REAL ESTATE SKY IS FALLING SAYS CHICKEN LITTLE!
The Real Estate Sky is Falling says Chicken Little. Isn’t that what everyone is saying? Do you remember the story about Chicken Little? Do you believe Chicken Little is right? I am here to say the Real Estate Sky isn’t falling like you think. However, you see it in the newspaper, you hear it on news, you hear it from buyers and investors. I say really is the sky falling or do people really want you to think that? I have watched our real estate economy change from good to great and then again from great to poor. There is always a down and up cycle in real estate. People will always need to have a place to live. Now is the best time to get involved in real estate. Why has this happened, do you say? Everyone should know the answer to all of these questions however, I will tell you why. 1. Adjustable Rate Mortgages; 2. Loss of Jobs; 3. Increase in Taxes; 4. Investments purchased on speculation, just to name a few.
With all of these problems, individuals who had purchased properties whether to live in, rent or resell due to the changes in the economy has caused individuals with good credit to head into foreclosure. I know some individuals who have tried hard to maintain properties and spent thousands of dollars only to have the house end with a foreclosure. A short sale on someone’s credit report is better than a foreclosure.
The foreclosure market is one of the main reasons that I relocated from Michigan with my husband, Larry, daughter, Hollee, son, Taylor, Mother, and 3 cats. It was the national lampoon road trip, if you know what I mean. If you have ever driven in a car with kids, a mother and 3 cats for over 24 hours, then you know what I am talking about. I kept hearing Mom “he is touching me” or Mom, “she is making faces at me”. Thank goodness we available in Orlando, Florida. That was July of 2006. My name is Kimberlee Frank and believe it or not, I relocated to Florida because of the foreclosure market. Crazy right? Or, was it? My business partner and I teach investors how to help the Seller in foreclosure, negotiate the debt, find a buyer and then the investor would get paid a nice check. We always say it has to be a win for the Seller, win for the Bank, win for the Buyer and last a win for the Investor. We teach you all the Shortcuts to Short Sales. You see, I worked for attorneys for 18 years and am a licensed Real Estate Broker and I could see that there was not enough help for individuals who are in foreclosure so I started teaching investors and realtors how they could help those people.
THE HOPE PROGRAM
One of the programs that help homeowners keep their home is the HOPE Program. This program will help the homeowner by asking the mortgage company to either do a loan modification or a forbearance program. What is a loan modification? This is where the mortgage company is willing to take the payments that are in arrears and either add them to the end of the loan or forgive them completely. Believe it or not, we have seen second mortgages being completely forgiven by the mortgage companies. That was when the first mortgage company owned the second mortgage allowing them to make such a decision. What is a forbearance program? That is where the mortgage company will take the amount that is owed for the loan and stretch that amount over a 6 to 12 month period. Usually this would require a down payment from the seller. Their payments would go up monthly until the entire amount is paid back.
WALL STREET’S $700 BILLION DOLLAR BAIL OUT
The latest bail out is for Wall Street. Our Government wants the public to pay $700 billion dollars to help with the mortgage company’s defaulted loan. What this means is that every family will be contributing $8,000 towards this debt. It is hard for the public just to survive if they are already in foreclosure not alone taking on this type of debt. You see though, even when the government steps in to help some of the mortgage companies with their bad debts, there are going to be more and more debts going bad. Adjustable rate mortgages were the majority of the loans that were given to homeowners. They usually mature between 2 and 5 years. I believe were in the third year of that loan period. Therefore, there will be more and more individuals heading into foreclosure. Why? Because the values have decreased drastically and you can’t sell the property for what it is purchased for or the Seller can’t pay the difference at closing. You can’t rent the property for what the mortgage payment is because the rent in the area is lower than the monthly mortgage payment.
CHAOS CREATES CASH
We have a saying at our company, CHAOS CREATES CASH. What we mean by that is that the individual who can see past all the chaos and stays focus on helping individuals making it a win-win-win-win, they will create a boat load of CASH. Helping a Seller through the foreclosure short sale process and saving their home from going to foreclosure without making them liable for the balance that is owed is very rewarding. A lot of investors are running around and working on foreclosures but they are allowing the mortgage company to give the Seller a deficiency judgment. What is a deficiency judgment? That is where the mortgage company agreed to take a short sale for the amount that is owed on the property and the remaining that was discounted will still be owed by the Seller. Example: $100,000 loan. Mortgage Company agrees to $80,000.00 short sale. Deficiency Judgment is $20,000. When doing a short sale, it is very important that you get the mortgage company to waive the deficiency judgment against the Seller. In most cases, it doesn’t do the Seller any justice if the mortgage company will not accept the short sale amount in full and only do a lien release allowing them to go after the Seller for the difference. We have a 98% success rate of getting deficiency judgments waived. Should a mortgage company request a deficiency judgment, it will be up to the Seller if they are in agreement. The have been times when the mortgage company will ask for an unsecured promissory note that will be spread over 5 years with 0% interest for a portion of the difference that is owed. All of these things can be negotiated with the mortgage company when working a short sale.
Should the mortgage company accept the short sale as full satisfaction of the loan, then they can send the seller a 1099. The Seller would claim the amount on the 1099 as income. The mortgage company has two options: Option One: Obtain a Deficiency Judgment against the homeowner or Option Two: Send a 1099 so they can write off the difference. A 1099 is a taxable event just as if the mortgage company gave the Seller the money (difference) between the short sale and the balance owed on the mortgage. As in the example above, the Seller would receive a 1099 for the $20,000. President Bush signed a law H.R. 3648, The Mortgage Debt Relief Act of 2007, which dramatically changed the lives of homeowners across the country who were facing foreclosure, considering a short sale, negotiating a loan workout, or have done any of these since January 1, 2007. This law forgave up to $2,000,000 million dollars on primary residences for homeowners. However, this law did not give the investors a break. It did not apply to them. However, there is a 982 form that the Seller could file with their CPA which states that if their liabilities out weigh their assets then it would not become a taxable event.
We have seen an increase in sales on the Multiple Listing Services over the last 3 to 6 months indicating that people are still purchasing properties. Individuals who thought that they couldn’t buy a brand new big house are now purchasing properties. We our working on over 200 short sales and our Loss Mitigators have seen the mortgage companies agreeing to more and more short sales. Our closings have increased by 20% this month alone. The end of the quarter is coming for the mortgage companies and this is where they will be cleaning out their inventory to start 2009. Mortgage Companies don’t want houses they are in the lending practice.
There has never been a better time to start investing in real estate. Whether you purchase your dream home, rental property or just buy and resell. Understanding the foreclosure short sale process and making sure that your forms comply with states laws regarding foreclosures are really important. I would recommend learning this process not only to help yourself but to help so many other sellers. If you aren’t doing foreclosure short sales, I ask you why? Afraid of the process, leverage experienced individuals who built teams to do your negotiations like our company does. We call it the submit it and forget it process while our loss mitigators negotiate the debt to market the property. Just stop and think how many people do you know that are in foreclosure? After answering that question, I again ask you why you aren’t doing short sales?
Wishing you the best for your success.
Kimberlee Frank
www.RealEstateJunkie.com
