Utah Real Estate Investor

We're Moving Our Blog

2009-09-12T00:04:00.002-06:00

We have decided to relocate our blog. We hope that you will still be interested in following our real estate market as you look to invest in Utah. Please check out the new home of
Utah Real Estate Investor blog at http://khayyamjones.com/blog

For Rent: 199 S 1680 W, Provo, UT $685/mo

2009-08-22T15:00:00.003-06:00

I have an apartment for rent in Provo, UT for only $685/mo. This apartment is in a side x side duplex with a nice, large back yard. It also has central A/C, double paned windows and was just repainted. The apartment is available immediately and starts with a 1 year contract (through July 31). Please contract me if you would be interested in renting this apartment.

Evaluating a Lot Split Property in American Fork

2009-08-20T08:51:00.003-06:00

In this video I walk through a brief property analysis to evaluate the potential of a property in American Fork, UT for subdivision (lot split) possibility. This property has been on the market for about 1 year because the asking price does not justify what the property can become.

This property needs 150 feet of frontage to subdivide into 2 lots. Many people have approached the neighbors about buying the missing land but the neighbors do not want to sell. Using Highest & Best Real Estate Investing techniques we uncover another option.

This video goes through the steps of the initial property analysis to determine if there is enough potential to pursue this property (and move to the next step in the evaluation process).

Free Housing for 1 Year

2009-08-18T15:25:00.004-06:00

The average renter in Provo, UT is paying $685/mo to live in a 2 bedroom apartment. That means that over the next 12 months this renter will spend over $8,200 just for housing. But what if there was a way to save that $8,200, would that make a difference in your life. What could you do with an extra $8,000?

Right now there is an opportunity for this renter to qualify for a special program that is currently being offered by the government. In order to help stimulate the economy the Obama administration has passed what is commonly known as the Obama Tax Credit for first time home owners. The tax credit is available to people who have not owned a home in the past 3 years and buy (and close) on their home before December 1, 2009.*

Imagine that you are currently looking to rent a 2 bedroom duplex apartment for $685/mo but instead you buy that same duplex for $200,000. Using the current FHA loan program you could buy the duplex with 3.5% down payment ($7,000; which is a little more than first and last month's rent and a security deposit). You would then have a loan at 5.5% interest for 30 years (fixed rate) which would give you a principle and interest payment of $1,095.83. Now here is how you live here for free for the 1st year...

A duplex will have a renter in the other unit which is paying the same $685/mo that you were willing to pay. So after you receive your rent payment your $1095.83 payment becomes $410.83! Right there is you save about $275/mo just by buying the duplex you were going to rent. But there are more benefits!

Next, as a first time home owner you receive the Obama $8,000 tax credit which is money that is refunded back to you as soon as you file you 2009 taxes. $8,000 averaged over 12 months is like getting $666.67/mo. So your $410.83/mo is effectively reduced to -$256.84/mo (which means that you are being paid $256.84 a month to live in the duplex apartment that you were originally going to rent). But wait, there's more...

As a home owner you also receive a tax deduction for the mortgage interest that you are paying on the duplex. Over the next 12 months you would expect to pay about $10,500 in mortgage interest. This $10,500 is subtracted from your income before you pay taxes which could eliminate up to an additional $3,000 from your taxes! That $3,000 tax saving is effectively another $250/mo paid to you. Now you are effectively receiving $256.84 + $250 = $506.84/mo because you are buying the duplex instead of renting it.

So the average renter could effectively be paid $506.84/mo to live in their duplex OR the can pay $685/mo simply to rent it. Not only does the renter become a home owner, they receive the monetary benefit of home ownership AND they will also receive the equity from the property appreciation. The best part is that this renter now owns a cash flowing property that will continue to pay them as long as they want the income!

*Some restrictions apply.

How to Find Property with Lot Split Potential

2009-08-17T15:33:00.005-06:00

Below are the images of the properties used in the video. Click on each image to see a larger (more readable) picture.

Home For Sale: 236 W 800 N, Spanish Fork UT

2009-08-16T08:02:00.001-06:00

This lovely period home has been updated and remodeled multiple times. The recent remodel updated the bathroom, new carpet & paint, heating & A/C, electrical upgrades, and wiring through out the home (with CAT-5 internet wiring to each bedroom).

The home is conveniently located close to the new retail development project (coming soon) in Spanish Fork. It also has easy access to I-15 and Main St. And this home is close to schools.

The list price on this home is $164,900. The seller is open to a convention purchase or various seller financing options. This home is available for immediate occupancy. A first time home buyer could purchase this property with an FHA loan. The buyer would need 3 1/2% down payment ($5,775) and could obtain a 30-year fixed rate loan at 5.5% for a principle and interest payment of $908.75/mo. Plus the first time home buyer can get an $8,000 tax credit if they buy before November 30, 2009.

An investor could buy this home with 20% down payment ($33,000) and get a 30-year fixed rate loan at 6.5% for a principle and interest payment of 749.48/mo. We had previously rented the home for $1,250/mo but at a conservative $1,100/mo the investor would have at least $300/mo in positive cash flow ($3,600/year) which gives more than 10% ROI!

Click for Complete Property Details

Approved Short Sale: 20 E Maple Lane, Pleasant Grove, UT

2009-08-14T11:10:00.005-06:00

I have listed a home in Pleasant Grove, UT that is an approved short sale. The home owners originally bought this home for about $175,000. According to the lender's BPO the property is now only worth $150,000. However, the lender has already indicated that they are willing to sell the property for $135,500! A buyer on this property would start of with nearly $15,000 in instant equity. That is absolutely fantastic in this market.

The home has 3 bedrooms, 1 bathroom, 2 family rooms, 1,210 square feet and central A/C. This home is conveniently located with easy access to Main St (Geneva Road), State Street and I-15 (at the new Pleasant Grove exit). It is also located near shopping (including Wal-Mart) and schools.

The lender has approved a price of $135,500. A buyer (who would live there) could get an FHA loan with 3 1/2% down payment ($4,750) and have a 30-year fixed rate loan at 5.5% giving a principal and interest (PI) payment of $742.38. Not only that, as a first time home owner this buyer would also get $8,000 tax credit (refund) next year; that would make the first year's payments effectively only $75.71/mo!

An investor could buy this property with a 20% down payment ($27,100) and get a 30-year fixed rate loan of 6.5% with a PI payment of $685.16. A 3 bedroom home average rent in Pleasant Grove is $1,000/mo. This gives the home at least $200/mo positive cash flow ($2,400/year) or a 9% ROI on the invested money, not including tax benefits.

View Complete Property Details

Maximum LTV for Obama Administration's Refi Program Increases to 125 Percent

2009-08-05T08:52:00.000-06:00

On July 1, 2009, Federal House Finance Agency (FHFA) Director James Lockhart joined Treasury Secretary Timothy Geithner and HUD Secretary Shaun Donovan in announcing a major expansion of the Obama Administration's Home Affordable Refinance Program for Fannie Mae and Freddie Mac loans. The change will allow current borrowers with loan-to-value (LTV) ratios of more than 80 percent up to 125 percent (formerly 105 percent) to qualify if they meet other program requirements. This significantly expands eligibility for the program which allows borrowers to lock in today's lower rates or move into a fixed rate product. Higher fees will apply to loans with LTVs above 105 percent, but the program includes lower fees for borrowers who opt for a 20-year or 25-year term, to build equity faster and reduce interest payments over the life of the loan. The easiest way for borrowers to find out if they have a Fannie Mae or Freddie Mac loan is to go to www.MakingHomeAffordable.gov and click on "loan look up."

Reprinted from Realtor.org

Revised TILA Disclosure Requirements Take Effect on July 30, 2009

2009-08-04T07:45:00.003-06:00

Lenders will be subject to new disclosure requirements for mortgage loans under the Federal Reserve Board Truth in Lending Regulation (Reg Z). The new requirements apply to loan applications filed on or after July 30, 2009 (about two months earlier than originally planned). The new rules are complex and compliance will be a challenge for lenders. REALTORS® will want to learn the basics so they can advise clients of potential delays and the new procedures. Here are key highlights of the changes:

The new requirements apply to all mortgages secured by a borrower's home, including primary and second homes and refinancings. Investor loans continue to be exempt.
Lenders must give good faith estimates of mortgage loan costs within 3 business days after the consumer applies for a loan (early disclosure). The lender may not collect any fees before the disclosure is provided, except for a reasonable fee for obtaining a credit report.
The closing may not take place until expiration of a 7 day waiting period after the consumer receives the early disclosure.
Consumers may shorten or waive the 3-day and/or 7-day waiting periods for a "bona fide personal financial emergency," but only after receiving an accurate TILA disclosure. In the final rule's preamble, the Fed stated that it "believes waivers should not be used routinely to expedite consummation for reasons of convenience." The Fed decided not to insulate lenders from liaibility even where a consumer modifies or waives the waiting periods.
If the annual percentage rate (APR) changes by more than 0.125 percent, the lender must provide a corrected disclosure to the borrower and wait an additional 3 business days before closing the loan. The APR includes not only the interest rate on the loan but certain other costs related to settlement, so it will be important for any fees that affect the APR to be as accurate as possible, as early as possible, to minimize the need for a corrected TILA disclosure.

Information reprinted from Realtor.org

New Rules Give Buyers More Protection at Closing

2009-08-04T07:40:00.001-06:00

(Original Article) by Kenneth R. Harney

If you're applying for a loan to purchase a primary or secondary home, or planning to refinance, you should be aware of a little-publicized new set of federal consumer-protection rules that takes effect July 30.

Among other key changes, the new Federal Reserve guidelines require lenders to give you initial disclosures of your mortgage costs within three business days of your loan application. If you don't get them, you can pull the plug.

The rule also prohibits lenders from collecting any fees, except a reasonable charge for checking your credit, until you have been given the loan-cost disclosures. This means no more out-of-pocket, upfront application charges until you have received the truth-in-lending disclosures and an annual percentage rate (APR) calculation of those loan costs.

Since many mortgage brokers and lenders traditionally have collected fees covering appraisal, credit and various other charges at the time of application -- sometimes amounting to hundreds of dollars -- this will be a significant change in procedure for the lending industry.

The rule also prohibits quickie closings on loans by requiring a seven-day waiting period after applicants are handed their early disclosures or the disclosures are mailed. You will now have up to a week to think about the transaction and decide whether it's right for you. Final truth-in-lending disclosures are due three business days before closing.

Here's an even more sweeping change for applications on or after July 30: The new Fed rules require lenders to deliver a copy of the real estate appraisal to you three business days before the scheduled closing on the loan.

In the past, even though federal regulations guaranteed that consumers could request and obtain a copy of the appraisal, lenders and home buyers frequently ignored that right. In fact, many consumers had no knowledge of this right because no one in the home purchase, financing or settlement process told them about it.

Now, the timing of the loan closing itself -- which is the financial ballgame for loan officers, real estate agents, and title and escrow officials -- will be dependent upon your receipt of the appraisal in advance. The exception will be that the three-day rule can be waived if you don't think receiving the appraisal is necessary.

Another significant change under the new rules: If the APR on the early truth-in-lending disclosure increases by more than one-eighth of a percentage point (0.125), the lender will be required to "redisclose" -- provide you a corrected version and allow you an additional seven business days to consider the transaction before settlement.

What might cause the APR to increase following the initial, early disclosure? Lots of things. If you allowed your initial rate on the loan to float with the market but rates increased, you would need to get an amended truth-in-lending disclosure. Or if the lender got inaccurate estimates of costs from a third-party participant in the transaction such as the settlement or escrow company. Or if unexpected, 11th-hour junk fees materialize.

All of these events, which have been frequent sources of consumer complaints this decade, could force the lender to redisclose loan costs and set back timing for the settlement.

What are some of the likely repercussions of the Fed's new mandates? First, the traditional approach of aiming in advance for a date-certain settlement target for home loan transactions almost certainly will be affected. Actual closing dates will be more closely tied to lenders' and settlement agents' accurate estimates and their ability to deliver disclosures and appraisals by the required dates. For example, if appraisers are backlogged and can't produce valuation reports quickly enough, settlements will have to be postponed.

Second, the purposes of the rules are to afford consumers better access to and more time to consider key elements of what, for most people, are major financial transactions. There might be fewer instances of last-minute closing-date surprises on fees, where buyers are slammed with hundreds of dollars of charges they never expected. But nobody can say that for sure.

Finally, the rules may well trigger new waves of litigation if lenders and their business partners are not scrupulous in their compliance. There is an aggressive segment of the legal profession that specializes in going after banks and mortgage companies for truth-in-lending violations. Don't be surprised if you hear of lawsuits seeking cancellation of mortgage deals because timing deadlines were not met or appraisals were not received.

As David Berenbaum, executive vice president of the National Community Reinvestment Coalition, put it in an e-mail comment: "Consumer advocates will closely monitor" compliance with the new Fed regulations, and the lending industry can expect "civil litigation against bad actors."

Kenneth R. Harney's e-mail address is kenharney@earthlink.net.

Why Buying is Better than Renting

2009-08-03T13:52:00.005-06:00

I want to briefly summarize why it is better to buy a home (especially today) instead of renting one! Listed here are 3 major reasons why you should consider buying a home...

Cost:
Buying a home is actually less expensive than renting! Here’s why…

Renting a home for $1,000/mo for 5 years is $1,000/mo x 5 years x 12 months/year = $60,000

But buying a home for the same $1,000/mo for 5 years is less than $60,000!

When you buy a home the government gives you a tax deduction for the mortgage interest that you pay. While the exact amount may change let’s just assume that your tax deduction equals only $1,200/year or $100/mo. That means you get $100/mo x 5 years x 12 months/year=$6,000

Right now, you also may qualify for $8,000 First Time Home Buyer Tax Credit (2009). That means if you haven’t owned a home in the past 3 years you can get an additional $8,000 from the Government just for buying a home in 2009!

That means you can get ($8,000 + $6,000 =) $14,000 cash when you buy your home over the next 5 years. So you will pay $60,000 in housing payments over the next 5 years but if you own a home you will get $14,000 cash back. This means you only spend $46,000 for housing over the same 5 years which is only $766.67/month!

Dollar for dollar it is cheaper to buy a home instead of rent one.

Equity:
The owner of the home is entitled to the equity in the home. Equity is the difference between how much the house is worth and how much you owe. (If a house is worth $200,000 and you owe $150,000 then the equity is $50,000.) If you are renting then the landlord is the owner and they get to keep the equity in the home.

When you buy a home you have a mortgage payment each month. Generally, each payment has a principle amount, an interest amount, property taxes and hazard insurance. The principle amount of the payment reduces the amount that you owe on the property. (If you pay your mortgage payments for 30 years you will not owe anything on the home because you will have paid off the mortgage.) If you buy a home then your monthly payment reduces how much you owe so it is like paying yourself. But if you rent, your monthly payment reduces how much your landlord owes and it’s making them richer!

Every time there is a repair on the home, if done correctly, that repair can increase the value of your home because it will be worth more. If you upgrade old windows, replace the shingles on the roof or remodel the kitchen, that will make your home worth more money. When you own a home you have to pay for these repairs. When you rent, the landlord must pay for these repairs but they don’t mind because it makes the home worth more money!

Making regular payments on a home mortgage will increase your credit score. Better credit means better financing for your next home purchase, a refinance of the first home and for a vehicle purchase or any other credit purchases saving you thousands of dollars in interest over the years to come.

Timing:
Right now is the best time to buy a home. The home values in the area have bottomed out and the interest rates on loans are at all time lows.

We are seeing homes that used to be $200,000 that are now selling at $150,000 or less! The experts say that we are at the bottom of the housing cycle and prices for homes will never be this low again. You can buy a home that used to be worth $200,000 for only $150,000. Then, as the market cycles back up you will be able to capture the new equity in your home.

With interest rates dropping below 5.5% (30 year fixed rate) you could buy that $150,000 home for payments starting at only $825/month (principle and interest)! And that’s before you figure your $14,000 savings over the next 5 years.

