how does the whole thing work and how can we invest properly in pre-foreclosures to earn secure profits.
Read these forums and use the search button at the top to focus on more specific topics. All of the answers and then some to you question are all ready here and ready for you to learn.
GooD LucK! :beer
Foreclosure investing is really hotting up the scene nowadays. As more and more people are clearing off the debts by their property sale……its a good way to capture some profits and quick ones too. Foreclosure profits are not only earned quickly but they are easy to earn also provided you know a foreclosure system. You just need a proper plan and way to go about it and then you can be good at judging the circumstances.
Jack,
Please do not imbed links to your website any more…I’ve removed one of your posts, modified this one and one other and have sent you notification twice.
Things tend to get harder after this…
Keith
To fully embrace and succeed in the foreclosure business you must understand:
1.) What is foreclosure?
2.) How it affects the homeowner’s credit
3.) How it affects the economy
1 - WHAT IS FORECLOSURE
When a homeowner is granted the trust and privilege of a mortgage company’s tens and hundreds of thousands of dollars, the homeowner agrees to pay it back with interest. THE HOMEOWNER IS BUYING THE USE OF THE MORTGAGE COMPANY’S MONEY. FORECLOSURE IS THE LEGAL METHOD AFFORDED TO THEM BY STATE LAW TO TAKE BACK THE PROPERTY THE HOMEOWNER AGREED TO BUY. The length of time for foreclosure varies from state to state.
2 - HOW FORECLOSURE AFFECTS THE HOMEOWNER’S CREDIT
Unlike bankruptcy, foreclosure will affect a homeowner’s ability to borrow money. The mortgage companies and banks find it difficult to loan money to a person who has already defaulted on borrowed money. When a person has filed bankruptcy, they cannot default on a loan for seven years and can therefore obtain’ a new mortgage loan a day after the bankruptcy has been finalized. Though the interest rate might be high they can obtain. A loan where as with foreclosure people will not own a home for seven to ten years. Thus foreclosure is a financial failure to avoid at all costs.
3 - HOW FORECLOSURE AFFECTS THE ECONOMY
The housing industry is a major piece of a solid economy. When a foreclosure market occurs, it has a devastating ripple effect that is felt clear into the banking industry. Banks make loans to insure their depositors and investors good returns. When a significant percentage of their loans end up in default, it can not only damage the value of their stock, but it also can cause them difficulty with the regulatory agencies that banks answer to.
THE PROBLEM
We have experienced one of the largest marketing booms in U.S. history. Mortgage companies have developed some creative financing enabling homeowners the ability to purchase more house than can typically be afforded that interest rates that are the lowest in ten years. The ARMs (adjustable rate mortgages) are maturing now at increased interest rates and houses are being refinanced at higher interest rates putting the homeowner’s personal financial solvency at risk. In the meantime these same homeowners are financing their consumer debt with their equity thus giving them no room to solve their dilemma. We are seeing rising interest rates and high debt to income ratios for
many homeowners. Combined with a slowing economy, these are the major factors contributing to the continuing explosion of foreclosures. Millions of Americans stand to face enormous financial strain or foreclosure when their adjustable-rate mortgages reset this year. The number of mortgage holders slipping behind in monthly payments rose steadily throughout the winter, according to major foreclosure tracking companies. As federal interest rates continue to increase, the number of borrowers defaulting on their mortgages is certain to grow.
In the short term, higher interest rates are the most direct source of strain on mortgage holders. There are several types of unconventional loans that proliferated in the late 1990s after lending standards were relaxed. These loans served to decrease initial mortgage payments, but at the expense of greater risk for much higher payments in the future. The most popular are interest-only and adjustable-rate mortgages (option ARMs).
Option ARMs have been attractive during the low-interest rate period of the past few years because with these loans mortgage payments follow the prevailing rates, varying from month to month. The introductory rates tended to be extremely low, sometimes half that of the traditional 30-year mortgage rate, which itself reached historic lows last year.
But when interest rates increase, as has been the case in the last quarter of 2005 and into this year, many homeowners are confronted with much higher mortgage payments.
Interest-only loans allow borrowers to pay only the interest for a set period, leaving the principal payments as optional. The most common type of interest-only loan is called a 2/28, with a two-year interest- only period on a 30-year mortgage. Millions of buyers Relied on this type of loan in the last two years.
For interest-only mortgage holders who made only the minimum payments during the past two years, the principal has actually grown enormously. Now the initial interest-only period is ending for many of these borrowers.
