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This could be the most important real estate tip you ever receive, and by taking daily action, you could change your financial life forever!

It is easy to claim to be a real estate investor. You can easily uncover whether people are truthful about this with one simple question. The question is:

“Are you a committed real estate investor?”

Commitment equals results. Generally, being a real estate investor means the result is making lots of money. Let’s assume that as a real estate investor you want to net $100,000 per year in cash.

How do you measure your own level of commitment? The first step is to answer the following questions honestly:

1. What did you do yesterday to prove you are a real estate investor? Phone calls? Offers? Drive neighborhoods? Letters? Craigslist.com? Backpage.com? Ebay?
2. What did you do last week to prove you are a real estate investor?
3. What did you do last month to prove you are a real estate investor?

The second step is to analyze your own actions and ask whether those actions show commitment.

The bottom line is that if you are not taking action on a daily/weekly/monthly basis then can you really expect six figure results? Of course not! Action equals results, and cash.

Author: Gerald Romine

The short answer is YES! You can, and should, borrow money to invest in real estate. However, let me clarify. Investing is where you have a realistic plan to make a strong return on your investment. The return is not based on appreciation of the property. It must provide a return on investment after allowing for costs, expenses, and an allowance for things that might go wrong.

When borrowing money to invest, here are 3 simple rules to follow:

1. If you had the cash, would you loan someone else the money you’re asking to borrow against the same property? If the answer is, “No,” then you don’t have a great investment that you are confident in. Move on.
2. Does the risk justify the reward? Are you making enough money to make it worth it, or are you getting involved because you want to be “in” real estate? The only reason for a business is profit. If there is not enough profit, move on to another deal.
3. Is this a long term investment? If the answer is, “Yes,” then the next question becomes, “How much money are you making monthly?” If you’re not making money monthly, then you are speculating (hoping, not investing) for future profits.

Certainly there are exceptions to these rules depending on your financial position and your investing goals. However, many novice investors get sucked into buying properties. They believe, mistakenly, that real estate always goes up in value. They hope that history will repeat itself and they will become rich in the future from their property.

Smart and profitable real estate investors base investment decisions on instant profitability. You can’t go broke when you are making a profit from the beginning.

Author: Gerald Romine

Are you tired of paying too much for homes with conventional financing?

Would you like a simple formula? How about a formula that 95% of real estate investors do not know, understand or use? A formula that will guide you to your own real estate riches?

Most real estate investors fail in business for a simple reason. Overcoming this common reason can easily turn a starving investor into a financial success. The difference is in understanding and learning:

The 4 F’s of Real Estate Investing

1. Find them
2. Fund them
3. Fix them
4. Flip them (or keep them)

Now the test: your answer to one simple question will tell me a lot about your current real estate investing knowledge.

Question: “Which F is the most difficult?”

1) The Common Answer: Beginners believe funding properties is the hardest part of the process. Beginners struggle to understand the money they want is readily available from others. When you find a great deal, there are people who will make loans secured by real estate. They agree that with your payments they get a set amount of profit, but if you don’t make the payments they take property and make an even larger profit.

2) The Correct Answer: Experienced investors focus their efforts on finding deals. Why? Because if you do not have the right deal then there is nothing to fund, fix, or flip. Spend your time on “Finding.”

The Magic Formula

First, focus 90% of your effort to finding deals.
Then invest 10% of your effort in funding, fixing or flipping after the deal(s).

Ask yourself, “Have you been putting in 90% of your efforts on finding deals?” If the answer is “No,” CHANGE IT.

Gerald Romine

A mechanic was busy removing a cylinder head from the motor of a Harley-Davidson motorcycle when a well-known heart surgeon entered his shop.

The surgeon was waiting for the service manager to take a look at his bike when the mechanic shouted across the garage, “Hey, doc, can I ask you a question?”

The surgeon, a bit surprised, walked over. The mechanic straightened up, wiped his hands on a rag and asked, “Doc, look at this engine. I open its heart, take valves out, fix ‘em, put ‘em back in, and when I finish, it works just like new. So why do I get such a small salary and you get the really big bucks, when you and I are doing basically the same work?”

The surgeon smiled, leaned over, and whispered to the mechanic, “Try doing it with the engine running.”

