Dealing with Junior Liens & Second Mortgages
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One of the major myths surrounding short sales is that a property with a junior lien or second mortgage is simply off-limits. While many investors or agents that deal in large numbers of short sale properties may move beyond the headache and hassle associated with junior liens and second mortgages, they represent prime purchasing opportunities for those with more time than money on their hands.
Learn how to generate major profit potentials and avoid common pitfalls by recognizing the major motivations required to address junior liens and second mortgages.
Fact #1 – Junior liens and second mortgages often get wiped out entirely during an estate auction, bankruptcy or other related actions. This is a critical issue to keep in mind when approaching a lender that holds a junior lien or second mortgage on a potential short sale property. While the primary mortgage holder or lender will understandably desire to recuperate as much of the original mortgage as possible, they have the upper hand by essentially controlling the underlying asset. Should the property go to bid, the lender is first in line for satisfaction. All other junior lien holders must hope and pray there is enough left over to cover their loan. As you might suspect, lower sales prices often leave junior lien holders with nothing….and more open to negotiation for low pay-offs than you might suspect. It’s not uncommon to offer a fraction of the cost of the original note in order to secure a timely acceptance letter.
Fact #2 – It’s often worth a little to gain a lot. While it is entirely possible to have a junior lien totally wiped clean, it’s often worth the time and effort to offer a $1,000 or some other reasonable amount (depending upon the total cost of the lien) in order to secure a timely acceptance and negotiation.
Fact #3 – Other alternatives exist! A second mortgage or lien holder that refuses to negotiate a low pay-off might be willing to remove the lien from the property and attach it to the homeowners name as an unsecured note. This should be clearly explained to the seller since it will result in a debt even after the home has sold. However, sellers with relatively reasonable second mortgages as well as those that desire to minimize debt in order to restructure may find this a highly agreeable option. If worst comes to worst, the seller is now left with an unsecured debt which is subject to normal bankruptcy laws.
Fact #4 – One offer isn’t always enough. Don’t be afraid to counter-offer or reduce your initial offer as new information come in. It may delay the process and isn’t always desirable but as the date draws closer or other information becomes apparent, junior liens are at increased risk for walking away with absolutely nothing. Don’t be surprised to find they are willing to accept an offer originally rejected just a few weeks before.
Fact #5 – Second mortgages are not easy to deal with but they are “do-able”…third and fourth mortgages are often downright simple. Remember, the lower they are on the totem pole the less likely they are to see anything from the property. Make this clear and present your case effectively in order to save time and money. Many will settle for little to nothing (literally) if you understand how to effectively present your case and the calculations. Not sure where to start? Sign-up for more information or sit in on one of the video seminars to learn how you can start profiting from short sale properties.
Cool Online & Mobile Real Estate Tools
If you just can’t get enough of cool online applications then you will love today’s selection. Get ready to bookmark or save these to your favorite list because they are as useful as they are trendy….not to mention each can save you time or money while you are off building your short sale empire.
Google Foreclosure Finder
Use it anytime, anywhere plus it’s free and oh so simple to use. Just go to the main Google maps search engine page (www.Google.com/maps) then type in your desired zip code or city into the search bar. Use the drop down to indicate the search is for “real estate” then click on “foreclosure” to filter the results. Not only will you have a list of foreclosures, photographs and a map to each property but it’s possible to take a virtual tour of the neighborhood for many areas.
Zillow iPhone Real Estate Search App
Zillow is on the go with this new iPhone real estate search that allows users to tap into the Zillow.com database of nearly 90 million listings throughout the nation. Combine with a GPS enabled iPhone, the Zillow data makes easy work of finding previously elusive information like tax data, former sales and nearby listings while on the go. Better yet, get notified when new results come in, filter by bedrooms/bath etc or email it all to a friend. Try it for yourself by visiting http://www.zillow.com/iphone/.
Mint.com Money Minder
Voted a Top Pick by Money Magazine, Kiplingers, and other leading journals. Finance on the Go. Manage your money minus the headache with the help of mint.com. Each and every day your transactions and balance is automatically downloaded and updated while creating graphs, balance, net worth and much more. It’s a great way to keep track of all those business related expenditures.