According to Economy.com, more than $2 trillion in US outstanding mortgage debt, nearly a quarter of all mortgage debts, are of the interest-only variety passing the two-year introductory period in 2006 and 2007. The Wall Street Journal reported March 11 that these borrowers will face drastically higher interest rates that may cause their monthly payments to rise by up to 50 percent.
The fluctuations in the housing market are exacerbating the problem. In most areas of the country, average home prices ballooned by thousands of dollars, far outpacing inflation and wages over the past five years. Average monthly payments rose from the already high $779 to more than $1,000. Meeting the
average monthly prime mortgage payments in 2003 required an income of around $37,000, according to National Association of Realtors data. By 2005, buyers needed a qualifying income of nearly $50,000, well above the national median income.
For this reason, first-time or poor credit buyers relied on nontraditional loans in order to afford monthly payments because they would pay only the interest during the introductory period. Meanwhile, the remaining principal on such mortgages grew on interest, presenting an insurmountable burden to borrowers. As home prices in some areas now begin to deflate, many homeowners will find themselves locked into a mortgage worth more than the home’s resale value.
The Journal cited a study conducted by First American Real Estate Solutions, a subsidiary of home title insurer First American Corporation, which projected that one in eight households with adjustable-rate mortgages that originated in 2004 and 200S-when home sales and home prices both peaked-will default on their loans in the near future. Because the housing market is slowing, reselling a home without taking a loss will be less likely as time goes on.
Most at risk are the so-called sub-prime borrowers, those with weak credit histories, both because they depended upon non-traditional loans and will now be charged the higher sub-prime interest rates, and because as these rates and bills mount they will face difficulty gaining refinancing approval because of their sub-prime status.
Released March 17, 2005, fourth-quarter foreclosure and mortgage delinquency data from the Mortgage Bankers Association (MBA) underscore the reality of financial constriction. Mortgage payments were behind on an average of 4.7 percent of all residential homes, up from 4.44 percent in the third quarter and 4.38 percent in the fourth quarter of 2004. One in every hundred mortgage loans was in some stage of the foreclosure process-more than 4 million homes.
“The increase in delinquencies is not surprising,” MBA vice president and chief economist Doug Duncan remarked in the press release announcing the figures. “We have been expecting an up-tick in delinquencies due to a number of factors: the seasoning of the loan portfolio, the increased shares of the portfolio that are ARMs and sub-prime mortgages, as well as the elevated level of energy prices and rising interest rates.”
Regulators have been well aware of the trends, their painful consequences, and the risks predatory lending poses to home-buyers. For this reason, the banking industry has pressed the Federal Reserve Board to impose tighter lending standards. These would restrict refinancing from those borrowers who fall behind, leaving them wide open for foreclosure and seizure of property. Other policy changes are also contributing to the debt burden of average US households. Under a law that took effect January 1, minimum monthly payment requirements have doubled for many credit card users. This follows last October’s bankruptcy law changes, which make it more difficult for struggling debtors to hold on to homes or other assets, and with which the increase in foreclosures coincides.
As significant as the national data is, foreclosure and delinquency rates for regions most neglected, abandoned, or destroyed by consequences of capitalism are the most revealing. The MBA survey found nearly 76,000 households in Louisiana and Mississippi were seriously delinquent in late December of last year. A payment 90 days or more overdue constitutes serious delinquency.
In the month after Hurricane Katrina struck, nearly a quarter of all Louisiana mortgages and 17.4 percent of those in Mississippi were delinquent, or 30 days past due. Most of those have fallen into serious delinquency. At the end of the year, more than a fifth of Louisiana mortgages remained delinquent, and Mississippi’s proportion of delinquencies had fallen by only half a percent. A third of all sub-prime loans in both states were in this category. Clearly, thousands of families continue to suffer without adequate assistance, months into the supposed reconstruction process.
Latest data from Foreclosure.com indicate that western states such as California, Arizona, and Nevada-among the states which saw explosive growth in construction and inflated home prices in recent years- experienced a wave of new foreclosures in February. Foreclosures in California increased by 150 percent from January to February; Arizona saw a rise of 161 percent for the same period; Nevada experienced a 99 percent increase.
Before 2005 HUD predicted 7 million foreclosures would be filed in 2005 - it was closer to 12 million. They predict in the next five years up to 40 million foreclosures will be filed in ONE year. The financial devastation will displace hundreds of thousands of families and potentially flood the streets with homeless families costing millions of tax dollars. The Katrina disaster displaced over 400,000 families and will have a dramatic impact on these families and our nation for many years to come. People displaced by foreclosure in the next 5 to 8 years will make the Katrina disaster pale by comparison.