Requirements:
The qualifications for buying a home are nearly the same qualifications for renting a home. You need to have okay credit, a deposit and a decent job.

If you have a credit score of 580 (or better) then you can qualify for a FHA loan. A 580 FICO score is not considered good credit and may even be low enough to prevent you from renting. But it is a good enough credit score to buy a small home. If you have better credit then you can qualify for better interest rates with other types of loans.

The deposit for a house purchase with an FHA loan is 3 ½% of the purchase price. This amount is nearly the same as first & last month’s rent and a security deposit. One of the little known “bonuses” for buying a house is that you essentially get the first month FREE! The reason is because the home’s mortgage interest is charged at the end of the month while rent is charged at the beginning of each month.

Having a decent job is essential for qualifying for any type of housing. Generally you need to have been in the same line of work (preferably the same job) for the previous 2 years to show stability in employment. You also need to be making at least 3-4 times your payment on a monthly basis. So if your mortgage payment is going to be $1,000/mo then you need to be making $3,000/mo or more (as a household) to qualify to buy the home.

Homes that Qualify:
To get a list of homes that qualify for an FHA loan or
To get a list of homes that qualify for the special $8,000 First Time Home Buyer Tax Credit
please contact:
Khayyam Jones
(801) 787-7797
mailto:Khayyam@KhayyamJones.com?subject=Home

Mortgage Qualification:
To find out which loan you can qualify for please contact:
Rick Anderton
(801) 414-8055
mailto:rick@lendutah.com?bcc=khayyam@khayyamjones.com

Understanding the Credit Crisis

2009-07-20T09:40:00.000-06:00

I saw these 2 videos that help to explain the "credit crisis" of today's economy. It also helps to explain why it has become increasingly difficult to get a mortgage, even for good borrowers with great credit.

15 Rules of Negotiation

2009-07-16T16:00:00.000-06:00

The following is an excerpt from an article written by Harvey Mackay about how to negotiate. Since this list was so simple and straight forward I wanted to share it.

1. Never accept any proposal immediately, no matter how good it sounds.
2. Never negotiate with yourself. You'll furnish the other side with ammunition they might never have gotten themselves. Don't raise a bid or lower an offer without first getting a response.

Here are some more rules of the road:
3. Never cut a deal with someone who has to "go back and get the boss's approval." That gives the other side two bites of the apple to your one. They can take any deal you are willing to make and renegotiate it.
4. If you can't say yes, it's no. Just because a deal can be done, doesn't mean it should be done. no one ever went broke saying "no" too often.
5. Just because it may look nonnegotiable, doesn't mean it is. Take that beautifully printed "standard contract" you've just been handed. Many a smart negotiator has been able to name a term and gets away with it by making it appear to be chiseled in granite, when they will deal if their bluff is called.
6. Do your homework before you deal. Learn as much as you can about the other side. Instincts are no match for information.
7. Rehearse. Practice. Get someone to play the other side. Then switch roles. Instincts are no match for preparation.
8. Beware the late dealer. Feigning indifference or casually disregarding timetables is often just a negotiator's way of trying to make you believe he/she doesn't care if you make the deal or not.
9. Be nice, but if you can't be nice, go away and let someone else do the deal. You'll blow it.
10. A deal can always be made when both parties see their own benefit in making it.
11. A dream is a bargain no matter what you pay for it. Set the scene. Tell the tale. Generate excitement. Help the other side visualize the benefits, and they'll sell themselves.
12. Don't discuss your business where it can be overheard by others. Almost as many deals have gone down in elevators as elevators have gone down.
13. Watch the game films. Top players in any game, including negotiating, debrief themselves immediately after every major session. They always keep a book on themselves and the other side.
14. No one is going to show you their hole card. You have to figure out what they really want. Clue: Since the given reason is never the real reason, you can eliminate the given reason.
15. Always let the other side talk first. Their first offer could surprise you and be better than you ever expected.
-- Harvey Mackay

Cover Your Assets with Seller Financing

2009-07-15T09:17:00.001-06:00

Equity Only Financing

How would you like to know a way to sell your home using seller financing but have no risk in the transaction. This can be accomplished through “equity only” financing. This means that the owner can sell their home and only seller finance their “equity” in the property.

While “seller financing” may sound like a scary term to most people it is actually a very powerful tool for increasing the value of your property. The main reason that seller financing will add value to your property is that you increase the number of people who can qualify to purchase your property because you control the qualification standards. The more people who can buy your home the more valuable it becomes (the basic law of supply and demand).

“Equity Only” financing is exactly what it says, the owner only finances the equity they have in the home. The way this works is the buyer is required to secure their own financing equal to (or greater) than the owner’s underlying mortgage. The loan proceeds from the buyer’s loan will pay off all indebtedness of the owner and remove the owner from future liability. The balance of the purchase price is then financed by the owner to the buyer.

Why would this be a great deal for everyone? The owner is able to sell a home more quickly than other comparable homes on the market and for full market value (sometime more). The owner is also able to dictate the terms of the financing to meet their needs. The buyer has an easier time to qualify for their conventional loan and may even qualify for better rates (depending on the LTV of the loan). The mortgage broker gets new business and a lender gets a new loan to service. Any real estate agents involved with generate commissions. The wheels of the economy turn and everyone is happy.

While there is no such thing as “no risk”, the owner in this situation has very little risk. If the buyer pays as agreed then the owner collects interest on their equity and will still preserve all of their equity too. However, should the buyer fail to pay, the owner is in a powerful position to take the house back (through foreclosure) and then sell it again. The foreclosure costs would be paid by the 1st mortgage and the original owner is in a strong position to simply buy back the property. And should the home be bought by someone else at the foreclosure auction, any dollar amount over the 1st mortgage is paid to the previous owner, thereby allowing them to collect their equity at the foreclosure auction.

Example:
Let’s assume the home is worth $100,000 and the owner has 20% equity ($20,000). By offering seller financing the owner could probably sell the home for $105,000 but we’ll assume that it is sold for $100,000. The buyer would then get a loan for $80,000 and the seller would finance $20,000 (for a $100,000 purchase price). Because the conventional loan amount is only 80% there would be no mortgage insurance which reduces the mortgage costs to the buyer (making it an even better deal).

The seller was going to use the $20,000 as a down payment to buy the next house for $200,000. With 10% down payment the seller would have had a loan for $190,000 at 6% interest with a mortgage payment of $1,140/mo. Without the 10% down payment the seller gets a loan for $200,000 at 6.25% for a payment of $1,230/mo. So the seller offers the $20,000 seller finance note of the sale of the first house at 7% interest only which gives $115/mo payments to off-set the difference for the second house payment. In the end, the seller is better off by $25/mo.

But what if the seller is able to sell the home for $110,000 instead of $100,000? Then the buyer still gets a loan for $80,000 and finances $30,000. $30,000 at 7% interest only payments is $175/mo which is $85/mo better than an outright sale. And when the buyer sells (or refinances) the property the seller will net an additional $10,000 of equity. Over 5 years this would equal an additional $15,100 for the seller ($10,000 additional equity and $5,100 additional payments). So the seller makes an additional 15% on the sale of their home using this form of seller financing.

What we must learn and remember is that seller financing is better for the seller than it is for the buyer.

ARC Fault Circuit Interrupters (AFCI)

2009-07-14T11:26:00.001-06:00

Annually, over 40,000 fires are attributed to home electrical wiring. These fires result in over 350 deaths and over 1,400 injuries each year. Arcing faults are one of the major causes of these fires. When unwanted arcing occurs, it generates high temperatures that can ignite nearby combustibles such as wood, paper, and carpets.
Arcing faults often occur in damaged or deteriorated wires and cords. Some causes of damaged and deteriorated wiring include puncturuing of wire insulation from picture hanging or cable staples, poorly installed outlets or switches, cords caught in doors or under furniture, furniture pushed against plugs in an outlet, natural aging, and cord exposure to heat vents and sunlight.

How can this risk be reduced? For about the last 5 years builders have been required to install Arc Fault Circuit Interrupter (AFCI) breakers for all bedroom circuits in new construction. In 2010 most circuits in the house must be protected. For more information check out the AFCI Fact Sheet.

Perpetual Income Through Seller Financing

2009-06-15T08:54:00.001-06:00

Free and Clear Seller Financing

The average homeowner in America already holds the secret to perpetual income and endless cash flows in their hands and they don’t even realize it. There are some real estate investors who grasp the concept of cash flow and will spend large amounts of money to purchase these income producing properties. The fact is that anyone one who owns a piece of real estate is already in possession of the most important ingredient in the cash flow formula. Now they just need a little education.

According to the 2005 census nearly 33% of homes in the United States were owned free and clear, meaning that they no longer have a mortgage that encumbers the property. These homeowners certainly have achieved a certainly level of financial maturity. But how are these great investments benefiting these owners?

Consider this hypothetical example. John Homeowner bought his home for $100,000 at 7% interest which gave him a monthly payment of approximately $700/month (PITI). By the time John paid off his home mortgage the value of the home has gone up to $200,000. Now John has an asset (his home) worth $200,000 but that investment isn’t a great performing asset because he is making $0 return annually on this investment.

Now consider this cost/benefit analysis for John’s situation. By doing nothing but living in his home John is saving $8,400 each year (12 months x $700/mo mortgage payment) because he has no mortgage payment. But if John were to make the same $200,000 (the current value of his home) and invest it into an investment that had a return of just 4.5% he would make $9,000/year (better than his savings by over $600). And if he were to make a smart and safe investment of that same $200,000 at 6% ($12,000/year), 8% ($16,000/year) or 10% ($20,000/year) his return would be far better than the $8,400 savings that he has by owning his property free and clear.

Here is how this scenario relates to seller financing. Let’s say that John has to move to another city and he is forced to sell his home. John understands the power of seller financing and he decides to sells his home to a buyer using “free and clear seller financing”. Because John offers seller financing he is able to sell his home quickly and for slightly more than average market value. Imagine that John sells his home with the following terms: 1.) 5% down payment ($10,000), 2.) $200,000 principle balance, and 3.) 8% interest only payments ($1,450/mo, $16,000/year).

John can now move to a new city and find himself a home for about $200,000. He is able to purchase the property with 5% down payment and can borrow the balance of the purchase price at a 6% interest rate. So John now has a principle balance of $190,000 at 6% which gives him a payment of about $1,140/mo. John now has a positive cash flow of over $300/month (the difference between his investment payment and his current mortgage payment). Not only does he have a positive cash flow but the principle value of his asset stays at $200,000 but the principle value of his new home will amortize and eventually go away giving John additional value (a second asset of significant value). Now his original house is actually paying for his new house with additional cash flows.

What happens if John doesn’t want to move? Because John is savvy he knows that he can do this same process without leaving his home. Imagine that John pulls the equity out of his home through a traditional refinance at 6%. He now has roughly $200,000 to invest in another house. John pays cash for the next house and then he sell that house to a buyer using “free and clear seller financing.” The buyer pays 5% down with a $200,000 principle balance and 8% interest only payments. Without leaving his home John and just created his $300/month cash flow and the monthly income is now paying off the refinanced mortgage.

What happens when the buyer eventually refinances or sells the property and John’s seller financed mortgage is paid off? John will find another home to buy with the cash and sell it using seller financing. This is how John can create perpetual income through seller financing. In fact, any home owner can create perpetual income through seller financing following this cited example.

Let’s consider the risks to “free and clear seller financing”:

Risk 1 – What happens if the buyer stops making payments? When the buyer purchased the property they gave a $10,000 down payment. In addition, the seller was saving $8,400/year because the property was owned free and clear. If any of this money was saved then there should be more than enough money to hire an attorney to foreclose on the property. The owner takes the property back and sells it again. The new buyer will give a new $10,000 down payment and if property values have gone up then the owner will be able to increase the principle balance and possibly the interest rate which will increase the cash flow. In most typical situations the original owner is actually in a better situation after the foreclosure and 2nd sale.

Risk 2 – What if the buyer destroys the property? The purpose of home insurance is to protect the lender (the owner) in case of property destruction. So if the buyer destroys the home the owner will make an insurance claim and have the home professional restored (paid for by the buyer’s insurance premiums).

Risk 3 – What if the property values go down? It doesn’t matter. The buyer is still obligated to make the mortgage payments regardless of market conditions.

Risk 4 – What if the buyer defaults in a down market? Then the owner can foreclose using the buyer’s down payment money (or personal savings) and then resell the property. The owner may end up sell it for less because of the market conditions. Or, the owner can invest the positive cash flow into private mortgage to protect the investment (principle balance). Or, the owner could take the property back and then rent it until the market recovers and at which point the property will sell at the market higher values. Or, the owner could invest their money in a partnership with a trusted real estate investor who will buy the property and assume most or all of the risk for a slightly lower return on the invested money but with a guarantee on the investment (principle).

Risk 5 – How will I know if the buyer’s payments are being made? A good practice is to use a third party escrow company to receive the mortgage payments from the buyer. The third party escrow company will then send the owner a receipt of payments along with the payment money. This way all the money is being tracked for financial and legal reasons.

Seller Financing: 8 Types of Seller Financing

2009-06-10T09:47:00.001-06:00

Seller financing is extremely powerful because the buyer and the seller have control over all the terms of the transaction. That means that there are virtually unlimited applications for seller financing. However, all of the options for seller financing fall into just a 2 major categories: financing after the closing and financing before the closing.

The following 4 types of financing occur after the closing:

1. Free and Clear Financing – When a seller owns a property “free and clear” there are no liens or encumbrances on the property. In this situation the seller and the buyer are free to make any terms they want to in order to make a deal successful.

2. Equity Only Financing – This type of financing means that the seller only finances their equity in a property. The buyer is responsible for getting new financing to pay-off all of the seller’s encumbrances and liens. The seller is then free to finance the equity in the property.

3. Wrap Financing – This is also known as “subject to” or “blanket” financing. In this situation the buyer takes the property “subject to” the existing mortgage. The buyer is responsible for making mortgage payments to the seller and the seller is responsible for making mortgage payments to the original lender.

4. Combo Seller Financing – This type of financing is a combination of the financing options #2 & #3. The buyer can “wrap” the underlying mortgage and finance the seller’s equity.

The next 4 types of seller financing occur before the closing:

5. Purchase Option – Any time the buyer gives money to the seller (option payment) for the right to purchase the property at a given price (option price) and within a given timeframe (option period) the buyer has a “purchase option”. This is a form of seller financing because the seller still is responsible for the property and any payments until the buyer purchases the property (exercises their option to purchase) or the option expires.

6. Extended Closing - An extended closing is similar to a purchase option except that the extended closing is done with a Real Estate Purchase Contract (REPC). In the extended close the closing deadline is extended or put into the future significantly further than a typical real estate purchase.

7. Open-ended Closing –The open-ended close is also done with the REPC except the closing deadline is tied to a future event (such as the completion of an addition or remodel). The closing only occurs after the future event has occurred or has been completed.

8. Seller Partnerships- In this situation the seller may sell the property or may retain ownership. In either case, the seller contributes the property (and possibly some capital) as their contribution. The buyer would contribute the work and knowledge (and possibly some capital) to create or enhance the property value. The property would then be refinanced by the buyer or sold to a third party. The seller would get his equity and capital contribution plus an agreed partnership split of the additional profits on the transaction.

The great thing about these 8 types of seller financing is that every option can be used to benefit both the buyer and the seller. Using these seller financing options a seller can actually get a buyer to come in and improve their property, do all the fix-up and repair work at the buyer’s expense, and the buyer is excited about doing the work! I’ll explain how this can be in my next article…

Seller Financing: Better for the Seller than for the Buyer

2009-06-08T16:51:00.002-06:00

One of the most misunderstood topics in real estate is “Seller Financing”. This is probably because the topic of seller financing is usually discussed from the perspective of the buyer. And in most cases the buyer is a beginning investor who is trying to get a “good deal” or they are starting to buy property with “no money down”. But all too frequently the deal falls apart and the stories explode about the problems of seller financing.

