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I just came back from a Mastermind Meeting in Washington DC and my head is still spinning. It’s a small close knit group with people coming from as far as Great Britain and businesses varying from buying and selling domain names to real estate investing.

It’s a great opportunity to see other businesses and have exposure to viewpoints outside of what we normally see. I’ll be sharing some great insights and techniques we can use in our real estate investing business in the coming weeks.

While in DC I was roped into entering a fitness transformation contest that one of the mastermind attendees in the physical fitness industry is running. I keep myself in pretty good shape and I’ve never entered any type of a contest like this so now the pressure is on. I had to take the shirt off and get some before photos and at the end of the contest I’ll be showing the before and after results.

FYI: I just turned 38 this weekend keep myself in pretty good shape - I work out several times a week andI focus on free weights but neglect cardio workouts.

Measurable goals motivate me and in my health and fitness I’m constantly bulking up for a cycle then leaning out and my weight varies from 190 lbs to 210 lbs. I’m currently in the middle of a bulking cycle and weigh 206.5… but with the bulk comes extra fat!

This contest is really going to push me because once I finish the bulk cycle I have to lean out fast to be in shape for the contest photos at 12 weeks. Now that I’m in the contest and have shared my goal publically the pressure is on!

On big benefit of a contest and public announcement is the pressure it puts on a person to succeed. As a real estate investor you should look to surround yourself with like minded investors and challenge yourself amongst friends that could include side wagers.

I have a few friends that are part of a private real estate mastermind group that meets every 3-4 months and their last challenge between themselves was to purchase 3 million dollars worth of real estate before the next meeting.

Buying three million dollars worth of real estate in the next three months may sound like an unreachable goal for many and it should be known all of these guys are quite capable of reaching the goal but it will require work to find the right properties to purchase.

For many a more realistic goal would be to buy X number of houses in the next three months or to make $25,000(or 50K or 100K) in the next three months. There is power in writing down your goals and going public with the goal because it creates accountability.

Right now would be the right time to post your goal! Is now or now the right time for you to post that goal?

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

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

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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