Obopay
Pay instantly by cell phone without the need to worry about lost wallets, credit cards or other inconveniences. Send or receive funds by signing up at obopay.com. Keep a contract on hand and put an earnest money deposit straight into their hands to leave a lasting impression!
What’s the Walk Score?
Find out how walkable a property is before buying by visiting www.walkscore.com and typing in any address. It will instantly show you what is nearby and provide a walkable rating…great for going green and highlighting amenities.
A Simple Measure
Sick and tired of running to the hardware store only to realize you forgot a measurement? Tired or re-measuring the same old window only to misplace the scrap of paper? Leave it all behind thanks to A Simple Measure (www.asimplemeasure.com). Measure once and store it forever. Access the information anytime via cell or online. Includes more than mere measurements, faucets, fixtures and much more will all be available anytime, anywhere.
How Uncle Sam Can Help Build Your Portfolio
If it seems like the big bail-outs are reserved for folks in D.C. you aren’t alone. Experts have recently noticed that Washington is handing out bonus dollars for bankrupt executives while people on Main Street are getting laid off in record numbers. Meanwhile the federal government is hiring even while small business owners are shutting down the shop. If you are like most American’s, chances are the little bit of unemployment alone simply won’t suffice in keeping a roof over your head while saving for college and planning for retirement. After all, a mere $400 per week for six months barely keeps a family above the poverty level.
Instead of hoping for a bail-out that actually applies to you, learn how Uncle same can truly help build an investment portfolio with the help of short sales. Skeptical? Good. It shows you aren’t likely to fall for the cheap tricks and dime-store strategy promoted by most so-called experts; instead, keep reading to see for yourself how this little used strategy can turn short sales into a long term income, private pension fund or other investment portfolio even while others stake their wealth on a wing and prayer.
1. Find a short sale property located in a good rental market. Look for simple starter homes in family oriented areas located close to public transportation, schools and shopping.
2. Place the minimum down payment and finance the rest using an affordable interest rate fixed for 30 years.
3. Perform needed maintenance and repairs to bring the property up to a safe and secure living condition. Do not over-invest in the property. Use the KISS formula (keep it simple stupid). The goal is to provide safe and affordable housing.
4. Market your property to the Section 8 housing program via the local HUD office. Section 8 provides rental assistance to low income households. You will need to fill out a property information sheet and have the home inspected (usually free) by a HUD inspector.
5. Determine the Fair Market Rent. HUD typically pays all or a portion of the rent for low income households based upon the fair market rent for your area. FMR can vary widely depending upon the area the house is located but a typical 3/2 home in a small town in Florida will go for just over $1,000 while another in California may be double that. Once approved, you can now show the home to prospective tenants just like you would any other program. To determine the Fair Market Rents in your area view the current 2010 FMR schedule at http://www.huduser.org/datasets/fmr.html.
6. Sign a lease. Collecting rent directly from the federal government dramatically reduces the likelihood of skipped rental payments but it is still important to carefully screen tenants and sign a lease just like you would for any rental. Many tenants may be responsible for only a very small portion of the monthly rent but other issues like damages, repairs etc still should be clearly indicated.
7. Bottom line…Section 8 rentals are not for the faint hearted but it is often possible to lower the risk of non payment for homes that are both affordable and able to cash flow very nicely due to their location. Rather than going it alone in a tough rental market, partnering with Uncle Sam to provide safe and affordable housing while receiving payments directly from the Federal government builds equity and income while others are cutting back.
What’s Better - Short Sales or Tax Certificates?
Late night guru’s and top selling books both proclaim tax certificates as a sure-fire way to build wealth. While tax certificates and liens can certainly become a profitable part of your investment portfolio, they are not without risk. When it comes time to investing your hard earned dollars into real estate, what is better - short sales or tax certificates? Keep reading to learn the facts behind the façade then decide for yourself which makes the most financial sense.
Fact- Tax Certificates can generate returns as high as 16 to 18 percent. While that certainly beats putting your money into a savings account or even the stock market, it’s still a far cry away from the returns realized by many short sale investors. Consider this, if you were to take $100,000 and invest it entirely into tax certificates each earning an incredible 18 percent, you would generate $18,000 profit (before taxes, transaction fees, losses etc…). On the other hand, that same $100,000 could be used to purchase up to 5 short sale properties at 20 percent down payment…each of which could easily earn $18,000 in much less than one year’s time!