It is time to unfold the power of seller financing and the simple secrets and techniques to keeping the transaction a positive experience for everyone. While most people can explain the benefits of seller financing for a buyer what most people don’t understand is that seller financing is actually better for the seller than it is for the buyer. Here are several ways that the seller can benefit from offering seller financing on their property:

1. Timing – The seller has complete control over the timing of the sale when they are offering the financing. The seller can determine just how long it will be before the sale closes. The seller can determine how long they can stay in the house after the sale closes. The seller can determine exactly how long the buyer must pay on the mortgage and when they have to refinance and pay off the loan. And by offering seller financing they can get their home sold more quickly because of the appeal of seller financing to the market in general.

2. Higher Sales Price – Market value is based upon “supply and demand.” Most sellers are not offering seller financing so there is a limited supply but there is a huge demand. As a result, the price of the home in higher than the other comparable homes in the neighborhood. Also, because the traditional costs of mortgages are no longer in the equation you can collect that money too (as much as 3-5% of the value of the home) as part of the sales price.

3. Cash at Closing – There is nothing that says a seller must finance the entire purchase price of the property. The seller can require a down payment which will provide some cash at closing. (There are more advanced way to collect cash at closing which go way beyond a down payment but can still result in a “zero-down” for the buyer.)

4. Payments over Time – When the seller finances the equity in their property, those payments become a steady stream of income for the seller. This becomes a fantastic income stream for someone who may be down-sizing or who does not want their property for any reason (this is especially great on investment properties).

5. High Return on Investment – Considering the equity as an investment, the payments received from seller financing are better than one can expect from a savings account, CD or mutual fund. Even if the interest rate on the seller finance mortgage is small, the principle balance of the investment is larger than the seller could have received through a traditional sale.

6. Difficult Properties Sell Easily – Sellers who have properties that are difficult to sell can sell them with seller financing. Again, the demand for any property increases as more people are qualified to buy them.

7. Collateralization – The seller controls the terms of the mortgage and can require additional collateral to secure the loan. This additional collateral can come in many ways. Of course the seller can require a large down payment. However, some other options include additional co-signers on the loan or equity in a 2nd property. If the buyer owns another home or an investor own additional property, the seller can attach their seller finance note to the other property. This will make it more painful for the buyer to default because the seller can claim the additional property in the event of a foreclosure.

In selling a property it is the owner who has control over the entire transaction when they offer seller financing. The seller controls all the aspects of the sell including the timing, the price, the terms, their return on investment, and security and protection of their equity. Since the seller has the flexibility to craft a sell the meet all of their needs, why would you sell it any other way?

How would you like to offer seller financing but remove all personal liability for the property after the sale? How would you like to increase your income from your rental property and get rid of ALL property management? How would you like to get paid twice what your property is worth? How would you like to sell your investment property and never pay capital gains taxes? Stay tuned for some practical examples of seller financing tips and techniques that will keep you out of trouble when you sell your property.

The SpiderWeb Marketing System

2009-06-05T09:49:00.000-06:00

I just stumbled across an amazing opportunity. It's called the SpiderWeb Marketing system. This system is a way to create "viral" marketing, getting people to tell people who tell people about you and your website, product (to sell), etc. The amazing part about it is that you can actually make money generating these leads for yourself!

I found this system while investigating ways to market and advertise on the Internet. After all, this economy hasn't been the greatest and the real estate market has made headlines with a lot of bad news. However, those of us still in the real estate game know that this is the best time to buy real estate in years. With falling prices and record low interest rates there may not be a better time to buy in your lifetime. So I'm trying to find as many buyers who would be interested in a home and recognize today's opportunity. In my search for better marketing methods I stumbled onto this SpiderWeb Marketing system that will market on autopilot!

As I researched this system a little more I found out that there is a business opportunity as well. Did I mention that the entire system is free with online tutorials to help you set up the marketing system? Amazing! Since there are 2 major opportunities here and since I just discovered this system I thought I would seek some feedback from you.

Please take a minute to check out my new marketing website and then let me know what you think. My website is http://kampspider.ws/. I appreciate your perspective and look forward to your comments.

Obscure Ruling May Slow or Stop the Foreclosure Process

2009-06-03T10:25:00.000-06:00

"A Las Vegas bankruptcy judge has dealt a blow to an obscure but critical piece of the mortgage enforement machinery that could slow foreclosures.

"After a rare hearing in front of three judges last year that initially encompassed 27 cases, U.S. Bankruptcy Judge Linda Riegle has ruled that the Mortgage Electronic Registration System (MERS) could not represent lenders seeking to foreclose on delinquent homeowners already in bankruptcy unless it could produce the actual loan note. This goes to the heart of how home lending has evolved over the past two decades, with a loan rarely staying on the books of the originator but often being sold several times to other institutions or investment groups. As a result, producing a loan document is far more complex than opening a drawer in a filing cabinet." (Tim O'Reiley)

Essentially the court ruling means that a lender must be able to produce the actual mortgage note in order to foreclose. While this case has been appealed, it awaits to be seen what the ultimate ramifications are for all the mortgage notes being serviced by someone other than the lender and what rights they maintain through the foreclosure process.

HUD Announces Approval of Tax Credit "Bridge Loans"

2009-06-02T16:03:00.003-06:00

"On Friday, the U.S. Department of Housing and Urban Development (HUD) announced that first-time home buyers using FHA-approved lenders can now get an advance on the $8,000 tax credit created by the stimulus package and apply it toward their down payments or closing costs." (CNNMoney.com)

First time home buyers can now utilize their tax credit toward the purchase of their homes. But this money comes with some stipulations. FHA still requires that the buyer bring 3.5% of the purchase price as a down payments, however, the tax credit can be used to lower their principal balance, closing costs, buy-downs, etc.

The tax credit money is utilized through a bridge loan (a short term loan). Some other states have already implemented plans to help these first-time home buyers to utilize their tax credits. These states include Colorado, Missouri, New Jersey, Pennsylvania, Tennessee and Washington. Each of these states has created a different plan for utilizing the credit but it has allowed many new homeowner buy their homes without completely depleting their cash reserves.

FHA Mortgage Limits

2009-06-02T09:45:00.000-06:00

The FHA loan limits for Utah County are as follows:
Single Family Home - $323,750
Duplex (2-family) - $414,450
Triplex (3-family) - $500,950
4-plex (4-family) - $622,600

The FHA loan limits for Salt Lake County are as follows:
Single Family Home - $729,750
Duplex (2-family) - $934,200
Triplex (3-family) - $1,129,250
4-plex (4-family) - $1,403,400

These limits were effective as of Wednesday, February 25, 2009.
For more current info check at HUD.gov

Many US Taxpayers Will Have To Pay Back Their Tax Credit From President Obama

2009-06-01T11:17:00.003-06:00

President Barack Obama's "Making Work Pay" massive economic recovery package enacted in February, might be more appropriately names "Making Workers Pay" after American's enjoying these tax credits discover they may have to pay them back next April.

Obama has boosted the tax credit as one of the big achievements of his first 100 days in office, stating that 95 percent of working families will qualify in 2009 and 2010.

The tax credit pays workers 6.2 percent of their earned income, up to a maximum of $400 for individuals and $800 for married couples who file jointly. Individuals making more than $95,000 and couples making more than $190,000 are ineligible.

The tax credit was designed to help boost the economy by getting more money to consumers in their regular paychecks. Employers were required to start using the new withholding tables by April 1, 2009.

So what's the problem with the plan? Most workers started receiving the credit through small increases in their paychecks in the past months. But the new tax withholding tables issued by the IRS may cause millions of taxpayers to get more money than they are entitled to under the credit, and this money will have to be repaid next April.

The Internal Revenue Service (IRS) acknowledges these problems with the withholding tables but has done little to warn average taxpayers to date.

Problems for Single Workers with Two Jobs:

A single worker with two jobs making $20,000 a year at each job will get a $400 boost in take-home pay at each of them, for a total of $800. That worker, however, is eligible for a maximum credit of $400, so the remaining $400 will have to be paid back at tax time - either through a smaller refund of a payment to the IRS.

Problems for married couples with spouses who both work:

A married couple with a combined income of $50,000 is eligible for an $800 credit. However, if both spouses work and make more than $13,000, the new withholding tables give them both a $600 boost - for a total of $1,200. (There were 33 million married couples in 2008 in which both spouses worked. That's 55 percent of all married couples, according to Census Bureau data.)

Problems for college students:

A single college student with a part-time job making $10,000 would get a $400 boost in pay. However, if that student is claimed as a dependent on a parent's tax return, they don't qualify for the credit and would have to repay it when they file next year.

Problems for retirees:

The Social Security Administration is sending out $250 payments to more than 50 million retirees in May as part of the economic stimulus package. The payments will go to people who receive Social Security, Supplemental Security Income, railroad retirement benefits or veteran's disability benefits. The payments are meant to provide a boost for people who don't qualify for the tax credit. However, they will go to retirees even if they have earned income and receive the credit. Those retirees will have the $250 payment deducted from their tax credit - but not until they file their tax returns next year, long after the money may have been spent.

Retirees who have federal income taxes withheld from pension benefits also are getting an income boost as a result of the new withholding tables. However, pension benefits are not earned income, so they don't qualify for the tax credit. That money will have to be paid back next year when tax returns are filed. (More than 20 million retirees and survivors receive payments from defined benefit pension plans, according to the Employee Benefit Research Institute. However, it is unclear how many have federal taxes withheld from their payments.)

Tax Tip: Check your federal withholding to make sure sufficient taxes are being taken out of your paychecks. If you are married and both spouses work, you might consider having taxes withheld at the higher rate for single filers. If you have multiple jobs, you might consider having extra taxes withheld by one of your employers. You can make that request with a form W-4. The IRS has an online withholding calculator to help you check your withholding amounts. You can find this calculator at www.irs.gov or you can call your accountant or tax attorney to ask for assistance with adjusting your withholdings.

This information is provided by the tax professionals at Kingman Winslow LLC

Bridge Loan with Tax Credit May Still Become Reality

2009-05-29T10:15:00.000-06:00

President Obama's administration has helped to create an $8,000 tax credit for first time home buyers. Eager lenders are trying to capitalize on this tax credit by creating a "bridge loan" based upon the buyer's eligibility to receive the credit. Essentially the buyer would borrow 100% of the money to purchase their home. The lender would provide a short-term $8,000 loan to the buyer for their down-payment which would be repaid as soon as the buyer received their $8,000 tax refund the next year. This would provide first-time home owners a great way to get into a home today (at record low fixed-rate mortgages) using their tax credit from next year. However, there have been some issues with the bridge financing and HUD.

According to a recent news article in The Arizona Republic, "HUD says bridge-loan program hasn't been killed." There are still some details to be worked out before this program becomes official but it will be a fantastic program to help first-time home owners utilize their tax credit to buy their first home and capitalize on the record low interest rates of today's market.

$6,000 Home Purchase Grant (Utah Home Run Grant)

2009-05-27T10:00:00.003-06:00

Earlier this year the Legislature approved funds to help stimulate Utah's housing market. The "Home Run Grant" is designed to help sell (and reduce the inventory of) newly constructed homes.

The Home Run Grant is a mortgage assistance program that grants $6,000 to home buyers who purchase a newly-constructed, never-occupied, primary, single-family residence in Utah. The Home Run Grant is funded by the Housing Relief Restricted Special Revenue Fund, Established by Utah Governor Jon Huntsman, The Utah State Legislature, and Utah Housing Corporation.

Who is eligible:

Home buyers who

make less than $75,000/year ($150,000/year if a married couple)
it's the buyer's primary residence
financing is a fixed rate 30-year (or less) mortgage
and apply before the grant money has run out

There are some other requirements for the grant. Please check the official website for more information. As of this posting only 520 grants remain (of the original 1,600 grants available).

Grants for new-home buyers nearly gone

2009-05-27T09:53:00.003-06:00

The chances of nabbing a grant from the state worth $6,000 aimed at those buying new homes in Utah are dwindling.

Since mid-March more than 1,000 Utahns have qualified for a grant under the state's Home Run program, which originally had 1,600 grants available.

The remaining 600 are expected to go quickly.
(Read more)

Mortgage rates dip, remain above record lows

2009-05-26T09:50:00.002-06:00

Rates on 30-year mortgages inched downward this week, remaining below 5 percent for the tenth-consecutive week and just above record lows.

Mortgage financing giant Freddie Mac said Thursday that average rates on 30-year fixed rate mortgages dipped slightly to 4.82 percent this week, down from an average 4.86 percent last week.

The all-time low of 4.78 percent was recorded on the weeks of April 2 and April 30.
(Read More)

Real Estate Professional Tax Classification

2009-05-25T11:05:00.004-06:00

In order to be a "real estate professional" under the law you must spend 50% or more of your time actively managing your properties AND perform 750 hours or more of your activities spent on your real estate activities. IF YOUR QUALIFY, then you can take additional passive activity losses against any type of income, including your spouses (BIG BENEFIT).

TIP: Being a licensed Real Estate Agent does NOT make you a "real estate professional" under the tax laws. This is one of the greatest myths and pieces of bad information that real estate investors get given to them that I see over and over again.

WARNING: The IRS is auditing tax returns that have selected the "real estate professional" box in order to take more of their rental losses. Thus, you must document all your activities spent managing your real estate investment properties and rentals. Keep emails, letters, a log-book of calls, etc...You as the taxpayer have the burden of proof and the IRS is making this classification a priority on audits.

This information has been provided by the tax professionals at Kingman Winslow LLC.

Overflowing Buckets of Wealth

2009-05-12T09:32:00.003-06:00

With a little discipline and patience, you can make your journey to abundance and personal fulfillment a downhill flow instead of an uphill struggle. The key is to use the "overflowing buckets" concept of creating financial independence.

Picture your life as a five-step stairway, with you standing at the top and Fulfillment waiting for you at the bottom. Complete this picture by placing a large, empty bucket on each of the five steps and labeling the buckets from top to bottom:
Survival, Financial Stability, Quality of Life, Financial Security, Financial Independence. Your objective is to fill each bucket with dollars as you progress down the stairway, so that when one bucket overflows, it begins to fill the next bucket.

Survival:
The Survival bucket is how you can pay for your basic needs of food and shelter. Once you've taken care of these, any extra money flows into the second bucket, which is Financial Stability.
Financial stability is the ability to keep solvent in the event of sudden, unforeseen changes and emergencies in your life – insurance against catastrophic loss.

Financial Stability:
To be financially stable, you must have an emergency fund in a savings account equal to a minimum of three month's income, and preferably six months' income. You also must have adequate permanent and transferable medical insurance that remains in force, regardless of your employment status, as well as life insurance, including some whole life, in addition to term, that accumulates cash value and has a level premium
Another critical component of financial stability is non-cancelable, individual permanent disability income insurance, equal to at least 70 percent of your monthly pay, but preferably 100 percent. One of the greatest financial blunders most people make is to forget that the possibility of loss of income resulting from an injury or illness is much greater than that of loss of life. Not only are you without income when you are sick or injured, you also do need to be cared for during that period, and the expenses continue even though you're not able to work.

Quality of Life:
When bucket two is filled with contingency dollars for your financial stability, you can sit down with your inner circle and determine what standard of living will give you the quality of life you want: your home, family, education, recreation, possessions, etc. These considerations should be budgeted with a monthly amount of savings, however small.

Financial Security:
If you can fill your Quality of Life bucket, a little extra discretionary income will trickle over the lip and fall into bucket four. This is the Financial Security bucket. Financial security is defined as the amount of assets that will give you the amount of after-tax income you need to maintain the standard of living necessary to have the quality of life you want, at some predetermined point into the future, without having to depend upon day-to-day employment.
Less than 10 percent of Americans ever fill this bucket. Your goal is to be in this 10 percent. It is not based on salary. Many individuals in the top income brackets never reach financial security. Many middle-income Americans do. To get in the top 10 percent, you need to put 10 percent of your spendable into an appreciating investment fund every month, just like a mortgage payment.