What does this have to do with real estate investors?

Many investors approach real estate deals like the mechanic. They try to solve problems with textbook answers and forget they are dealing with people.

As an example, assume your property meets my buying criteria. I’ll pay cash, or the only other way I can buy your house is to take over the payments.

While both options may be true and are good things to say when talking to the seller, investors should take the surgeon’s approach and realize they are working with real, live people that want (and need) to be heard and listened to.

Real estate is a great business that can be financially rewarding, just remember to put people first and you’ll benefit in more ways than you can imagine. If your only focus is the money, people will “sense” this and many will not want to work with you or sell you their home.

Author: Gerald Romine

Before I get into today’s message, let me tell you that I am a very spiritual person. Whether one believes in religion or not, we are all seeking something better in life. Your beliefs matter, not the wisdom of this message and how it can help you in your real estate business.

Many of my friends get a kick out of my blog and newsletters because of the exciting headlines, our boldly named website, www.KickAssRealEstate.com, and how that contrasts with the person they know me to be — rather quiet and preferring anonymity. But they also know I’m a businessman.

Let’s start with an ancient proverb:

The wise and moral man
Shines like a fire on a hilltop,
Making money like the bee,
Who does not hurt the flower.
-The Pali Canon (500-250 B.C.E)

In this proverb, Pali is telling of the wise and moral man who shines like a beacon and prospers in the same way as the bee with its relationship to the flower. Bees make money (honey) by working with the flower and the flower is not harmed, but helped in the exchange. Real estate is the same way. By helping people we are able to prosper.

As an example, a few years ago I purchased a house from an elderly couple. The husband was in very poor health. They had no mortgage and owned the house free and clear. The house was a rental in terrible condition with less-than-desirable tenants who wanted to prevent any sale from taking place. I dealt with and resolved every problem. To make the seller’s life easier, I even arranged for the title company to bring the paperwork and a notary to the seller’s home so the husband would not have to go through the physical ordeal of going to the title company.

The sellers knew the home was being sold below market and were happy with the sales price. Their priority was spending the time they had remaining together. I made the transaction as easy as possible for them. After I bought the house and evicted the tenant, we found extensive “new” damage to the property, including concrete-like material poured into the drain lines. Not once did I complain to the seller or even tell them what happened. I’m sure they would have corrected any damages, but I thought it was more important to not disturb them. (As it turned out, I sold the house using the Work For Equity System, http://workforequitypro.com/, and didn’t have to contend with the damage either).

Since then the seller has referred me to a friends and told them they should sell their house to me because I’m fair and hassle-free. No, I didn’t buy their friend’s house, but you can’t buy them all.

A year or two later he seller called me to discuss my buying her personal residence. Unfortunately her husband passed away wanted to move across town to be closer to family. I told her we can do whatever she wants and I could even help get her a moving truck and that she could leave behind anything in the house she no longer wants or needs.

You always hope to buy the house, but it really does not matter because like the bee, I make my money when I help the flowers. And, I’ve found it is a lot easier to have things come to you when you are the beacon then it is to chase after them. Do you understand the difference? It’s not a quick fix but a way of life and best in the long run.

Author: Gerald Romine

It amazes me how many people spend countless hours finding a deal, fixing it up, and then when they go to sell the house, they become dumber than a box of rocks.

What is the highest paid profession in the world? Sales. No surprise there. If you are selling a house, what profession are you in? Sales. Now, the big question…How much sales training have you had? For most people the answer is, “Little to none.” For those that have had some training, often the training was inadequate (if you want a great course on sales and negotiation get the book by Roger Dawson, “The Secrets of Power Negotiations”). But, right now let’s learn how to make the most of face-to-face negotiations with 4 simple techniques.

Example: You own a home and want to sell it for $X. You’re meeting with a prospective buyer. Inevitably the question of price will come up and there are several things you can do to maximize your position and your ultimate gain.