Reasons why people lose their home
A loss of an income, death in the family, medical expenses and other life-altering occurrences can happen to anyone, causing us to fall behind in our loan payments. If we neglect paying our credit cards it hurts our credit rating, but if we stop paying our home loan the situation is even worse, because the lender can foreclose, taking ownership the home. For most families, a home is not only a significant financial investment but also a source of pride. The loss of a home, due to unexpected events which leads to financial problems are most often associated with the following life changes:
. Death of a family member
. Illness,
. Loss of job
. Cuts in work hours or overtime
. Retirement
. Injury
.Divorce or separation
There. Are options, in preferred order, to help the homeowner:
- Refinance- If possible thru conventional and private lenders.
- Mediate a solution with the current mortgage holder.
Mitigation
If you qualify for loss mitigation, there are basically two solutions:
Mitigation - Loan restructure incorporating the arrearage, penalties
And interest into the existing mortgage and putting the loan by stretching the term, so it can be affordable for the client thus making the loan or note in good standing.
Forbearance - Arrearage, Penalties and Interest paid concurrent with the existing mortgage payment. Once the forbearance is completed the loan is placed in good standing. If the homeowner fails to make the forbearance the property is immediately back in foreclosure.
There are many variations of a mediation solution depending on the lending institution, payment history and financial condition of the homeowner. In most cases the lending institution will require 25-30% of what is owed in arrearage, penalties and interest.
3- Pre-foreclosure sale :Purchase the home from the homeowner and rent it back to them while assisting them to reestablish credit and place the homeowner in a place to purchase their house back (often at a price less than they originally owed).
Pre- foreclosure Sale Mediation
Most clients will save their home through pre-foreclosure sale. In this process the mediator/negotiator will assemble and present the hardship package to the lender that the home owner cannot afford to keep the home. They will negotiate with the bank to purchase the home at a discount.
What are my options?
1.) Refinance-Replace your current loan with another (if your credit is good enough and you have equity)
2.) Borrow money to catch up the late costs (if your credit is good enough and you have equity) or (you have family or friends willing to lend)
Loss Mitigation Programs-
Loss mitigation programs were established by the federal government and the mortgage industry in order to stop home foreclosures. They help foreclosure victims in default on their mortgages to find alternatives to home foreclosure. Every homeowner’s situation is unique and each lender has their own policies regarding the use of these programs to stop foreclosure. Our extensive experience and solid working relationships with mortgage lenders allows us help you avoid the common pitfalls that many homeowners encounter while trying to work things out directly with their lender. After performing a thorough assessment of your personal finances and analyzing your lender’s loss mitigation policies our professional loss mitigators will negotiate with your lender to get you the best possible solution to your home foreclosure problem. We can help you save your home and credit history through a variety of loss mitigation options:
Solutions for Temporary Problems
4.) Reinstatement: Your lender is always willing to discuss accepting the total amount owed to them in a lump sum by a specific date. They will often combine this option with Forbearance.
5.) Forbearance: Your lender may allow you to reduce or suspend payments for a short period of time after which another option must be agreed upon to bring your loan current. A forbearance option is often combined with a Reinstatement when you know you will have enough money to bring the account current at a specific time in the future. The money might come from a hiring bonus, investment, insurance settlement, or a tax refund.
Special Forbearance - A special forbearance is a written repayment agreement between a lender and a mortgagor, who contains a plan to reinstate a loan with at least three mortgage payments due and unpaid affect your ability to bring your account current. If you have incurred a short term financial hardship and your loan is 90 days to 365 days past due a special forbearance is designed to provide you with more relief than is possible with a regular repayment plan. Typical approval can result in spreading the repayment over 12 to 18 months. Type II -can be utilized in an unemployment situation whereby the promise of future employment is present.
6.) Repayment Plan: You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up.
If it appears that your situation is long-term or will permanently
7.) Mortgage Modification: If you can make the payments on your loan, but you do not have enough money to bring your account current or you cannot afford the total amount of your current payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the
Following ways: Adding the missed payments to the existing loan balance.
Changing the interest rate, including making an adjustable rate into a fixed rate. Extending the number of years you have to repay.
LOAN MODIFICATION
(Available on a very limited number of VA loans with lender and/or investor approval) (Called Recast for FHA)
If you have incurred a long term financial hardship, our office can assist you in supplying the appropriate information to lender to take the appropriate measures to modify the term(s) of your mortgage. This could lower the interest rate and/or extend the term of the loan resulting in lower payments. There are costs and fees associated with a modification that you will be responsible for. All property taxes must be current or you must be participating in an approved payment plan with your taxing authority to be eligible for a modification. Any additional liens or mortgagees must agree to be subordinate to the first mortgage. All requests are subject to your lender’s approval.