Financial Independence:
The fifth and final bucket is Financial Independence. This is achieved when you beat the target date you set for retirement. The object of creating personal assets is to be financially independent of having to work, while you still have your health and are still young enough to enjoy those assets. Many individuals set their financial security target date at age 65. Using compound interest over time, you can beat your target date and set yourself free.
See your life as a stairway to fulfillment. Put your dollars in the right buckets, in the right order. You'll be amazed at the way cash flows from bucket to bucket, like a river down a mountain.

-- Denis Waitley

How To Stop Foreclosure

2009-04-15T11:48:00.004-06:00

"How do I stop the foreclosure?" This is a question that I'm being asked more and more as the economic recession progresses. There are several options that are available to most people but it comes down to 2 basic actions: 1 - become current with the mortgage or 2 - settle and close the account. Those are the only 2 ways to stop a foreclosure. In all fairness, there are a few other options that will stall a foreclosure (such as bankruptcy or other legal proceedings) but these don't actually stop the foreclosure process.

Most homeowners who contact me are looking for ways to keep their homes. This means they are looking for option #1, how can I become current with my mortgage even though I am currently (or will soon be) behind in my payments? The average homeowner has a few options available in this case.
1. Refinance the home...if the home owner's credit has been to badly damaged they may be able to refinance their home. Consider an FHA loan which allows a much lower credit score but still has competitive loan rates (some loan limits may apply).
2. Loan modification...contact your lender and ask them about options for loan modification. This is only realistic if your payment is about 1/3 of your total monthly income. If the payment is greater than 1/3 then a loan modification is simply delaying the inevitable (future foreclosure). Be careful when modifying your loan. If the lender simply adds all your back-payments and fees into the mortgage then your mortgage payment will go up and you won't have done yourself any favors. You need a reduction in monthly payment either through a lower interest rate or reduced principle balance owed (or both).
3. Loan rescission...if the loan is for your personal residence and the loan is less than 3 years old, you may qualify for an extended right of rescission. Through this legal process you can force the lender to modify your loan to much more favorable terms that will be affordable to you. Since this process can take up to 1 year, you may also qualify for free housing during that year (at the lender's expense).

If you already know that keeping the house isn't going to be a possibility there are several more options for selling the home, even in today's market, with terms that are acceptable to your lenders.
1. Short sale...selling you home to a buyer for less than you owe the lender. Most lenders are very willing to consider a short sale because they actually will make more money than if they foreclose. You should only proceed with a short sale with someone who is knowledgeable and experienced with the short sale process. Most mistakes in the short sale process are made in the early stages of the process and once these mistakes are made they usually can't be undone and you could end up with a foreclosure anyway.
2. Seller financing...a simple way of saying that someone else with take over your responsibility to make the payments to the lender. This is a great way to sell a home but you need to make sure that the buyer is able and willing to make those payments on your behalf. If they don't make the payments it is your credit on the line.
3. Assumptive short sale...a combination of options #1 & #2, this process will usually settle the 2nd mortgage for a discount (usually under $3,000) and may modify or simply reinstate the 1st mortgage after which the buyer will service the 1st mortgage on your behalf.
4. Mortgage rescission...cancelling the mortgage and enforcing the rescission through legal options will force the lender to take the property back with no further negative credit reporting. Because the mortgage is cancelled there can be no foreclosure, no deficiency judgement and no 1099 tax reporting.

While this list certainly isn't exhaustive, it represents the top 7 options that most homeowner are utilizing in today's market. For a more extensive list you can read my short consumer report by visiting me at my website at http://khayyamjones.com.

My Short Sale Strategy

2009-03-31T09:55:00.004-06:00

I have a simple strategy that I use when I want to get a short sale sold. Here is the process:

1. List the Property
2. Get an Investor Offer on the Property
3. Collect current Financials & other Short Sale Documents
4. Submit entire short sale packet to lender(s)
5. Order BPO/Appraisal and lender's BPO/Appraisal
6. Start a "Dutch Auction" list price weekly reduction
7. Negotiate lowest acceptable net price to lender
8. Compare Highest & Best offer with lender's approved price/value
9. Close transaction

Here is a short summary of the reasoning behind each step:

1. List the Property
The lender wants to know that we are doing everything we can to facilitate a sale. If the lender knows that it is listed and marketed on the MLS then we have the best chance of finding a qualified end buyer. They also know that the offers from a listed property represent "market value" and are more willing to negotiate a good settlement value.

2. Get an Investor Offer on the Property
Investors will always offer a low price on any property in order to get the best deal available. At this stage of the game it doesn't matter, we just need a legitimate offer that we can submit to the lender to get the short sale process started (we are always honest and never fabricate an offer). We also want that offer to be low so that we can find the lowest acceptable value that the lender will approve.

3. Collect current Financials & other Short Sale Documents
The financial information needs to be current so it is collected when we have an offer. I have a network of investors so I know I'll have an offer within a couple days of listing the property so I begin to collect this information immediately. The short sale documents include all the financial information to "prove" to the lender that the seller can no longer afford to keep the property and that they need to sell it. These documents also show what happened to the seller because they could afford the property when they bought it and now they can't they afford it. All information needs to be truthful and honest.

4. Submit entire short sale packet to lender(s)
All the information is submitted in one packet to the lender. This keeps information from becoming lost and allows the process to move forward more quickly. Since most lenders are backed up with other short sales and foreclosures, the first several calls to the lender will just be checking on information and making sure that all information then lender needs has been submitted. Any missing information can quickly be resubmitted.

5. Order BPO/Appraisal and lender's BPO/Appraisal
While almost no one does this, we order our own BPO on each property. We want to have an independent opinion of value and price. The 1st mortgage lender will almost always order their own BPO (an appraisal if the loan is over FHA limits) to establish value. With our own BPO in hand we will meet the BPO agent and show them the property and give them a copy of the BPO as a second opinion. We will point out those things which are important to the value of the property but that may not be obvious to someone not already familiar with the property. Our main objective is to get an idea of where that agent feels the value of the property will be (although they never tell us their value). We also use our BPO to send to any junior lein-holders so they are also aware of value (which makes negotiations with them go more smoothly).

6. Start a "Dutch Auction" list price weekly reduction
To get the best price available we need to have competing offers. Once the BPO has been completed by the lender we start to lower the price each week until we start to get offers on the property. If we don't see any offers during the week we lower the price. (I like to lower the price on Thursday so that anyone looking for homes to view over the weekend will see the price change and come to see the home.)

7. Negotiate lowest acceptable net price to lender
Once all of the paperwork has been received by the lender the case/file is assigned to a negotiator who then orders the BPO/appraisal. (Note: We hold any subsequent offers until the negotiation is concluded to establish the best possible pay-off/settlement the lender will allow for the seller.) Once the BPO has been received by the lender we begin the actual negotiations. We know that the lender's BPO value represents the price that the lender believes they can sell the property for (should they take the property back through foreclosure). We know that the lender's bottom line is below that number because the foreclosure process is very expensive (attorney's fees, property insurance, loan interest to Fed, selling costs, commissions, concessions, and dropping property values...not to mention the problems the lenders are having with too much bad debt on their books). Those costs generally add up to 15-20% of the property value (they can be significantly higher in upper-end homes). The lender will negotiate a value that is as high as possible but at least higher than their bottom line through the foreclosure process. Once they agree to a net value it is logged into their system.

8. Compare Highest & Best offer with lender's approved price/value
Once we have determined the lender's bottom line we will compare that value with our highest & best offer on the property. If the H&B offer is significantly higher than the lender's approved bottom line then the investor will buy the property and resell it to the buyer with the H&B offer. However, if the H&B offer is not significantly higher then the lender's bottom line then the H&B offer is submitted to the lender for approval and that buyer will close a single transaction. (Significantly higher means about 12-15% of the property value. The investor will have costs associated with 2 closings: 1% 1st closing costs, 3% money costs, 1% 2nd closing costs, 3% commission to 2nd buyer's agent and the investor's profit. So if the investor finds their own buyer they can reduce the sales price by 3% and still be profitable.)

9. Close transaction
Finally we close the transaction, either with or without the investor. The seller should be done with this settlement and no further negative reporting from the lender (our agreement with the lender states something to the effect of "satisfaction in full to seller"). Because the lender is writing off the "bad debt" lost in the negotiations, the seller may see a 1099 tax form which shows the lender's loss as income for the seller. If the property was the seller's principle residence then that "income" may be excluded from their taxes (some restrictions apply so consult your tax advisor).

Conclusion
At the end of the day this process is not 100% successful. However, it is a process that gives the seller the best chance of getting an approved short sale from their lender that is sellable in today's market.

A Mistake that Most Real Estate Agents Make on Short Sales

2009-03-27T17:28:00.003-06:00

I have worked with many agents who are now working short sales. The process of working with the lender is no longer so mysterious and in most cases is fairly straight forward, albeit usually quite time consuming. But there is one problem that seems to plague the majority of the real estate agents currently working in this arena...the game plan!

The average agent, once they get their short sale listing, does a market analysis and determines a range for current market value. In their efforts to get the best deal for their clients and have the best chance for a short sale approval, these agents list the property at the top of the range for market value. If they can get an offer, they reason, it should be approved because it is close to market value. If they get an offer and that buyer is willing to wait 60-90 days (wondering if they will get to buy the house) and the lender's BPO/appraisal comes back appropriately and the lender's investor approves the deal and the supporting documentation has been properly submitted and recorded (and nothing lost or deleted) and the market hasn't changed during the process (values haven't dropped any more) then the deal is done.

This process works occasionally, enough so that most agents feel they are successful short sale negotiators. However, this seems to be a precarious game to be playing with your clients financial future. It seems to me that a better game plan could be employed to create more probability that your short sale will be approved.

The process I use is a little more calculated to bring a successful closing for my clients. Our first offer is ALWAYS from an investor. An investor offer is significantly lower than market value. This offer is submitted to the lender with all the supporting short sale documentation (all at the same time). An independent BPO is ordered by us for our own notes and is used when there is a junior lien-holder (usually a 2nd mortgage). We are always present when the lender's agent does their BPO and we make sure to share our BPO with them (in case it can be of benefit to them to have a second opinion). We know the lender has a lot of costs should they choose to foreclose which usually costs about 15-20% of the value of the property. We show the lender that a short sale will net them more than a foreclosure (and it will save them all of the work, hassle, bad debt, etc.).

Since we started the negotiations at a low offer we can increase the price (net to lender) and still have a value below current market value that we can sell quickly in any market. Once the BPO has been completed by the lender we begin to lower the value (much like a Dutch Auction) until we start to get competing offers. These offers a generally better than the investor's offer and still better than the lender's bottom line. This means that if the investor backs out of the deal we have back-up offers on the property or if the investor consummates their purchase they have end buyers interested in purchase the "flip" with virtually no holding costs. The real triumph is that the seller gets an approved short sale price that can be sold under current market conditions and usually will create competing offers too.

Why don't most real estate agents fail to use this method. I don't have that answer but I suspect that there are two major reasons. 1) The agents are not trained to think like investors and do not honestly believe that the lender will accept such low offers, even if you show them that it is in the lender's best interest to do so. And 2) the agents don't have time or don't have the skills to truly negotiate with the lenders; so going for the easy negotiation is their only option.

What is the harm with going for a market value offer? Nothing if the sale is consummated. The problems occur when the buyer backs out of the deal (which occurs most of the time). If an offer is submitted today at market value then a couple of problems may occur. 1) The buyer usually doesn't stick around for the approval in 90 days. 2) The lender believes that they can get another market value offer or better and their expectation is set too high; they won't consider lower offers. 3) In a market that is losing value, a market value offer 90 days from now is less than a market value today; a buyer who sticks around still won't be able to get the appraisal value high enough to complete the purchase (or they buy a property that is upside down from day 1 and who will do that in today's market?). This is a bad scenario for everyone.

My advice is to start with an investor offer. The chances for being successful are better if you start your negotiations lower and you can still sell for market value when the sale is approved in 60-90 days.

Taxes on Your Forgiven Debt on Your Foreclosed Home

2009-03-24T15:39:00.003-06:00

The economy has hurt a lot of people and many families have been forced our of their homes through the foreclosure process. With all the economic problems already weighing you down, what do you do when your mortgage company sends you a tax form 1099-C showing their loss as your gain? Does that mean you have to pay taxes on that money the mortgage company lost when you already have no money (which is why you lost your home in the first place)?

Not necessarily! There may be help through the Mortgage Forgiveness Debt Relief Act of 2007 (enacted Dec. 20, 2006). According to this act, up to $1,000,000 of forgiven debt on your principle residence may be excluded from your taxes (up to $2,000,000 if filing jointly). This debt forgiveness does not apply to second homes, investment property, business property, credit cards or car loans. Also, the debt on the principle residence must have been used to purchase, build or substantially improve the property (so if the loan was to get cash to pay for a new car, kid's college, investments, etc., then this debt is not exempt under this act).

For most Americans this is extremely good news! Because of our country's economic struggles, this debt relief act has been extended through 2012. To take advantage of this legislation you will need to fill out IRS form 982 and submit it with your other tax documents.

Please contact your CPA or other tax professional for tax advice.

Determining an Offer Price on a Short Sale Purchase

2009-02-27T14:55:00.002-07:00

I think that just about everyone knows intuitively that you can get a great deal by purchasing a short sale property. But just how much of a good deal can you really expect to get after all of the negotiating, lost paperwork, apparently lack of progress, angry customer service people, extra time, etc. And where do you start. Let's consider the purchase price.

How much do you offer on a short sale purchase? How much of a discount is the lender actually willing to take? And what offer will the seller accept in the first place?

There are a few numbers that you need to be aware of when purchasing a short sale. The first and most important number is current market value! When considering what the current market value is today we do not take into consideration what the property sold for last or what the current owner owes on the property. We need to look at the value from the bank's perspective...if the property is listed as an REO (bank owned) property, what price would most likely cause it to sell in 60 days? The answer to that question in current market value.

Why does this method work to determine value? Because the bank has to answer one simple question, "if we take the property back through foreclosure, how much can we realistically sell the property for?" The bank will determine this value with a BPO (Broker Price Opinion).

When we consider the market comparables we only look at property that has sold within the past 60 days; anything longer than this is old data. We also need to take into consideration the other active listings (the competition) in the area and how that will affect the sales price so that the property could sell in 60 days. If the property has been on the market for more than 30 days without an offer then the list price is too high for the current market.

Once you can figure out current market value your ready to begin to calculate an offer price. Once again we must look at the property from the perspective of the lender, "how much can we realistically expect to NET if we take this property back at foreclosure?" The lender will incur quite a few expenses through the foreclosure process (such as legal fees, holding costs, insurance fees, repair expenses, closing costs, realtor fees, etc.). The lenders are doing so many foreclosures now that they know these expenses very well for every area of the country. If you know what these expenses are you can figure out the lender's bottom line. Your offer just has to be higher than their bottom line and they will accept your offer!

Experience has shown that the foreclosure costs for the lender are between 15-20% of market value. With this in mind let me share a quick example:

I have a property that was purchased for $300,000 about 18 months ago. Today the CMA (Comparative Market Analysis or Realtor Price) value of the home is about $250,000. Considering the market factors a current market value of $220,000 is more realistic. So the investor offer price on this property would start be between $176,000-187,000.

Now just because the lenders will accept this lower value doesn't mean they won't kick and scream about wanting more money. There is more to a short sale than just price. However, if done correctly most lenders will accept these lower values because they actually net more money through the short sale than they will net if they go through the entire foreclosure process. And since the lender will get less than they are owed they will require that the owner receive nothing, so any offer to the seller should be acceptable as long as the investor can perform.

Finding Real Estate Foreclosure Auctions and Information

2009-02-26T17:34:00.003-07:00

The easiest way to find a real estate foreclosure auction in Utah is to contact the trustee who is performing the sales. Here the main companies/firms doing foreclosure auctions:

Scott Lundberg
Bryan Cannon
Recontrust
Marlon Bates
Woodall and Wassermann
Pettey Legal

You can also check the local newspapers for the weekly listings of upcoming auctions but the websites will have more current information.