4 Magic Negotiation Techniques Anyone Can Master

1. The Cringe. This is my personal favorite. The buyer has just made you an offer, now the ball is in your court. Imagine that you just took a big gulp of sour milk and it would be socially unacceptable to spit it out. Your body is repulsed by the distinct sour taste, but you have to swallow the sour milk. Your face contorts, your stomach tightens, your eyes squint and your entire body stiffens and then you swallow the pungent milk and then you make a muffled grunt…”oughhh.”Now, that’s “the cringe” and after the making the muffled grunt you remain quiet.The silence will be awkward, and the buyer will sense your displeasure with their offer. With only one grunt and non-verbal communication you’ve put yourself in a position to negotiate upward for the property. The buyer will likely volunteer a higher price if you give them time.
2. The home is probably worth more than I’m asking: After the buyer has made you an offer, you reply, “The home is probably worth more than I’m asking.” This simple sentence helps establish the value of the home and implies to the buyer that the price is already at a discount and a great deal. It’s a polite way of holding your ground and keeping the price up.
3. Blame your partner: After the buyer has made you an offer, you reply, “I don’t think there is any way my partner (wife, company, brother, dog, etc.) would accept that.” When a buyer wants a house, they are looking for reassurance that things can be worked out. By placing the decision on your partner you are in a much better negotiating position. This is a version of “good cop, bad cop.” You can further add, “I might be able to get them to consider $X, would you like me to try?”Does this technique really work? Well, have you ever been to a car dealer to buy a car? It’s no accident that the car salesman has to go to his boss with your offer. Several times he’ll come back with “I tried, but we just can’t make that work. If you could offer $X I think I could get the finance manager to approve it.” This back and forth process drives the price up and maximizes their gains. They know the game so well that they won’t let you sit with the decision maker because that would cost them money! Now you know this trick.
4. Split The Difference. Many buyers have to make an initial offer so they can feel they have negotiated. If all else fails, and you are willing, you should offer to split the difference between their bid and yours, or the asking price. Often this will be what they EXPECTED and you’ll be able to complete the sale. But, splitting the difference is the last choice. You give away profits you might be able to capture using one of the other negotiating techniques.

There is no doubt that saying a few words, picking the right strategy, or using the right expression can be worth thousands of dollars to you per deal. Imagine the cumulative effect over your lifetime? These techniques and many others are covered in my system, KickAssWholesaling, a complete system for wholesaling houses, and Real Estate Profit Pro, the ultimate system to automate homes-buying in less than 5 minutes. Check them out at www.kickassrealestate.com.

One final lesson. Did you notice that in some places I used the word “home” and in other places the word “house”? This is no accident and an example of smart selling technique. Whenever I’m buying, it’s called a “house” and when selling, it’s always a “home.” Why? Do you live in a “house” or “home”? Which has a stronger emotion attached to it?

So when I’m buying it’s a “house,” because I don’t want the seller hanging on their “home.” I want them to disassociate with the building and calling it a “house” best serves that purpose. When selling, I want the buyer to fall in love with their new “home,” a place where beautiful memories are made. And, in this case a “house” just doesn’t cut it.

Author: Gerald Romine

Back in 1992 when I started real estate full time, I was flying by the seat of my pants. I had read a few books and thought I understood real estate investing, but looking back I realize much of my success was based on blind luck.
Now, I understand the importance of asking the right questions. I will share one of the most important questions you can ask any seller. It’s great because it cuts through all the BS and forces them to respond. Please, use this question every time you are talking with a seller.

“If I were to pay you all cash and close quickly, what is the least you would accept?”

When talking with a seller it’s important to find out what the seller wants and after building some rapport with them, this is THE Question to ask.

After asking the question, your silence is critical to force the potential seller to answer. Some sellers know their bottom line, and quickly share it, while others may be completely shocked at your question and/or may not know the answer themselves.

If you don’t ask the seller what they want, how could you possibly know what to give them?

Author: Gerald Romine

When is the last time you looked at your real estate loans to see if they are in times with the market? Are you paying 8%? Do you have ARMS with low interest rates that could be adjusting up? Do you have 80/20 seconds on rentals or your own house that is at 10%? Many people do and NOW is the time to do something about it.

Interest rates can still be obtained below 6% and if you have higher rate loans now is the time to refinance into lower rate fixed loans!

Today’s Tip: Look at your current loans and refinance if you can turn and ARM into a low rate fixed or if you can significantly lower your fixed interest rate.

Looking For A New Real Estate Loan Loan?