For FHA Loans
The lender might be able to help you receive a one-time payment from the FHA Insurance fund. Your loan must be at least 4 months but no more than 12 months past due and you must show you are able to begin making full mortgage payments. You must sign a promissory note which allows HUD to place a lien on your property for the amount received from the fund. The note is interest fee, but must eventually be repaid. The note becomes due when you payoff the loan or when you sell the property.
VA LOAN MODIFICATION/REFUNDING
(Available for VA loans only) (Need at least 30 days to process)
A refunding is when the VA buys your loan from the lender. Refunding may give VA the flexibility to consider options to help you save your home that your current lender either could not or would not consider. When the VA refunds a loan under 38 U.S.C. 36.4318, the delinquency is added to the principal balance and the loan is re-amortized. Your new loan will be non-transferable without prior approval from the Secretary. If your interest rate was lowered and an assumption is approved, the interest rate will be adjusted back to the previous rate.
8.) Partial Claim - (FHA mortgages only) (Some Freddie Mac Investor loans)
Under the partial claim option, a lender will advance funds on behalf of a mortgagor in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The mortgagor will execute a promissory note and subordinate mortgage payable to HUD. Currently, these promissory or “partial claim” notes carry no interest and are not due and payable until the borrower either pays off the first mortgage or no longer owns the property. The loss mitigation specialist may assist in requesting a partial claim if you qualify. You may be eligible if your loan is 120 to 365 days past due. A partial claim results in placing your past due payments into a subordinate mortgage (2nd mortgage) between you and the Secretary of Housing Urban Development. The partial claim note will require you to start making payments when you payoff the first mortgage. There is no interest. The partial claim can be for no more than 12 months of past due payments.
9.) Extension of Time - To comply with required time frames, an Extension of Time may be granted for a mortgagee to initiate or complete a Loss Mitigation (exception Preforeclosure Sale option) and/or foreclosure action.
Solution for long term problems
10.) Assumptions - A qualified buyer may be allowed to assume your mortgage, even if your original loan documents state that it is non-assumable. - Assumption of an FHA- insured mortgage is a servicing function where the responsibility or paying for a mortgage is taken over by another person through simple assumption or creditworthiness assumption.
11.) Deed-in-Lieu - A Deed in Lieu of foreclosure is a disposition option in which a mortgagor voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage. A DIL of foreclosure may not be accepted from mortgagors who can financially make their mortgage payments. Deed-in-lieu: Your lender may agree to allow you to voluntarily “give back” your property and forgive the debt. Although this option sounds like the easiest way out for you, generally, you must attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if you have other liens such as judgments of other creditors, second mortgages, and IRS or State Tax liens. The lender might require that you attempt to sell the house for a specific time period before agreeing to this option, and it might not be possible if there are other liens against the home.
If you have incurred a long term financial hardship and your house has been on the market (at fair market value) for at least 90 days, you may be eligible for a deed-in lieu of foreclosure. To be considered for this option, you must complete a financial package and provide a copy of your recent active listing agreement. Also, there cannot be any additional claims or liens (other the mortgage) against the property. If you are approved for a deed-in-lieu, you will be giving up all rights to the property and the property will be conveyed to your investor. In exchange for the deed-in-lieu, the lender may waiver all deficiency judgment rights. You may be asked to participate in a Short Payoff program before a deed-in-lieu of foreclosure is accepted.
12.) Pre-Foreclosure Sale - The Pre-Foreclosure Sale option allows the mortgagor in default to sell his or her home and use the sale proceeds to satisfy the mortgage debt even if the proceeds are less than the amount owed.
(Pre-Foreclosure Sale) or (Short Sale) (Compromise of Sale)
If you have suffered a long term financial hardship and are unable to maintain your loan or if you need to sell the property to avoid a default loss on the property, it is possible that the lender may be able to accommodate you with a short payoff This option can also include a period of time to allow you market the property and find a qualified buyer. If the property’s sales value is not enough to pay the loan in full, your lender may be able to accept less than the full amount owed.
There may be tax ramifications associated with any short payoff or foreclosure; therefore, we recommend you contact your tax advisor for details. Some states permit lenders to seek a deficiency judgment for the amount the payoff was discounted. See your state’s foreclosure law for more information. Check with an attorney for advice on your personal situation.