Negotiating with the Lender for Reduction in Mortgage Balance

2009-01-06T10:33:00.006-07:00

Picture this...you bought a property in the past 3 years and now you're wondering if you made the best choice. Prices are dropping and mortgage rates are very low. What do you do? How do you take advantage of this bust economy but keep the house you've grown to love? Exercise your Extended Right of Rescission!

Because of the Federal Truth in Lending Act you have the Right of Rescission regarding your home loans. This Right of Rescission last for 3 days under normal circumstances! However, the recent boom in the real estate economy wouldn't be considered normal circumstances. With the frenzy of lenders originating loans there were a lot of mistakes made. Chances are very good that there were some mistakes made regarding your loan! If that is the case, you have an Extended Right of Rescission regarding your current home loan.

If you indeed qualify for the Extended Right of Rescission you can simply notify your lender that they have violated your rights under the Truth in Lending act and that you want to rescind your loan(s). The lender then must cancel their loan, repay all the money they have received in connection with the loan (and its origination) and then you give them back the house. You also have the option to pay the lender a reasonable amount (possibly through a refinance) and keep the house. It's that simple!

That is what is entitled by law but here is where the fun begins! The lenders can't afford to take back any more homes. They already have more property than they are allowed by federal regulations (in many cases!). Rather than give up the property or fight a major legal battle, it is time to negotiate with the lender. If you're successful in litigating your position the lender will have to pay you to get the property back that they will most likely sell for less than market value (because it is bank owned). Rather than go through this you can offer to maintain the current mortgage with some modifications! These should include a reduction in the principle balance owed, a reduction in the interest rate, allowing a mortgage assumption or removing the "due on sale" clause, a reduced amortization period, etc. At this point the lenders are almost always willing to discuss options!

Take a moment to estimate how many mortgage payments have been made and how much was spent on closing costs. This is approximately the amount the lender must repay to you for the right to claim your house. Since this money is owed to you anyway, this is the amount that you should negotiate through the above listed terms. Finally, get a good opinion (or two) about the current market value of your property either through an appraisal or a CMA (Comparitive Market Analysis).

For example...

let's say you owed $200,000 on your home with a mortgage payment of $1,500/month and an interest rate of 7%. You've owned this home for 2 year (24 months) and paid about $4,000 in related closing costs. If you rescinded this loan the lender would owe you $1,500 x 24 months = $36,000 plus closing costs of $4,000 = $40,000!

While negotiating with the bank we might offer to keep the loan at 5% for 15 years with a principle balance of $168,250. This would maintain the current mortgage payment of $1,500 but would reduce the pay-off time by 13 years (which works out to be nearly $150,000 in interest savings over the life of the loan).

OR

We leave the loan terms the same but reduce the principle to $160,000 and re-amortize the loan for the original 30 years. This would reduce your payment $300/mo! That is money you can spend anywhere you want and you now owe $40,000 less on your home.

OR

Without changing any terms we negotiate 4 years of 1/2 payments so that for the next 48 months the mortgage payments are only $865/mo! You save the $40,000 over 48 months or you can pay down the principle with the difference in the mortgage payment!

OR

You could point out that the market value of the property is only $175,000 and if the lender takes the property back the could only hope to sell for that amount (at best). This market value actually becomes the starting point of your negotiations and you could still utilize the above options too.

Obviously this owner option is very powerful in creating an optimal mortgage situation for yourself. We'd be happy to discuss your situation with you if you think you may qualify. We've been 95% successful in creating this opportunity for our clients!

Lenders Willing to Buy Back Over Priced Homes

2009-01-06T10:16:00.006-07:00

Picture this...you bought a property during the boom of the real estate economy and paid top dollar for it. Now the economy isn't what it used to be and you find yourself owing more than the property is worth. What do you do? Exercise your Extended Right of Rescission!

Because of the Federal Truth in Lending Act you have the Right of Rescission regarding your home loans. This Right of Rescission last for 3 days under normal circumstances! However, the recent boom in the real estate economy wouldn't be considered normal circumstances. With the frenzy of lenders originating loans there were a lot of mistakes made. Chances are very good that there were some mistakes made regarding your loan! If that is the case, you have an Extended Right of Rescission regarding your current home loan.

If you indeed qualify for the Extended Right of Rescission you can simply notify your lender that they have violated your rights under the Truth in Lending act and that you want to rescind your loan(s). The lender then must cancel their loan, repay all the money they have received in connection with the loan (and its origination) and then you give them back the house. You also have the option to pay the lender a reasonable amount (possibly through a refinance) and keep the house. It's that simple!

There are 2 significant tricks to this option. Because of these two hurdles I would advise you to seek competent legal assistance before exercising your option and Right of Rescission. The first trick is that you have to find an error relating to the Truth in Lending act in your mortgage and closing documents! The second trick is that you'll most likely have to defend your position in court as most lenders don't take too kindly to having their loans rescinded with no consequence to you (the borrower) and generally will file some sort of lawsuit.

Once the court rules in favor of your rights, the lender will pay you to take back the over-priced property, pay all attorney's fees and the burden of sale is theirs. You are then free to find a new home with no further obligations.

How to Avoid Foreclosure: Extended Right of Rescission

2009-01-05T14:18:00.002-07:00

With the wave of people facing foreclosure there are many who are asking for help. What can be done to stop the foreclosure process. Many of our clients have decided to use the powerful extended Right of Rescission which immediately terminates the foreclosure process permanently. Let me explain.

The US Government passed a law commonly known as the Truth in Lending Act. This act was designed to protect consumers from predatory lending practices. This protection was in the form of various disclosures showing the real cost of various loans and lines of credit. However, with the wave of loans being originated some of these disclosures have become misleading (either accidentally or intentionally) and it has hurt the general population.

Under the Truth in Lending Act each consumer is given a 3 day Right of Rescission, a cooling off period, to determine if the loan or line of credit is what they want, what was advertised and what they can afford. If a consumer changes their mind during the 3 day period they can cancel any loan by signing a Notice of Rescission and they are then free from any and all obligations associated with the loan.

What we have helped 95% of our clients to discover is that their required disclosures, under the Truth in Lending Act, are actually incorrect in some way. These errors actually violated the consumer's (borrower's) rights under the Truth in Lending Act and give the consumer an extended Right of Rescission. The extension can last up to 3 years from the date of the loan origination.

What this means is that if someone is in foreclosure and there is an error under the Truth in Lending Act, the borrower can actually sign a Notice of Rescission and send that notice to the lender. This immediate removes all obligations in relation to the loan and, by law, the lender must remove the Trust Deed from the property within 20 days. Without a Trust Deed the lender cannot foreclose on the property.

Not only does this rescission stop the foreclosure process immediately but the law requires that the lender repay all of the money received in connection with the loan. This means that the borrower will receive all of their mortgage payments back in addition to the closing costs directly associated with the loan. Once the borrower has received this rebate from the lender they have the choice to give the lender the property or its reasonable value in cash (usually through a traditional refinance).

Not only is the lender required to return all the money paid but they cannot give any negative reporting to the credit bureaus because the loan and note were rescinded. That means there is no obligation to pay and therefore there can be no late payments and no foreclosure. With renewed credit worthiness the borrower is often able to refinance the property with a new lender and will have the means to repay the original lender or the borrower can move to a new property with their cash rebate and buy a different home all together.

Another variation to this Right of Rescission process is the lengthy amount of time involved in litigation. Most lenders react poorly to losing their Trust Deed and right to foreclose and will usually challenge the process through a lawsuit. With bankruptcies and other issues associated with the down-turn in the economy, most courts are full and there is an extended waiting time for a court appearance.

According to the Truth in Lending Act, once a Notice of Rescission has been sent to the lender all obligation to pay is legally ended. This means that through out the lawsuit time frame, the borrower is allowed to retain possession on the home and no mortgage payments are due to the lender (with no negative reporting to the credit bureaus). A few of our clients have exercised their Right of Rescission simply to stall the process of losing their home so that they have a place to live (rent & mortgage free) for several months and no negative credit reporting (no foreclosure on their credit even though they will eventually lose the house). These clients have used the free housing option in order to pay down other debt and get their finances in order so they can move on with their lives once the litigation has concluded.

And one last kicker...! If the lender doesn't pay up within the first 20 days after the Notice of Rescission has been filed, they are also required to pay all attorney's fees accumulated in enforcing the consumer's Right of Rescission. Nearly ever lender has filed a lawsuit or proceeded with the foreclosure (illegally) rather than pay up in the first 20 days, so our clients haven't even had to pay for our services!

There is another option for the consumer which hasn't been utilized by our clients on a high level, yet. Once the Notice of Rescission has been filed (sent to the lender) an opportunity for negotiation exists. The lender has a very sticky predicament: they have to pay the consumer back all of their payments (up to 3 years), pay their corporate lawyers additional money above the foreclosure fees already spent, can't damage the consumer's credit by reporting late fees and foreclosure, realize additional lost mortgage payments during litigation and in the end they just get the house back (which may not be worth what they lent on it due to a falling market). Quite frequently the bank will consider a significant loan modification in favor of the borrower including reduced interest rate, reduced mortgage payments, reduced principle balance owed, loan reinstatement, include loan assumption language or waive "due on sale" clause, etc. This way they don't have to pay additional money for the home and can recapture some of their money through the mortgage interest.

This is a pretty amazing tool for stopping foreclosure and forcing the bank to seriously consider negotiating loan terms. However, not everyone qualifies for the extended Right of Rescission. My real estate team includes two specialists in the area of Truth and Lending violations and litigation. We're happy to discuss your situation with you if you don't currently have an attorney who specializes in this area of litigation.

Cash Rebate to Homeowners

2009-01-05T10:54:00.003-07:00

95% of our clients have found that they are owed a cash rebate from their lender! However, no one told them about this cash rebate. Obviously the lenders are not very active in advertising this rebate, especially during this time of economic turmoil, because these lenders are using the rebate money to offset bad debts on other people's mortgages. Regardless of the situation that the lenders are in, you may be owed a cash rebate on your mortgage.

In the effort to create loans there has been a lot of misleading information regarding critical aspects of most home loans. As a result most borrowers were charged and have overpaid various fees (and in some cases those fees are continually being paid on a monthly basis). The federal Truth in Lending act requires the lender to honestly disclose all fees to the borrower before the loan is dispersed. Any errors (whether accidental or intentional) must be repaid to the borrower immediately.

In order to qualify for this rebate there are several things that must happen. First, one must catch the error(s) within the first 3 years. Second, there must be an error with the lending disclosures and/or loan fees paid. Third, one must still own the home. Fourth, the appropriate paperwork showing the error(s) must be submitted directly to the current loan servicer(whoever currently holds the mortgage).

Some of our clients have chosen to forgo their cash rebate in exchange for a change in loan terms through a loan modification. Some terms that we've seen negotiated include a direct principle reduction in the loan amount, a reduction in interest rate, no mortgage payments (up to 6 months), a change in loan terms allowing for loan assumption (good for when you decide to sell), removing the "Due on Sale" clause (also good when you decide to sell), and lender concession (such as free home insurance or lender subsidized property taxes). The lender is usually quite willing to negotiate special terms because they would rather keep a good customer than pay a large rebate for their errors.

For more information please contact us by email at Khayyam@KhayyamJones.com or by phone at (801) 787-7797.

Extended Right of Recission - Truth in Lending Act

2009-01-03T13:37:00.002-07:00

The government passed a law commonly known as the Truth in Lending Act which is designed to protect the consumer against predatory lending practices. While the intentions of the legislation are legally binding, the actual implementation of this legislation by lenders is fraught with problems and inaccuracies. Because the Truth in Lending Act is a federal law, all lenders are required to comply with it completely. Our experience has shown that over 95% of the loans currently in default (pre-foreclosure) have Truth in Lending violations that can benefit the homeowner.

As we have worked with our clients who are in various stages of foreclosure we have discovered our clients have one or more violations of the Truth in Lending Act and therefore have an extended Right of Rescission. Normally this Right of Rescission is for 3 days but in cases where there has been a violation of the Truth in Lending Act, that right can extend up to 3 years. If one chooses to exercise their Right of Rescission then the foreclosure process stops immediately! Not only does the foreclosure stop but the lender will have to give the homeowner a cash refund, clear their credit report and the homeowner is free to move on with no strings attached.

If you meet the following requirements then you can qualify for an extended Right of Rescission on your own property: If your home loan was originated within the past 3 years and 1) you didn’t receive all disclosures as required by law, or 2) your disclosed APR is inaccurate by more than ½ of 1 percent, or 3) the finance charges were understated by more than $35, or 4) a mortgage broker fee was not included. While this list is not comprehensive it does show that there is a high probability that there is at least one violation of the Truth in Lending Act regarding your property.

When you choose to invoke the Right of Rescission the following things must happen in order. 1) The security instrument (trust deed) becomes void and the consumer is no longer liable for any amounts or payments (including any finance charges). 2) The lender returns any money given to anyone in connection with the transaction (cash rebate to borrower). 3) Lender shall take any action necessary to reflect the termination of the security interest (trust deed is removed from the property). 4) Borrower shall tender the money (reasonable value) or property to the lender (the homeowner can decide whether to (refinance and) pay off the original lender or just give them the house and walk away).

If a homeowner is in default and the lender is trying to foreclose take the home away, the borrower can immediately stop the foreclosure process through their Right of Rescission. The lender is then required to return all monies paid to the lender (including mortgage payments, fees and closing cost for originating the loan) in a cash payment. Since the loan has been rescinded all terms of the loan agreement are void so all negative reporting to the credit bureaus must be eliminated and the trust deed be reconveyed to the homeowner. Once the lender has fulfilled their part then the homeowner must pay the lender a reasonable value or give the lender the home (which they were trying to take anyway). Usually the lender is going to fight this process through the courts and the homeowner is entitled to stay in the home without a mortgage payment until the process is resolved. This process could take months (or possibly years) before the lender can get the home through the court process. During the time it takes to go through the legal process a homeowner can pay off debt, repair their credit, or do what it takes to get back on their feet.

By knowing your rights a homeowner can save themselves a lot of money. If a homeowner is having financial difficulties and/or the home is in foreclosure, the borrower could stop the foreclosure process, receive a lender cash rebate, stay in the home for several months with no mortgage payment and get a portion of their credit cleared up before leaving their home. Regardless, the lender is usually going to try and negotiate favorable terms for everyone to prevent a large cash payment to the homeowner with no remuneration in return. It’s important to know and understand your rights under the law.

Start Investing in Real Estate With No Time Committments

2008-12-19T20:36:00.001-07:00

I want to start investing but I don’t have any time. What can I do to get started investing in real estate?

Getting started investing in real estate does not require a significant time investment. Time is essential in working in real estate but it doesn’t necessarily require your time. While there are a myriad of ways to invest without investing your time, here are a few ideas to consider.

• Be a Cash Investor
• Be an Equity Partner
• Partner with an Experienced Investor
• Invest utilizing Property Managers
• Invest in Commercial Real Estate

Let me summarize each of these options and show how they fit into our real estate investing business model.

Be a Cash Investor
Once we find an investment opportunity there are usually some up-front costs (earnest money deposit, inspections & fees, applications & permits, fix-up & repair, upgrades & construction, buying notes & loans, etc.). The up-front costs are paid by a cash investor. These investments are short-term, generally less than 1 year in length. The interest rates are significantly higher than typical investments and we are usually able to double their investments every 3-5 years. The time commitment involves a brief project review and possibly participating in a single closing.

Be an Equity Partner
The equity partners are involved with our long-term investments. Once we’ve established a significant equity position (greater than 20%) we often hold our properties instead of selling them. The equity partner is the investor who will help acquire the long-term financing on the project. The equity partner will get a significant portion of the profit from the deal and the time commitment only includes a brief project review and participation in 2 closings (a refinance closing and a selling closing).