Then now is the time to check out the Zillow Mortgage Marketplace. In a nutshell Zillow has turned the loan application process upside down and it is to your benefit. Simply go online and fill out a completely 100% anonymous SHORT application that does not require your name, SSN, or phone number and lenders compete for your business.

Talk about powerful. This means that our loan is being bid on by lenders and we have the power to choose the winning bid. As a consumer you have to love that and with these interest rates you may be able to increase your cash flow several hundred dollars per month just my restructuring your debt.

Author: Gerald Romine

Buying properties in pre-foreclosure can be the most profitable segment of a real estate entrepreneur’s business! Unfortunately, it is also the most misunderstood. Hopefully, this article will shed some much-needed light on pre-foreclosures and how and why you should become involved.

How does the foreclosure process work? When a person buys a house, they normally have a small down payment and obtain a loan from a bank or mortgage broker for the balance of the purchase price. This loan is secured by the property in the form of a mortgage or deed of trust. If the lender does not receive their payments, they may file foreclosure to recover their debt.

The foreclosure process allows the lender to foreclose on any liens or encumbrances in order to take the property and become the legal owner of record. This allows the lender to resell the property and recover the original loan amount, plus expenses associated with the foreclosure. The foreclosure process can be lengthy depending on the state, but up until the public auction, the homeowner owns the property and has several options available to avoid it.

It’s important to realize when talking about pre-foreclosures, we are talking about acquiring the property any time before the public auction sale. The sooner you contact a homeowner in pre-foreclosure, the more time you have to structure a deal and purchase the property yourself.

A common misconception is that people buying homes in foreclosure are taking advantage of another person’s misfortune. This is simply not true. The lender made a loan in good faith and the borrower agreed to repay the loan. If the borrower does not make the required payments, they have broken the agreement and the lender must protect their financial interests. They may foreclose on the property as agreed to by all parties when the loan was originally made. Any time there is a foreclosure, the borrower has broken the terms of the agreement, and your intervention solves a problem the homeowner created.

When facing foreclosure, many homeowners bury their heads in the sand, hoping it will just go away. No action by the owner ensures losing the house in foreclosure, a severely damaged credit profile, and a loss of all equity in the home. When dealing with an owner in pre-foreclosure it is important to explain the benefits to them of avoiding foreclosure:

1. Protecting their credit profile. A person in foreclosure is often overwhelmed with battling life-changing events and has multiple financial challenges. By working with an investor, it may be possible to stop the foreclosure and start rebuilding their credit profile or prevent their credit profile from getting worse. In today’s credit-conscious society, a damaged credit rating negatively affects everything from buying a car to getting property insurance.
2. Protecting their equity. When a home is foreclosed, all of the equity is lost. That includes any down payments and other money contributed to principal. By working with an investor, it may be possible to recover some of the equity and prevent the foreclosure.
3. Rebuilding their life. The pressure and strain of a foreclosure affects all areas of a person’s life. Under such pressure people often become depressed, are unkind to loved ones, or make poor personal and business decisions. Stopping the foreclosure allows a person to remove an albatross from their neck and start getting their life back on track.

For the real estate investor there are many ways to financially profit. It can also be a great feeling to help people move on with their lives. If not for investors, lenders would foreclose on most properties and the homeowners would lose all equity and have a foreclosure on their records. Investors provide the vital role of helping homeowners salvage some equity, can often help the homeowner’s credit, and help people start rebuilding their lives. Unfortunately, many homeowners will not see or understand the vital role investors have, but it is not uncommon to receive thank-you letters after stopping foreclosures.

In order for an investor to be involved, there must be a profit, or there is no reason to be involved in the first place. When working with sellers, we let them know up front we expect to make a profit, and for us to make a profit we need to be able to stop the foreclosure. There is no charge for our services and the only way we make a profit is if we can stop the foreclosure. By being direct, the seller understands our incentive and motivation and this helps establish trust and rapport. When dealing with pre-foreclosures there are 3 main ways to profit:

1. Purchase the property from seller at a discount. Many times, a seller is willing to sell the property well below market value because they recognize it is better to cut their losses and move on instead of hanging on and going down with the ship. If the seller has enough equity, we can structure a purchase so they receive cash at closing, the balance of their equity in payments, or a balloon payment due at a later date.