13.) Foreclosure - Foreclosure should be considered only as a last resort and should not be initiated until all other relief options have been exhausted.
14.) Declare Bankruptcy (caution: this is seldom a solution as most fail and it will negate all other possibilities when filed possibly leaving you homeless, with a life time of debt and financial ruin) . A high percentage that your file will be dismiss (like you never started) due to the recent changes to the bankruptcy laws, causing the foreclosure proceeding to start up again. Please consult your own attorney, if this is an option.
For Example:
California Foreclosure Timeline
The timeline displayed here is typical in a California non-judicial foreclosure. The foreclosure timeline does not begin until the lender feels they have exhausted all avenues for curing the payment delinquency. Normally, this happens after the borrower has missed 1 to 3 monthly mortgage payments. The borrower has probably been contacted by the lender several times prior to beginning the foreclosure process .The official foreclosure process then begins by the lender contacting a Trustee and instructing them to file a Notice of Default.
NOTICE OF DEFAULT TIME LINE (NOD)
Day 1
Notice of Default recorded with County Recorder.
Within 10
business days
Notice of default is mailed by the Trustee to the borrower and includes the recording date.
Within 1 month
Notice of Default is mailed to borrower again.
90 Days
Notice of Default period ends and Notice of Trustee Sale period begins.
NOTICE OF TRUSTEE SALE (NTS)
After 90 Days
Sale date, time, and location are set.
30 days prior to sale date
Notice of Sale is sent to IRS (if applicable).
20 days prior to sale date
Notice of Sale is published in newspaper and is required to run for 3 consecutive weeks.
20 days prior to sale date
Notice of sale is posted on the property.
20 days prior to sale date
Notice of sale is mailed to borrower and required parties involved.
14 days prior to sale date
Notice of Sale is recorded in County Recorder’s office
5 days prior to sale date
The borrower’s right to reinstate expires
Auction day
Sale Date
The property is sold to highest bidder or reverts back to lender
Auction time
The final stage of the foreclosure process is the auction. In most cases the borrower has tried every possible way to save the property (refinance, borrowing, sale, joint venture, etc.). Auctions typically take place at the civic center or the courthouse of the county where the property is located. Auctions start at all different times of the day so it is important to do your research and make sure you are prepared before auction day.
The auctioneer usually begins the auction by stating which property sales have been cancelled and/or postponed for that day. Next the property address and/or APN number (assessors parcel number) is announced and the opening bid follows. The opening bid is almost always determined by the principal loan amount that is owed to the lender initiating the foreclosure. This opening bid amount will usually include the principal balance, late fees, interest due, attorney fees, trustee fees, etc.
The auction generally requires a “cash” purchase and it is not uncommon for properties to be sold for substantially less than their current market value. To keep you further informed, ListsPlus.net offers “auction tracking” so that you will know of any auction delays and the new date scheduled for the auction.
Properties are sold “as-is” for cash or cash equivalent. Use extreme caution when buying at a Trustee’s Sale; make sure you know everything about the property because you’ll own it. You will need to track properties you are interested in, making sure to record postponement dates and reasons for postponement. Keeping an accurate database is essential. When a property sale has been postponed, many times other investors will lose track of the properties, thus reducing competition at the actual sale. ListsPlus.net offers tracking for all properties using a Trustee Sale Number (TS #). When you are seeking information regarding a property, this number is used to reference the property.
Trustees are the ones processing a foreclosure and typically the only information they will give out regarding a property will be the date, time and location of a sale, along with an opening bid price.
Default and Foreclosure Timeline
Example Timeline
1/2/2006 - January payment becomes past due.
2/2/2006 - February payment becomes past due - account is now due for 2 payments.
3/2/2006 - March payment becomes past due - account is now due for 3 payments.
3/5/2006 - Lender sends the Notice of Intent to Foreclose to the mortgagor.
4/8/2006 - Notices have expired - Lender refers account to Foreclosure attorney.
5/8/2006 - Foreclosure attorney begins the legal process by filing a “Complaint” at the county courthouse.
6/23/2006 - Mortgagor does not respond to the complaint - a “Default Judgment” is entered.
6/25/2006 - Sheriff s office schedules a “Sheriff Sale” date.
7/25/2006 - Notice of “Sheriff Sale” is sent to each mortgagor on the loan.
8/25/2006 - “Sheriff Sale” is held.
8/27/2006 - Sheriff prepares and records a deed conveying title to the purchaser. If a third party does not purchase the property, the deed will convey title back to the lender.
8/27/2006 - Eviction process begins if the mortgagor still resides in the property.