Partner with an Experienced Investor
Becoming a partner on an investment project doesn’t necessarily require more time depending on the level of participation. Participation can be as simple as referring cash investors and equity partners to us for our investment projects. It can be as involved as participating in every aspect of the investment. It simply depends on the time you’re willing to invest and the proportional returns you want to qualify for.

Invest Utilizing Property Managers
A significant portion of time can be spent in managing an investment property. By hiring a good property manager to deal with the day to day operations can free up a significant amount of your time. The property manager is responsible for finding & keeping tenants, repair & maintenance, yard care, signing contracts, showings properties, collecting rents & fees, etc. The challenge is finding a good property manager because a bad property manager will cost you a lot of money in lost rents & high vacancy, large turn-over costs (in advertising and up-keep), property repairs (due to property damage), etc. But they can become your best friends as your portfolio grows larger.

Invest in Commercial Real Estate
Investing in commercial real estate is viewed by many seasoned investors as the pinnacle of real estate investing. Commercial real estate includes any real estate that doesn’t fit the standard 1-4 unit residential property such as residential property (with 5 or more units), mobile home/trailer parks, mixed use property (combination or residential and commercial), retail space, office space and industrial space. These types of properties usually include property management already in place or are self managed (such as the “triple net lease” where the tenant takes care of all property responsibilities). The challenge with the commercial property is that the financing terms differ from the residential loans and usually require more money to get started.

This is just a brief summary of a few options available to someone who has the interest and desire to invest in real estate but may not have the time currently available to invest with. We’re looking for people who want to be involved with the amazing industry of real estate investing. If you’re interested and would like to get started investing please contact Khayyam Jones at (801) 787-7797 or email to Khayyam@KhayyamJones.com and we’ll contact you shortly.

Real Estate Investing Business Model

2008-12-18T15:06:00.002-07:00

This business model is taken from Mike Watson's Foundation to Success:

Know the "Foundation to Success"
Create your "Red Button Statement" (Your personal WHY)
Find incredible deals (competing & non-competing methods)
Evaluate Properties for "Highest & Best Use" (short-term & long-term strategies)
Buy property with the two OPM's
Expose vision and put up for Sale ("flixer")
Create and Enhance Equity ("fixer")
Sell property for a Profit (Short-term capital creation)
Refinance any property that doesn't Sell (Long-term wealth strategy)
Share & Educate Others; Expand the Team

Investing With No Money Down

2008-12-18T14:57:00.004-07:00

I want to start investing but I don’t have any money. What can I do to get started investing in real estate?

Getting started investing in real estate does not require money. Money is an important tool but it is not a requirement for investing in real estate. While there are a myriad of ways to invest without cash here are a few ideas to consider.

• Assist an experienced investor
• Shadow an experienced investor
• Apprentice with an experienced investor
• Partner with an experienced investor
• Use your good credit and work history (traditional funding and refinancing)
• Access Lines of Credit (HELOC, BLOC, SBA, etc.)
• Use OPM (money inside your (SOI) Sphere of Influence)
• Seller Financing options

Let me summarize each of these options and show how they fit into our real estate investing business model.

Assist an experienced investor
Investing in real estate on a high level requires a team of people doing various jobs. Someone is responsible for doing research on each property before it is purchased, discovering property details, market conditions, target market parameters, financing options and so forth. Another person may be responsible for the follow-up with sellers, buyers, lenders, repair crews, cleaning crews, construction managers & workers, city officials and marketing campaigns. The next team member is responsible for the paperwork associated with each project or deal, completing everything from purchase contracts & addendums to work orders, repair requests, permits & applications and so forth. Another team member may be responsible for answering and returning phone calls, arranging contractor bids, setting appointments and showing property, tracking down owners of vacant property and many other tasks. So being involved in real estate investing can simply be a question of time, effort and energy spent in a good real estate deal.

Shadow an experienced investor
One significant aspect of investing is meeting with buyers, sellers and investors. These meetings and contacts are best done in teams (groups of at least 2 people). Our business includes knocking on the doors of homeowners in many neighborhoods of our cities. Often we stop to visit with For Sale By Owner (FSBO) sellers as we drive by their homes. This can pose a potential safety issue but going in teams increases the safety of our partners. It also creates an opportunity for a novice investor to shadow an experienced investor and learn how to talk to and negotiate with sellers, buyers and investors. It also allows the investing team to leverage the use of their experience to contact more people and increase the opportunities for investing.

Apprentice with an Experienced Investor
Working directly with an experienced investor allows you to see the details of getting an investment deal done. By helping and creating the marketing campaigns, advertising and flyers there is an opportunity to understand how to be successful in finding property and selling projects. There is also an opportunity to help with the business promotion to find additional investors and capital for the group. This allows you to learn the less glamorous but essential side of investing and it leverages the experience of the investor to get more work done.

Partner with an Experienced Investor
Partnering is a step above assisting, shadowing and apprenticing because you become a significant part of the actual investment deals. As a partner you are significant in finding equity & capital for the deals. There is a responsibility to find referrals & leads of buyers, sellers and investors who are not yet associated with our group. As a partner you begin to receive part of the profits, equity and cash-flows of each project.

Good Credit and Work History
Many people have good credit and a solid work history but just haven’t been able to save enough money to invest in real estate. These people are a significant part of our long-term investment strategy. In our business model we buy property, increase its value and sell it for a profit; but if the property doesn’t sell we refinance it and hold it long term for all the benefits of real estate investing. But there is a limit to the number of loans any one investor can have so we are constantly looking for additional people who can refinance our investment properties for the long-term. As our equity partner they get a large percentage of the profit and generally have no additional obligation to the project. And there is no cash required from our equity partners.

Lines of Credit
These investors have a different role in our system. Unlike the previous investors who refinance for the long-term, these investors use their money for the up front and short-term aspects of the project. This includes the earnest money deposit, inspections & fees, applications & permits, fix-up & repair, upgrades & construction, buying notes & loans, etc. These monies are used short-term and are repaid upon the sale or refinance of the property. Most people who have good credit and a strong job history can qualify for unsecured lines of credit, credit cards, HELOC (Home Equity Line of Credit), BLOC (Business Line of Credit), SBA Loans, etc. There are a lot of funding options even if your personal savings account is small.

Use OPM (Other People’s Money)
There are many individuals out there who have created money to invest, either through personal savings, intelligent investing, retirement accounts, etc. Many of these people want to be able to invest their hard earned money in safe and secure investments. Because you may know some of these individuals you can bring them to our group. We gain access to their funds and they get fabulous returns on their money (usually doubling their investments every 3-5 years) and you get a portion of the profits from the deals.

Seller Financing
Seller financing can allow for the purchase of property with little or no money out of pocket. Once properly understood and utilized, the investor understands that seller financing is actually better for the seller than the buyer but it does allow the investor access to the property. While the applications of seller financing are virtually infinite, the point is that there is the ability to invest in real estate without money from your own pocket.

This is just a brief summary of a few options available to someone who has the interest and desire to invest in real estate but may not have the funds currently available to invest with. We’re looking for people who want to be involved with the amazing industry of real estate investing. If you’re interested and would like to get started investing please contact Khayyam Jones at (801) 787-7797 or email to Khayyam@KhayyamJones.com and we’ll contact you shortly.

No Money Down Home Purchases

2008-12-15T20:49:00.002-07:00

I have people asking me all the time..."how can someone buy a home with no money down." It seems to be the ellusive investor's dream. But there is hope. There are several ways to get into a home with no money down:

1. Rent to own/lease option to purchase; start as a renter while you save money for the down payment or build purchase credit and then buy the home you're renting.

2. Seller finance; find a seller who needs to sell but doesn't necessarily need their cash right away.

3. Short term seller finance purchase and equity refinance; you can start with a short-term seller finance but you will refinance the property using and equity in the property as the down payment.

4. Investing partner; find someone who has cash to invest and use their money for the down payment. You'll need to make some financial arrangement, usually monthly payments, to repay the investor and set a time limit on how long you plan to use their money.

5. FHA purchase. This isn't completely a no money down but they still allow grant money for the down payment.

I'm assuming that you have decent credit (at least 600 fico scores or better) and have a steady job. The down payment is the easy part but you need to be in a position to finance the property at some point. Keep the FHA loan in mind...in is pretty handy right now.

Where can you view local foreclosure property?

2008-12-11T16:37:00.002-07:00

There are several sources for finding foreclosure homes. But to be more accurate, the foreclosure homes are the ones that are actually at the auction. Those auction notices are published daily in your local newspapers.

Finding the properties before they go to auction, while in pre-foreclosure, you will probably want to talk to your local Real Estate Investment Association (or club). They are probably already tracking most of the Notice of Defaults already but can show you where to look yourself. Usually a title/escrow company will email that list weekly. You can also check with you local county land records (usually online) daily.

After the foreclosure sale you will be looking for bank REOs (Real Estate Owned). These are usually on the market 2-6 months after the auction. They have to get appraisals or BPO's (Broker Price Opinions) to estimate market value as well as other paperwork for the specific institution before they get listed and sold to the general public. These are found through a few local realtors who get the bulk of these listings and you can find them online through your local MLS, Realtor.com or most of your local agents will have some link to local housing information searches. (If you go this route I would recommend finding the main agents and contacting them directly...you'll get faster information and less red tape since they make more commissions if you buy directly through them.)

Each stage of the process has it's pros and cons...

Pre-foreclosurePros: You get a chance to work directly with the owner, the banks have some flexibility on price (for a short sale), great discounts on junior liens, more options and terms to negotiate.
Cons: Not all homeowners are willing to work with you (in a state of denial), not all lien holders feel the need to negotiate, usually need cash or access to quick money, usually requires educating the sellers.

Foreclosure (auctions)Pros: opening bid is usually at the amount of the first lein only, (right now) few bidders & lots of property, no negotiations.
Cons: requires cash, no guarantees (it only takes on idiot to bid up the price), no inspection period.

REOsPros: regular purchase process with loan qualifying time and inspection periods, full representation.
Cons: more competition from investors, less flexibility from banks, subject to rules of traditional lending.

Keep in mind that all three options have opportunities for fabulous deals. It's up to you to pick an option that fits your style for investing.

Additional websites:
RealtyTrac.com
Foreclosure.com
ForeclosureFreeSearch.com
Foreclosure.net

Hardship Letter (example)

2008-11-19T17:15:00.000-07:00

John and Jane Homeowner
123 Myplace Avenue
Anytown, State 12345

Bob Lender
My Understanding Lender Company
456 Overthere Lane
Sometown, State 12345

Current Date

RE: Loan #(your loan number) for property at (address of property)

Dear Mr. Lender,

We are contacting you today to explain the circumstances which have caused us to become delinquent on our mortgage payments. Although we have done everything possible to improve our financial situation, we are still short on the money owed to you. We would greatly appreciate the opportunity to obtain a (proposed outcome).

The main reason we have become delinquent in our mortgage payments is (explain the reason here).

Our circumstances have (or have not) changed. As of (applicable date) we have (describe your change in conditions). At this time we do not have enough income to pay our regular monthly mortgage payment and all of the accumulated payments and fee. We truly want to pay what is owed, but at this time do not know how to accomplish this. Therefore, we are turning to you for assistance.

We are asking for (propsed outcome). Doing so, would help us get back on track. Our home means a great deal to us and we desire to work with you to keep it out of foreclosure. Please advise us of all options available to stop foreclosure (or initiate a short sale) at your earliest convenience. We are anxious to reach an agreement and appreciate your prompt response.

Respectfully yours,

Print name of Borrowers
Signature of Borrowers
Loan #
Phone
Email addresses (if applicable)

Items to Include in a Hardship Letter to Lender

2008-11-19T17:03:00.003-07:00

Hardship Letter

The following items are important and need to be included in your hardship letter:
• Date
• Loan Number
• Reason for Default
• Supporting evidence and documentation
- Event details
- Date of events
• Documents supporting end of hardship (if applicable)
• Your proposed outcome (what you would like to happen)

The following is a list of valid reasons for hardship that would be accepted by most lenders:
• Death of borrower
• Death of spouse or family member
• Illness• Medical Bills
• Short-term or permanent disability
• Unemployment
• Decrease in working hours
• Decline in earning for self employment
• Elimination of overtime or second job
• Mandatory pay reduction
• Increase of expenses due to short-term unemployment
• Involuntary job relocation
• Failure of business
• Divorce
• Marital Separation
• Incarceration
• Military Duty
• Damage to Property

When writing your hardship letter make sure that you honestly represent the facts as you may be asked for supporting documentation to verify your claims. Include all of the things you have done to be responsible for your loan obligations. For example:
• Created family budget
• Seeking credit counseling
• Reduced bills & recurring expenses
• Secured new employment
• Secured additional employment
• Used savings
• Borrowed or closed retirement accounts
• Increased education (more employable)
• Sold large assets
- 2nd car
- Jewlery
• Stocks, bonds, mutual funds
• Cancelled luxury subscriptions
- Magazines
- Cable TV, Internet
• Exhausted other means to pay debt

(Click here to see examples of some hardship letters)

Homeowner's Paperwork Require in Pre-Foreclosure Negotiations

2008-11-19T17:01:00.001-07:00

The following paperwork is going to be required for anyone who is not able to sell the property (for more than is owed) and cannot pay the lender all of the money owed in back payments and fees:
•Hardship Letter
•Personal Financial Statement
•Authorization to Release Information
•Real Estate Purchase Contract (REPC)
•Limited Power of Attorney
•Seller Acknowledgement Document
•General Warranty Deed

In addition, the Homeowner(s) needs to be prepared to show copies of the following for each borrower:
•Tax Returns (past 2 years)
•Bank Statements for All Accounts (past 2 months)
•Pay Stubs for all Employment (past 2 months)
•All monthly bills (past 2 months)
•Property Tax Bill
•Homeowner’s Association (HOA) bills or liens
•Property Insurance statement

Foreclosure Help in Utah (Free Resources)

2008-11-17T14:09:00.005-07:00

It is staggering how little help is really available to those facing foreclosure. An internet search for foreclosure help in Utah revealed 425,000 results for "foreclosure help utah" and yet there were only 4 true help resource pages in the entire first 10 pages of search results. Mostly there were sites aimed to attract investors to buy foreclosure lists and agents hoping for foreclosure listings.

The reality is that there isn't much out there to really help someone facing foreclosure. Of the first 10 pages of search results there were just a handful of sites that talked about the foreclosure process. And in all those sites there wasn't a single site that actually gave practical advice to someone seeking help for their current situation. Listed below are a few sites with some helpful information:

Understanding Homeonwer's Options
Foreclosure Law Summaries (Utah)
Resources for Consumers (Federal Reserve)
Homeowner Information (HUD)
Foreclosure Education for Homeowners

If you know of any more good resources for homeowner's facing foreclosure, please post a comment with the website information. Let's pool our resources and help those who really need the help! Thank you in advance for helping those in need.

Understanding Homeowner's Options When Facing Foreclosure

2008-11-13T14:32:00.005-07:00

When an owner is facing foreclosure they often times don't know that they have options available to them. Usually their list of options is to a) sell the house, b) refinance the house, c) wait for the inevitable foreclosure, or d) hope that nothing will happen, that it's a bad dream that will go away if it's ignored. I'd like to share a short list of options that a homeowner has available to them...