   This can be a good option for sellers with enough equity. Unfortunately, in today’s society the majority of sellers owe close to the value of the property and when an investor takes into account acquisition costs, sales costs, holding costs, and repairs there is not enough equity in the property for an investor to make a profit.

2. Take over the loan and make up back payments. When a seller is in foreclosure it is possible to buy the house from the seller, take over the loan, and make up the back payments. The advantages for the seller are that the foreclosure is stopped and the property is sold to an investor who will make the payments. A drawback for the seller is that the loan remains in their name until paid off by the investor or a third party at a later date.

   The process of buying a home and taking over a loan in another person’s name is commonly referred to as buying a property “subject to.” In such a transaction, the title of the property transfers to the new owner, but the loan remains in the seller’s name. Lending institutions frown on buying properties “subject to” and include a due-on-sale clause stating the lender can call the loan due upon a transfer of title. In practice, lenders rarely enforce a due-on-sale clause and are more interested in receiving timely payments then enforcing the loan-due clause.

   Selling “subject to” is not without risks to the seller since the loan remains in their name and if payments are not made, their credit can be affected at a later date.

   The benefits for the investor are that they can acquire a property with little money out-of-pocket, no loan costs or appraisal fees, and their credit is not affected or put at risk by the loan they are taking “subject to.” This is a powerful investing strategy unknown to most investors. It is one that should be used by ethical individuals. Like many powerful tools, it has the ability to be used for good or bad. When purchasing “subject to” properties there are documents that must be signed for the protection and understanding of all involved.

3. Discount the loan(s) from the lenders. Commonly referred to as a “short sale,” this is nothing more than negotiating with the lenders to accept an amount less than they are currently owed. Why would lenders discount their loans? There are a couple of reasons:

   a) Lenders do not want to own properties. If a borrower does not pay the loan, a lender’s recourse is to foreclose on the property. If the property is not bought at public auction, the lender becomes the new owner of the property. Lenders are in the business of loaning money, not owning homes. When a loan is not being paid, it is considered a non-performing asset and affects their lending ratios. Also, as owner of the property, the bank becomes responsible for property taxes, insurance, association fees, Realtor commissions, and closing costs. Things they do not want to deal with managing.

   b) “Cash now” is better than “cash later.” Many times a bank would prefer the certainty of accepting a discount instead of unknown holding costs, liability, and unknown sales price at a future date. The bank understands that a discounted offer today could actually net them more than a higher potential future offer when considering the closing costs, Realtor fees, and lost opportunities of lending money based on their ratios.

Whether buying a property “subject to” or attempting a short sale, you want to complete many of the same documents. Since short sales can be a lot of work before we begin, we hold title to the property “subject to” before negotiating with the lender. Experience has taught us the painful lesson of working months on a project and having everything worked out with the lenders, only to have a previously cooperative seller change their mind and refuse to complete the transaction. Trust our experience on this.

The following documents are necessary:

• Standard Purchase and Sales Agreement & Escrow Instructions:
  This document details the terms of the sale.
• Authorization to Release Information:
  This document allows us to contact the bank, discuss the property and the loan, and work out payment/payoff arrangements.
• Letter of Agreement and Addendum:
  This document clarifies that we will do our best to stop the foreclosure, but cannot and do not make any guarantees. We will not make promises we are unable keep.
• Warranty Deed to Trustee:
  This document conveys ownership of the property. Must be signed before a notary.
• Agreement and Declaration of Trust:
  This document creates the land trust. A land trust is nothing more than an entity we use to title the property and keep our name off public records.
• Notification Letter That Trustee is Making Payments:
  This letter is used when taking property “subject to” and notifies the lender that payments will be coming from a trustee.
• Escrow Letter:
  This letter instructs the lender to apply to funds in any escrow account to the loan balance when the loan is paid in full. There is no guarantee the lender will comply with the instructions and they may send the escrow proceeds to the original borrower.
• Special Power of Attorney:
  Applies only to the property and is used to handle any situations that may arise. Must be signed before a notary.
• Residential Real Estate Disclosure:
  Discloses any defects in the property and prevents parties from saying, “I did not know about that defect.” Complies with state law.
• Hardship Letter:
  When dealing with foreclosures, the lender normally requires a letter from the borrower explaining their hardship and why they are unable to make the payments.
• Financial Statement:
  Before discounting a loan and taking a known loss, the lenders will want to review the original borrower’s financial statement and make sure the borrower does not have the ability to repay the debt now or in the foreseeable future.