Fact - Tax certificates and raw land rarely generates residual income. Your money is tied up until the redemption period or the property is sold. Short sales can be rented, leased or otherwise used to generate income prior to the actual sale.
Fact - Tax certificates are not always redeemed! Especially during tough economic times, the back taxes plus interest and other fees may cost more than the property is worth leaving tax certificate investors holding the bag. You can petition to have the property sold but back taxes, liens and other expenses often make it a losing proposition. Worse, if you don’t continue to pay the taxes on the property, additional liens could drive up the total cost even more.
Fact - Liens, environmental restrictions and major clean-ups can further reduce the profit potential of a property even should you become the “high bidder” for a non-performing concern. People promoting the benefits of buying tax certificates for investments rarely talk about the cost of taking acquisition should a property fail to be redeemed. The underlying assumption is the value of the underlying land would compensate for the risk - but what happens if the land itself is the risk? Remember, there is a reason certain properties are forfeited…typically because the value of the property has dropped below the back taxes and other liens or because there is a very high assessment, clean-up fee or restriction associated with the parcel.
Fact - Minimum bids on auctioned properties may not ever reach the minimum you have invested into the property. Further compounding the problem, if more than one tax certificate investor has an interest, proceeds are further divided.
Fact - Clouded title is common. Another relatively expensive problem rarely mentioned in association with tax certificates is the issue of a clouded title or lack of proper recording. Remember, tax certificates only earn those great interest rates if they are actually redeemed - otherwise, you could be stuck with a property you never expected to own and which could cost a small fortune to obtain clear title, pay off existing liens, bring the property up to par in order to sell or even “unload” if excessive environmental or other concerns are noted.
Value Matching - Selling What Matters Most
There is a new trend hitting America that every real estate professional and short sale investor should use to their advantage; getting back to basics. You’ve seen the credit card commercials with feel good family values that claim conspicuous consumption is dead or the big box stores touting stay-cation’s rather than expensive European getaways….but how can you make it work for real estate?
It’s simple once you understand the basics about value matching. Keep reading to learn more:
1. Don’t Pigeonhole. Value matching is not about putting labels on people; in fact, that is a sure-fire way to fail. Instead, it is about learning what values are important to your target population then meeting their needs by providing the best “fit” possible. Real estate is one of the most important investments most people will make during their lifetime. Aside from the large dollar amount, it is often a critical decision which will define the future of their family and social standing for years to come.
2. Listen. Value matching requires the ability to listen in order to understand the needs, hopes and desires of the buyer (or seller). It’s imperative to find out what matters most to each client then sell those factors - forget about the typical trappings of success (unless that is indeed what matters most to your client) and instead focus on what they value most. The typical family will fall into several distinct categories including:
* Family - Young married couples searching for safe, affordable family oriented neighborhoods. Schools, cost, local amenities like parks and safety take top priority.
* Empty Nester’s - Convenience typically trumps everything else. Low maintenance yards, access to hospitals/grocery/shopping/golf and good neighbors get their attention.
* Sanctuary - Freedom, privacy and safety is of utmost concern for some; don’t be too quick to put a label since these come in all shapes and sizes. From high net worth individuals seeking solitude to good-ole-boys that want to practice commando moves in their back yard, those seeking safety and privacy will pay a premium for the right property.
3. Build Relationships - The future will require the ability to build meaningful relationships even for temporary transactions like those of real estate. Trust has become a bigger issue than ever as people feel uncertain about whether or not they are getting a good deal or will encounter trouble later down the road. Word of mouth marketing has always been a real estate agents best friend but now, investors are recognizing the benefits as well.
4. Position as a Problem Solver - Become more than a sale person or investor by positioning yourself as a problem solver with solutions to people’s most urgent housing related needs. People have an inherent need to feel unique and a growing grudge about paying for simple ‘paper shuffling’. On the other hand, everyone is grateful when someone solves their most pressing problem…even if the cost is higher. Remember, its part of the value you bring to the table during any transaction.