Homeowner Options

Reinstate the Loan:

Borrow money from family and friends
Borrow money from (or close) a retirement account (401K, IRA, Keogh)
Sell other assets: 2nd car, boat, stocks, timeshare, rental or 2nd home
Get a new 1st mortgage through a mortgage broker
Get a new 2nd mortgage through a mortgage broker
Get a new 2nd mortgage through local secondary markets
Get a 3rd mortgage (in a highly appreciating market)
Get a loan from a hard money lender
Get a loan from a private real estate investor

Sell the Property before the Sale:

FSBO (For Sale By Owner)
Listing/Selling with a Realtor
Selling directly to a private investor

Negotiate with Bank:

Partial reinstatement
Forebearance agreement
Loan modification agreement
Direct refinance with the same lender
Short refinance
Short sale
Deed in Lieu of Foreclosure

File Bankruptcy:

Chapter 13 - with an Attorney
Chapter 13 - without an Attorney (pro-se)
Chapter 7 - with an Attorney
Chapter 7 - without an Attorney (pro-se)

Work with me or my Competitors:

Sale and lease back
Sale and rent back
Sale of partial equity in exchange for deed and agreement to relocate
Partner on selling home with me
Partner on short-sale and deeding home over to investor
Lease with option to repurchase (illegal - aka "equity stripping")

It is important to understand that there are a variety of options (and combination of options) available to the homeowner. Make sure that before you make a decision regarding a foreclosure decision that you consider all of the options available to you so that you can make the best and most educated decision possible.

I specialize is short-sales and pre-foreclosure sales and would be happy to discuss your options with you and answer any questions you may have. You may contact me for a free, no obligation appointment at (801) 787-7797 or simply send me an email at Khayyam@KhayyamJones.com. You may also download a copy of my free consumer report.

$7,500 Tax Credit for First Time Home Buyers

2008-11-13T10:15:00.003-07:00

Have you heard about the new housing rescue bill that passed in July? One of the most exciting new provisions of the Housing and Economic Recovery Act of 2008 is the First-Time Home Buyer Tax Credit. The credit is designed to encourage first-time home buyers to go ahead and make the leap to purchase their first homes.

First Time Home Buyer Tax Credit Rules:

The home must be purchased as a primary residence.
You must not have owned a primary residence in the last three years. For couples, both individuals must not have owned a primary residence in the last three years.
Must not be a non-resident alien as defined by the IRS in Publication 519.
Individuals must have a modified adjusted gross income of less than $75,000 annually and couples less than $150,000 to qualify for the full amount.
The home must be closed between April 9th, 2008 and July 1st, 2009.

How the tax credit works:

The tax credit is 10% of the home's sale price with a maximum of $7,500.
You can claim the credit on taxes filed in 2008 or 2009.
It's a credit and not a deduction.
It's refundable, so if your tax liability is less than the credit, you can get the money back.

Tax Credit Loan Repayment Terms

The tax credit isn't really a tax credit, it's really just an interest free loan with some qualifications. You have to start paying back this loan within two years and you make equal payments over 15 years. When you sell your home, any profits will go first into paying off that loan. If you sell at a loss, the difference will be forgiven.

This tax credit (loan) along with the low prices and low fixed-rate loans make now the ultimate time to purchase your first home. For more information please call me at (801) 787-7797 or email me at khayyam@khayyamjones.com.

The Foreclosure Cycle

2008-11-13T06:05:00.004-07:00

The foreclosure cycle is different in every state. Some states are Judicial states (which means that the foreclosure process is a lawsuit that goes through the court system)and other states are non-Judicial states (not involving the court). In general the western states use a non-judicial foreclosure process and the eastern states use a judicial foreclosure process.

While each foreclosure process is slightly different the basic processes are the same. A foreclosure process begins with 3 causes: 1) non-payment of the agreed installment payments and fees, 2) non-payment of property taxes, or 3) lapse of adequate property insurance (although some sort of forced-placed insurance is usually the first remedy for inadequate insurance). Next, some sort of notice of default or demand for payment letter is filed and sent to the mortgagee. There is a period in which the loan may be reinstated and brought current, generally between 15-90 days (depending on the state). Ads must be posted in public places, usually a local newspaper, and a notice is placed on the property announcing the sale of the property at a public auction (trustee sale). And finally, there is the actual sale of the property.

Here is a quick summary of the 4 basic foreclosure cycles:

1. Non-Judicial Foreclosure Cycle (120 days)

Day 1 - Notice of Default (NOD) is filed
90 day reinstate period begins
Day 90 - Ads are posted in newspaper & certified notice sent to property
Notice is posted on property
Day 120 - Trustee Sale

2. Non-Judicial Foreclosure Cycle (90 days)

Day 1 - Notice of Default (NOD) is filed (aka Notice of Action, Notice of Trustee Sale, Notice of Sale)
Day 1 - Ads are posted in newspaper & certified notice sent to property
90 day reinstate period begins
Day 90 - Trustee Sale

3. Non-Judicial Foreclosure Cycle (21 days)

Day 1 - Notice of Default (NOD) is filed (aka Notice of Action, Notice of Trustee Sale, Notice of Sale)
Day 1 - Ads are posted in newspaper & certified notice sent to property
21 day reinstate period begins
Day 21 - Trustee Sale

4. Judicial Foreclosure Cycle (3-6 months)

Day 1 - Attorney sends "Demand Letter" (Pay in 10 days)
Day 11 - Lis Pendens suit is filed
Day 40 (- 90) - Court date, attorney gets judgement
Day 50 (- 120) - Debtor has 10 day Right to Appeal
Day 60 (- 160) - Ads are posted in newspaper (30 days)
Day 90 (- 180) - Foreclosure Sale
(Timeframes vary due to court availability)

It is important to realize that these are just general guidelines and minimum timeframes. Sometimes these foreclosure times can be longer depending on the trustee's work load, court availability and negotiations with the debtor/mortgagee. It is important that you always seek competent legal counsel in the state you live in if you're facing a foreclosure action. There are many legal and financial ramifications to this process.

*It is important to understand that the foreclosure process does not automatically eliminate the debtor's obligation to repay the debt. The foreclosure is a process by which the lender tries to sell the property (that was promised as collateral) to satisfy the debtor's obligation. If the property sale does not satisfy the loan obligation then the lender may, at the lender's sole option, pursue other legal means to collect the balance of the debt. In the current market this option isn't being pursued as aggressively but the lender still has the right to try and collect the full amount of the promised loan.

How to Mail-merge Your NOD List with Microsoft Publisher

2008-11-10T17:16:00.001-07:00

Additional Information Available on the Salt Lake County Website

2008-11-10T17:15:00.001-07:00

Where to Find Property Information on the Salt Lake County Website

2008-11-10T17:14:00.003-07:00

Sorting The Notice of Default (NOD) List

2008-11-10T17:10:00.004-07:00

(part 1)

(part 2)

Searching the Utah County Notice of Default List

2008-11-07T11:33:00.003-07:00

Real Estate Foreclosure Terms & Definitions

2008-11-04T11:25:00.000-07:00

Assignment of Deed of Trust: a document that transfers the beneficial interest in a note and deed of trust.

Bidding Authorization Letter: an authorization form which, when signed by the beneficiary, authorizes the trustee to make the initial opening bid at the trustees sale.

Declaration of Default: a document instructing the trustee to prepare and record a Notice of Default and, if necessary, to sell the trust property in order to satisfy the unpaid obligation.

Equity: the difference in value between the property's worth (market value or appraised value) and the it's indebtedness; equity that is not utilized does not really exist.

Foreclosure: a term used to describe the process used to enforce a payment or obligation on real property when a deed of trust is in default.

Full Reconveyance: a document prepared by the trustee when the obligation secured by a deed of trust is paid in full; when recorded, the reconveyance eliminates the lien from the title of the property.

Junior Lien: a legal claim upon real property recorded subsequent to another outstanding legal obligation or claim (usually a First Trust Deed).

Notice of Default: the initial document filed by a trustee that starts the foreclosure process.

Notice of Trustee's Sale: a notice filed at the recorder's office signifying a public auction.

Postponement: a verbal announcement made at the time and location of the trustees sale, extending the sale to a future date and time.

Publication Letter: The letter that, when signed by the beneficiary, authorizes the trustee to prepare, publish and record the Notice of Trustees Sale.

Publication Period: the period beginning after the three-calendar month default period has expired and ending when the trustee's sale has been conducted; during the publication period, the Notice of Trustees Sale is published, posted and recorded.

Recession of Notice of Default: after a default has been cured this document, when signed by the lender and recorded by the trustee, will remove the effect of the previously recorded Notice of Default.

Reinstatement Period: the time period that commences when the Notice of Default records and ends five business days before the trustee's sale; the default may be cured any time during this period by paying all delinquent amounts, including the trustee's fees and costs.

Short Sale: when the bank will accept a lower payoff amount as payment in full.

Trust Deed: a contract by which real property is made security for payment of an obligation without a change of possession - a lien against the property.

Trustee's Deed Upon Sale: the last step in the foreclosure process, this document conveys ownership of the property back to the beneficiary.

Foreclosure Timeline

2008-11-04T11:07:00.000-07:00

Anytime you are dealing with the foreclosure process you need to understand the basic time-lines involved. Utah is a non-judicial state and our property loans ("mortgages") are held by trustees. Based on this system we have the following time-frames:

Non-payment of loans, liens, encumbrances (usually 90 days +) and property taxes or failure to maintain adequate property insurance on the property.
Day 1: Notice of Default is recorded against the property. (The owner has at least 3 months (90 days) to cure the default, including back payments, penalties and fees.)
Day 90: Trustee's sale is set. Ad appears in the newspaper & Notice of Sale is posted on the property. The ad must be public for 3 weeks prior to the auction sale.
Day 120: On the date of the sale the trustee sells the property to the highest bidder. This sale is usually held at the County Courthouse (or at the trustee's office).

It is important to recognize these time-frames because that is the period of time known as pre-foreclosure. For the property owner, this is the time allotted to redeem the house and keep it from being sold, being forced to move and having the foreclosure blemish on their credit for the next 10 years. For the investor, this is the best time to negotiate with the banks to create an equity position, assumable/wrap-able financing, buy property quickly for discounts, etc.

Sometime this time-frame becomes extended when the lending institution has too many other properties to take care of but the above time-frames are the minimum time-frames guaranteed by law.

The Perfect Storm for Real Estate Investing

2008-11-03T20:29:00.000-07:00

The current real estate market has formed the perfect storm for real estate investing. All the market conditions have created an unprecedented opportunity to buy real estate, with positive cash flow, with little (or no) money down, with good or bad credit! Check this out...

Prices are falling. This is a period of incredible real estate liquidation, the great real estate sale! As the old adage goes...buy low and sell high!
Interest rates are low and look to go even lower! What an incredible time to establish long-term fixed-rate financing on investment properties!
Income is rising. When does that ever happen, when the prices are falling and the rental income is rising. There is major market stress causing the rental rates to go up in nearly every major market.
Great terms and seller financing opportunities are everywhere. With homes siting on the market longer and longer the sellers are getting more motivated and are becoming more amenable to creative options for getting their homes sold. Not only that but there are banks that are offering "seller financing," that is...unstated, non-traditional loans created from the banks themselves.
Vacancy is falling in every major market. It is easier to keep rental units filled and at higher rents.
Limited new rental units being built. The major areas of development are not producing new rental housing and the existing rental housing is being eliminated through demolition (due to old age) and condo conversions.
A surge of new renters in the market. The country is still seeing an increase (net migration) of people coming to this country. We also have a wave of foreclosures that will create a new set of permanent renters (at least for the next 7-10 years). And the "echo boomers," children of the baby boomers, represent millions of new renters in the market over the next few years.
The foreclosure epidemic is claiming income properties. Many people have been hit economically and are now using the rent monies to pay their personal bills instead of their mortgages. These same people are now losing those properties back to the banks.

Not only are we seeing all the "problems" (or opportunities) but we have major uncertainty with the election still pending. Depending on who is elected US president will have a major impact on the tax structure which will send a new set of waves through the economy. Regardless, every few years the market has to cycle and go through a correction. This particular correction just happens to be one of the best corrections for investors that our country has every seen. The only question is whether you take advantage of it or watch it pass you bye!

Investment Capital is Everywhere

2008-10-14T13:56:00.000-06:00

I was brainstorming to find money to get my current project off the ground. Where do you find money that isn't being utilized and invested to it's highest and best use? Here are a few ideas that I thought of this morning:
1. savings accounts
2. money market accounts
3. certificate of deposits (cd)
4. stock market accounts/portfolios
5. bonds
6. mutual funds
7. home equity lines of credit (heloc)
8. whole life insurance policies
9. retirement accounts (401k, roth, sep, self-directed ira, etc.)
10. seasoned llc's (lines of credit)
11. commercial lines of credit
12. bridge loans
13. home-improvement loans
14. "hard" money
15. venture capitalists and angels
16. non-profit organizations (assets=collateral)

The next questions is how to get access to these sources of money. Who has the access?
1. friends
2. neighbors
3. past clients
4. previous/current investors
5. current investment owners
6. business owners (of successful businesses)
7. referrals
8. employees/employer/coworkers

And what do they need to feel secure enough to lend that money?
1. promissory note
2. trust deed
3. great deal (low risk)
4. personal guarantee
5. sufficient return on investment
6. reasonable time-frame (short)
7. control/ownership
8. confidence in your ability to perform

IRAs Not Safe in the Stock Market! 2 Trillion Lost in Last 15 Months!

2008-10-10T13:51:00.003-06:00

Trillions of dollars have been lost in the stock market over the past few months! It seems that trusting someone else with your hard earned retirement money is not the best move, although there was a boom just a few years ago. This recent story shows what has happened over the past year to most peoples retirement accounts:

USA Today
CNN Money.com
US News & World Report
Yahoo! News
Breitbart.com
Fox 21 News
PerthNow News
So how do you protect your nest egg, how do you guarantee that it will still be there when it's time to retire? The answer is to take resposibility for it and put it where you're sure it will grow. I've been introduced to a copmany that allows a true self-directed IRA account. This company is Entrust Arizona. They allow you to move your current IRAs into their IRA plans. By doing that you gain 100% control and 100% responsibility for your retirement funds.
Once you're in control you have unlimited options for investing. You can invest in real estate, provide personal lending, private lending, promissory notes, gold & silver, etc. My personal favorite in income producing properties! Not only does your account benefit from the positive cash-flow but your purchased asset will be paid for by the tenants, your property will appreciate in value and it all grows tax-deferred without worry or need of the 1031 tax deferred exchange! This is an amazing and powerful opportunity to take control of your retirement and guarantee that it will continue to grow!

Carry On

2008-10-02T13:50:00.000-06:00

It's easy to fight when everything's right,
When you're mad with the thrill and glory.
It's easy to cheer when victory is near
And wallow in fields that are gory.
It's a different song when everything's wrong,
When you're feeling infernally mortal.
When it's ten against one and hope there is none,
Buck up little soldier and chortle,
Carry on, carry on! There isn't much punch in your blow
You're glaring and staring and hitting out blind,
You're muddy and bloody but never you mind,
Carry on, Carry on. You haven't the ghost of a show.
It's looking like death, but while you've a breath,
Carry on, my son, carry on.
(Robert W. Service quoted by Brian Tracy, "Success is a Journey", p.103-4)
I have been feeling a bit frustrated with the people I've been talking to lately about investing in my projects. Life would be easy if we were in the lending frenzy of 2 years ago but things are not like that now. So putting money together for a project has become the most challenging part of the task. Right now I have a project that shows an estimated profit of about $100,000. I need about $50,000 for the initial investment (and cost to change), property's current value is $380,000 and the future value is $540,000. The worst case scenario is that we hold this property long-term with a positive cash-flow. But everyone is so scared of the market that they are not thinking clearly anymore.
I have additional projects that could move forward if the financing was there but this is one of those moments when things look bleak (feeling infernally mortal). But I'll keep pushing forward. There are level headed investors who'll recognize a good deal when they see it and I'll still make these projects work.