When preparing a short sale, lenders require a short sale package before they will consider accepting a discount. We recommend you provide the following documents:

• Cover Letter:
  A letter requesting a short sale and why the lender should consider your offer.
• Authorization to Release Information
• Standard Real Estate Purchase and Sale Agreement
• Hardship Letter from Borrower
• Financial Statement From Borrower
• Proposed Closing Statement (HUD1):
  All lenders want to see a HUD1 so they know their bottom line and to ensure the seller is not receiving any compensation.
• Opinion of Value:
  We recommend you provide the lowest comparable sales in the area.
• Estimate of Repairs:
  Most properties need repairs, and if you expect the lender to discount, you need to detail the necessary repairs.
• Notice of Trustee’s Sale:
  The actual foreclosure notice should be included. This subtly lets the lender know you understand the foreclosure process.
• Color Photos:
  Supply the lender with photos of all problems on the property. This helps the lender justify accepting a lower price for the property.

Short sales provide a great opportunity for creating equity and can be done without risking your cash and without using your credit.

By negotiating discounts with the lender, you can create a situation where the property can be purchased well below market value. Then other investors will purchase this opportunity from you and close the transaction with cash!

Everyone wins: the seller has the foreclosure stopped and may receive some of their equity, the lender receives a negotiated amount of cash at closing, the investor that purchases the property is able to buy at a below-market price, and you receive a well-deserved profit for your negotiating skills and ability to put the transaction together. And of course, you can always buy the property yourself.

Author: Gerald Romine

A Deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e., the borrower) conveys all interest in a real property to the mortgagee (i.e., the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.

The deed in lieu of foreclosure offers several advantages to the lender but is a bad deal for the borrower. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy.

The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. However, a deed in lieu of foreclosure is reported to the borrowers credit and has the same effect as a foreclosure. The simple translation is with a deed in lieu of foreclosure the lender gets the property back saving the time and expense of a foreclosure and the borrower’s credit is marked for 7 years with the equivalency of a foreclosure.

In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Generally, the lender will not proceed with a deed in lieu of foreclosure if the current fair market value of the property exceeds the outstanding indebtedness of the borrower.

Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. This will enact the parol evidence rule and protect the lender from a possible subsequent claim that the lender acted in bad faith or pressured the borrower into the settlement. Both sides may then proceed with settlement negotiations.

Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

Summary: A deed in lieu of foreclosure is a good deal for the lender but the borrower is left with a foreclosure/foreclosure equivalent on their credit file. A deed in lieu of foreclosure offers no tangible benefit to the borrower.The best alternatives are a short sale or Arizona homeowners may be able to just walk away.

Author: Gerald Romine

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When doing a short sale the debtor may receive a form 1099-C for the amount of the lender’s losses. This is considered loan forgiveness in the eyes of the IRS and the lender may issue a form 1099-C.

If the debtor has other assets such as savings and is not insolvent, the debtor may end up being responsible to pay ordinary taxes on the amount of the 1099-C.

If the debtor settles a debt with a creditor for less than the full amount owed, the debtor may be required to report the forgiven debt as regular income, with certain exceptions. The forgiven debts include money owed after foreclosure or property repossession or credit accounts are not paid. Exceptions noted below.

If a lender forgives or writes off $600 or more of a debt’s principal (the amount not including interest or fees) the lender must send the debtor and IRS a Form 1099-C at the end of the year. When the debtor files tax returns for the tax year in which the debt was written off, the IRS requires that the amount is reported as income.

Warning: The debtor may not receive this form from the creditor even though the creditor submitted the form to the IRS. If the creditor does list the income on their tax return and the IRS has the information of the transaction on file, the debtor could get a tax bill or, worse, an audit notice.

There are several exceptions stated in the Internal Revenue Code. For example, you do not have to report the income on your tax return if the write off of the debt is intended as a gift, you discharge the debt in bankruptcy, or you were insolvent before the creditor agreed to settle or write off the debt. Always encourage the debtor to consult qualified tax and legal counsel to see if these circumstances apply.

It is important to realize the tax implication is only on the amount of the forgiven debt.

Example: The lender is owed $150,000 and agrees to accept a $100,000 short sale. The amount of forgiven debt is $50,000 and the most the lender could report on a 1099. Assuming the debtor was in a 15% tax bracket the tax consequences would be $7,500.

By comparison if the property was sold at public auction and brings $100,000 the lender could seek a deficiency judgment against the mortgagor to recover the $50,000 shortage, plus foreclosure expenses. The short sale is the much better alternative.

Note: Arizona Residents May have a better option. Click Here For Details.

Author: Gerald Romine

A deficiency judgment is a judgment lien against a debtor, defendant or borrower whose foreclosure sale did not produce sufficient funds to pay the mortgage in full. This option may or may not be available to the lender, depending on whether they have made a recourse or non recourse loan.

The fuller, statutory definition as defined by New York is: “the whole residue, or so much thereof as the court may determine to be just and equitable, of the debt remaining unsatisfied, after a sale of the mortgaged property and the application of the proceeds, pursuant to the directions contained in such judgment, the amount thereof to be determined by the court as herein provided.

The plaintiff’s attorney (in other words, the bank’s lawyer) must make a motion to receive such a deficiency judgment. Otherwise, the amount gained from the sale shall be deemed the full amount owed, and the plaintiff has no right to collect the additional debt. However, if the parties (mortgagor and mortgagee) have already agreed in their mortgage or promissory note, then the debtor could be liable for the full amount.

A debtor who has a deficiency judgment should see an attorney for possible remedies, including bankruptcy, an exemption from creditors,an appeal, or a motion. As with all legal research sources on-line, Internet users should take caution before applying such advice to your own case, and perhaps should consult an attorney.

Example: Upon Default by the Mortgagor a lender Forecloses on the mortgage. The unpaid balance of the loan is $102,000. The property is sold at public Auction and brings $80,000. The lender then seeks a deficiency judgment against the mortgagor to recover the $22,000 shortage, plus foreclosure expenses.

Deficiency States

Legislation enacted during the Depression still restricts the availability of deficiency judgments in several states. In some jurisdictions, deficiency judgments are prescribed in certain situations, while in other states, they are limited to the amount by which the debt exceeds the fair market value of the property. Waiver, the intentional relinquishment of a known right, of the benefits conferred by anti deficiency legislation contravenes public policy and is ineffective.

In non-deficiency states like Arizona a lender is unable to pursue any type of a deficiency judgment. Concerning foreclosures non-deficiency states are advantageous to owners in foreclosure because the lender is unable to pursue the deficiency judgment. (If you live in Arizona and want to walk away from an upside down house visit www.overforeclosure.com.)

The good news is many lenders do not pursue deficiency judgments because someone that has lost a house to foreclosure is a poor candidate for collections on a deficiency judgment.

For more information on foreclosures and how to complete short sales visit www.kickassshortsales.com.

Author: Gerald Romine

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Foreclosure is the equitable proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner’s failure to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust.” Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is typically said that “the lender has foreclosed its mortgage or lien.”

Types of Foreclosure

The mortgage holder can usually initiate foreclosure anytime after a default on the mortgage. Within the United States, several types of foreclosure exist. Two are widely used, with the rest being possibilities in a few states. The most important type of foreclosure is foreclosure by judicial sale. This is available in every state and is the required method in many. It involves the sale of the mortgaged property done under the supervision of a court, with the proceeds going first to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor. Because it is a legal action, all the proper parties must be notified of the foreclosure, and there will be both pleadings and some sort of judicial decision, usually after a short trial.

The second type of foreclosure, foreclosure by power of sale, involves the sale of the property by the mortgage holder not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property than foreclosure by judicial sale. The majority of states allow this method of foreclosure. Again, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor. Other types of foreclosure are only available in limited places and are therefore considered minor methods of foreclosure. Strict foreclosure is one example. Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period of time. If the mortgagor fails, the mortgage holder automatically gains title, with no obligation to sell the property. Strict foreclosure was the original method of foreclosure, but today it is only available in a few states, such as Connecticut, New Hampshire and Vermont.

For more information on foreclosures visit www.kickassshortsales.com.

Author: Gerald Romine

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