Embarking on a New Endeavor

2008-10-01T13:50:00.000-06:00

"Whenever you embark on any new endeavor, you will be beset by countless little problems, details, unexpected irritations, difficult and dishonest people of all kinds. They go with the territory. They are an unavoidable part of the price you have to pay to accomplish anything new or worthwhile." (Brian Tracy, "Success is a Journey", p.84)
It seems to me that whenever you start a new project or begin a new idea there is a learning curve, a discovery of things you never knew you never knew. The little problems and details come up because, at the start, you are unprepared for the situation. But life teaches you what you need to know, if you are willing to learn from the experiences. Most of the people I have dealt with so far, are unwilling to learn and falsely believe that everything should just work for them (maybe because they are somehow special). But once you learn that thing you are prepared to work through or deal with those issues.
Dishonesty is just something you have to deal with and be prepared for. I believe that most people are honest, or trying to be so. There are, however, enough people who allow themselves to be dishonest that you have to be prepared for the situation. When we are preparing for a project we get at least 3 bids. The lowest and the highest bids are often filled with problems. The lowest bid provides a number, better than the rest, but then you find all the hidden charges on the back-end. The highest number just builds those back-end cost up front. So the middle bid is usually the most honest bid.
In spite of the problems of starting something new or worthwhile, it is still worth it. We don't abandon ship just because there is a storm or something unpleasant. We learn how to deal with the problem or learn how to avoid the problem in the future. But we must learn to press on and make our visions of the future a reality.

New Source for Leads

2008-09-30T13:49:00.000-06:00

Where do you go to find buyer leads. Sellers are announcing themselves all over the place but buyers seem to fly under the radar. But I've been discovering the secret hiding places of some of these potential buyers...
Construction Companies...quite often these companies have people who want to build a home and are looking for the right piece of ground to build on. The right construction company may be a source of many lot purchase leads.
Sub Contractors...everybody knows somebody who wants to buy or sell real property and if you have a good relationship with the sub contractors they can lead you to many prospects. This is especially true when the prospect wants to build a home and the sub contractor will get the opportunity to do their trade in the project.
Construction Lenders...obviously these people know who's applying to build a home. Most of the time these people already have a lot, a house plan and a builder for their home. But there are a few instances when people will actually start the process with the lender.
Remodelers...what about the person who gets a remodel bid and it is just more than their budget will allow? Quite frequently the answer to this dilemma is to buy a different house and sell the one they are in. 2 leads instead of one. And the contractor already has the bids for the work to be done if the property was to be purchased as an investment (and later resold with a listing agreement).
The Actual Project...if you're working on a project that needs work, maybe the best source of buyers are the contractors and sub-contractors who would be working on the project. These people will make the money for the work they would have done anyway and they make the additional profit by enhancing the property value. Then they need to sell the property (which means listing agreement) and attracting new potential buyers and investors.
I've discovered that the local Home Builder's Association is a great source of leads for an investing realtor. They know their work, they get paid for it, may be the buyer/investor, and a listing source in the future! It's time to develop a working relationship with the local contractors. You will provide them additional work and they will be/produce buyers and sellers. What a win-win opportunity.

The First Step

2008-09-29T13:48:00.001-06:00

"I learned later that every successful enterprise, great or small, begins with a leap of faith, a driving into the dark, into the unknown. Nature is kind to us in that she never lets us see to far ahead. If we really knew all the difficulties, disappointments, temporary failures, and heartaches we would experience, most of us would not start out at all. This applies to new businesses, careers, marriage, having children--and almost every other human endeavor."
(Brian Tracy, "Success is a Journey", p. 24)

Don't Quit

2008-09-26T13:48:00.000-06:00

When things go wrong, as they sometimes will,
When the road you're trudging seems all uphill,
When funds are low and the debts are high,
And you want to smile, but you have to sigh,
When care is pressing you down a bit,
Rest, if you must, but don't you quit.
Life is queer with its twists and turns,
As every one of us sometimes learns,
And many a failure turns about,
When he might have won had he stuck it out;
Don't give up though the pace seems slow,
You may succeed with another blow.
Success is failure turned inside out,
The silver tint of the clouds of doubt,
And you never can tell how close you are,
It may be near when it seems so far;
So stick to the fight when you're hardest hit,
It's when things seem worst that you must not quit
--Author Unknown

Make a Decision

2008-09-25T13:47:00.001-06:00

I'm working on a small 4-unit condo conversion and right now I'm collecting the information for my deal binder (all the bids and numbers, zoning ordinances, and other important information regarding the project. In talking about this project with a potential contractor I suggested he talk with the city about the conversion to make sure that the work he is bidding is the work required by the city for the conversion.
The next day I get a call from this contractor who is concerned about the work above what I asked him to bid (he was bidding the firewall only but discovered that we need a survey, plat map, cc&rs, hoa declaration, etc. and we had to go through the planning commission and city council for approval). I already knew these things are have bid that work. BUT...he was also told that a new change in the building code required a pressurized sprinkler system through out the building! So he started bidding that work as well. This is where a little knowledge pays big!
I went in to talk with the chief building official (don't talk to the inspectors, talk to the person with the final word) about getting an inspection to make sure I've accounted for all the important changes. In that discussion I asked him about the sprinkler requirement. He told me the same thing he told my (potential) contractor. However, having already had this discussion with him I had him pull out the building code and show me the definitions. Amazingly, I was right...a town home has 2 sides exposed with no one living above or beneath! As a town home the property falls into a different category and does NOT require a sprinkler system. He couldn't believe it (even though we had discussed this a couple weeks ago) and had to double check with the other code book. A few minutes later he emerges and verifies that I was indeed correct. So in my pre-inspection he is going to discuss the "new" discovery with the inspector to make sure that he is aware of this vital point as well.
That little bit of knowledge is going to save me thousands of dollars in upgrades and cost to change. In fact, it is probably the difference between a successful project and not doing the deal. In this case knowledge really is power (and a lot of money!).

Knowledge is Power

2008-09-24T13:46:00.000-06:00

Seasoned LLCs - A Great Place For Investment Equity!

2008-09-18T13:46:00.000-06:00

For people with an unstoppable vision and desire anything is possible. And it is just a matter of time before the way will present itself. One of my friends just started a business brokering seasoned LLCs. Why is there even a market for seasoned LLCs? Because an established business can acquire financing that new business cannot. What does that mean?A new business has no track record and the lending industy isn't very excited to take a chance on a business that is just trying to figure things out. But the same business, in 2-3 years down the raod is no longer "new." That means they have worked through the initial start-up problems and have survived so now they are worth taking a chance on (less risk). These companies can usually get SBA loans and Business Lines of Credit around $40-50K and very reasonable rates. (Keep in mind this is intended to be business debt, not commercial spending money.)A saavy investor can purchase any number of seasoned LLCs and each LLC can get it's own line of credit up to $50,000. If they invest it with a company like ours they can take 2 LLCs ($100,000) and invest for 2 points, 12 % and 5% of the net profits. That means they can get $2,000 (for points), $12,000 (for interest for the year), and $5,000 (of the net profits) or something is the range of $17,000 return on the investment. If it costs 7% to borrow the money (or $7,000) and you make $17,000 then you have made an extra $10,000 for the year! Not bad considering that none of the invested money was actually your in the first place. And just about any one can qualify for this type of investing if they have better than average credit (680 FICO score or better). I've been excited about this idea for a couple months now, ever since I learned about the power of seasoned LLCs. But it wasn't until this week that I discovered a consistent source of seasoned LLCs that could be purchased at will. This can be a powerful resource for investment capital for my real estate projects (based on our Foundation to Success criteria).Consider...if each client had just one seasoned LLC with $50,000 in available credit...how many projects could be purchased? What if we combined this concept with the Equity Builder Program? Each tenant works to improve their credit to be able to purchase their own home. Once their credit is good enough to buy a home they would also be in a position to become an investing client using a seasoned LLC! If they added an additional $10,000/year in investment income, that gets pretty close to paying a reasonable mortgage payment...so once their credit is good enough they can start investing and the investments would pay for the house they just bought! And it would provide a new source for $100K investment capital on a regular basis!

The Ant Philosophy

2008-09-16T13:44:00.001-06:00

Jim Rohn gave the following:"Over the years I taught children about a simple but powerful concept - the ant philosophy. I think everybody should study ants. They have an amazing four-part philosophy, and here is the first part: ants never quit. That's a good philosophy. If they're headed somewhere and you try to stop them; they'll look for another way. They'll climb over, they'll climb under, and they'll climb around. They keep looking for another way. What a neat philosophy, to never quit looking for a way to get where you're supposed to go.Second, ants think winter all summer. That's an important perspective. You can't be so naive as to think summer will last forever. So ants are gathering in their winter food in the middle of summer.An ancient story says, "Don't build your house on the sand in the summer." Why do we need that advice? Because it is important to be realistic. In the summer, you've got to think storm. You've got to think rocks as you enjoy the sand and sun. Think ahead.The third part of the ant philosophy is that ants think summer all winter. That is so important. During the winter, ants remind themselves, "This won't last long; we'll soon be out of here." And the first warm day, the ants are out. If it turns cold again, they'll dive back down, but then they come out the first warm day. They can't wait to get out.And here's the last part of the ant philosophy. How much will an ant gather during the summer to prepare for the winter? All he possibly can. What an incredible philosophy, the "all-you-possibly-can" philosophy.Wow, what a great seminar to attend - the ant seminar. Never give up, look ahead, stay positive and do all you can."
What a great philosophy. I think we all need to think a little more like ants.

Deal or No Deal

2008-09-10T13:44:00.001-06:00

My partner, Keith, found a nice duplex that was For Sale By Owner. He called for additional information and discovered that the property was being sold for $355,000 and that the seller would be willing to seller finance everything at 8% with a $10,000 down payment. The 2 units were renting for $1,380/month. The property was intriguing so we set up a time to preview the property and before the showing we had a chance to do a little research.At 8% (interest only) the mortgage payment would be about $2,367/mo. The rents total $2,760/mo. Figuring a 20% expense rate we'd have $552/mo going towards insurance, maintenance & repair, vacancy and other miscellaneous expenses. So our cost of running this property is approximately $2,919/mo. This creates a potential $159/mo negative cash flow with $10,000 out of our pockets to get into the deal. While the property is in average condition and the basements have been finshed good, we'd have some initial costs for upgrading, maintaining and bringing the property into conformity with the city ordinances. The interesting thing is that the seller was promoting this property as a $200/mo cash-flowing property and as a turn-key operation disregarding the city and the landscaping & maintenance issues.Our thought going into the discussion was that we could do a twin-home conversion on the property to increase its value. Our researched showed that the property was be worth about $350,000 upon completion of the conversion, $175,000 per unit. Our conversation with the seller revealed that he had done marketing as individual units and had received several (3) offers at $175,000 which confirmed our research numbers. So after we invested money into the property it would be worth less than the purchase price?!Needless to say we haven't even written an offer. As I stuggled with this property I couldn't find a solution or upside to make this deal work. The seller owes about $325,000 and has a fixed payment (for 5 years) at about $2,600/mo. He lived there about 6-7 months to get the 100% owner financing and now he can't refinance or get out without a sale. We can't purchase the property for more than $280,000 (80% of future value) assuming no additional costs or repairs. We might pay more if the property would cash-flow using seller financing but that doesn't work either. I keep wondering if there was another approach that might work for this property. So far I haven't been able to figure one out.

Equity Builder Program in Action

2008-09-09T13:43:00.001-06:00

The Equity Builder Program (EBP) is an amazing tool to help everyone achieve a win-win transaction. The premise behind the EBP is that it works like a rent-to-own (or lease option) but without a specific property to purchase.
The tenant gets an opportunity to build credit toward the purchase of a property while they work through whatever credit issues they need to resolve before buying their home. Imagine, they pay down more principle through this program than if they actually purchased the property!
The owner gets a higher than market rent, has long-term tenants, cash-flow property and an easy to manage property. The tenant must behave in order to get the purchase credit. It makes an average deal a great opportunity!
I have been trying to get a house rented in a traditional fashion for nearly a month. There have been several lookers but no takers. The home is old and needs some updating. We found a family that is struggling with credit issues due to a recent divorce. They are trying to rebuild their lives and need a place to start. They now have a house big enough for the family, building equity, have a home they can eventually purchase and they are thrilled to death. We have a house that would just break even that is now has a positive cash-flow, tenants who proactively want to improve the house and reduces the management headaches of the property. This is truly a win-win situation.
(We advertised this house for rent at $1,050/mo, $1,000 deposit, 1 year contract; we rented it for $1,250/mo, $1,500 deposit, 2 year contract)

Self Deception - A Common Problem

2008-09-08T13:42:00.000-06:00

I'm in the process of re-reading the book, "Leadership and Self-Deception: Getting out of the Box," by The Arbinger Institute. This book explains that our lives are shaped and determined by our personal self-deception. I love the examples that is shared in the preface of the book:"To give you an idea of what's at stake, consider the following analogy. An infant is learning to crawl. She begins by pushing herself backward around the house. Backing herself around, she gets lodged beneath the furniture. There she thrashes about -- crying and banging her little head against the sides and undersides of the pieces. She is stuck and hates it. So she does the only thing she can think of to get herself out -- she pushes even harder, which only worsens her problem. She's more stuck than ever."If this infant could talk, she would blame the furniture for her troubles. She, after all, is doing everything she can think of. The problem couldn't be hers, But of course, the problem is hers, even though she can't see it. While it's true she's doing everything she can think of, the problem is precisely that she can't see how she's the problem. Having the problem she has, nothing she can think of will be a solution."Each of us falls into this category at some level or another. We are getting ourselves into problems, trying harder to get ourselves out and don't realize that we are the problem. Nothing we do will get us out of the problem we have created for ourselves. This books goes into the root of this problem and shows how this self-deception affects our lives and why we can't see the problem we're creating until we know what the problem is. I would recommend the book to everyone.

Fortune Favors the Brave...It's Time to Act!

2008-09-04T13:42:00.000-06:00

I heard Mike Watson say something that I remember as, "try to find reasons to make the deal work, not reasons why it won't work." There are so many tools in real estate that can be used to put and keep deals together. The more I work in investment real estate the more I realize that it's easy to get out of contracts and out of deals but that isn't what makes an investor wealthy. Our job is to get into contracts and into deals that make sense and then to do what it takes to make the outcome as profitable as possible (while still maintaining a win-win transaction).Brian Tracy had a similar thought..."Boldness is a necessary part of courage but it must be a boldness based on an intelligent assessment of the potential risks and rewards. The wonderful nature of boldness is that, properly directed, it builds the habit of courage in the person who practices it."Perhaps the most obvious important part of courage is the courage to step out in the face of uncertainty. Every great venture in the history of man has begun with faith and a giant leap into the unknown."General Douglas MacArthur said, 'There is no security in life, only opportunity.' The creed of Frederick the Great, one of history's most successful leaders was, 'Audacity, audacity-always audacity."He continues with 2 ways to build boldness..."First, just do it! Step out in faith! If you think some action you can take to improve your life, give it a try. You may be surprised."Second, when in doubt, act with audacity. Audacity may get you into trouble but even more audacity will get you out. Go for it!"The greatest obstacle to a real estate investor is to do something. There are no guarantees in investing. But when you take an active role in creating and enhancing equity your chances for success are greatly improved. When you work with someone who has a plan for adding value, who strives for win-win transactions and opportunities, who has vision and who is willing to act with boldness (and audacity) you have a winning combination. So if the numbers work, so should you. It's time to move forward and make it happen!

Flag Lot Creates Instant Equity

2008-08-23T13:39:00.001-06:00

We found this property while doing a simple MLS search for homes on big lots. The house has 2,100 square feet and sits on a lot with over 16,000 square feet. As it turns out, the neighborhood sits in a zone that allows 6,000 square foot lots (R1-6); it also allows a flag lot if the body of the lot is at least 8,000 square feet (not including the access/stem). A flag lot gets its name from the shape of the lot, the body looks like the flag and the access/stem looks like the flag pole.The subdivision was a simple process. We hired a surveyor to create the plat map, completed the city application and paid the city fees. Our survey showed that the existing lot lines overlapped in places and had gaps in other places. We didn't worry about correcting the overlap (the fence was encroaching onto our property) because that gave us some needed square footage to meet the city criteria for the flag lot. We needed a little more room on the other side of the property. After a short discussion with the neighbor we discovered that they believed the property line to be in our favor. So we prepared a lot line adjustment document and had the neighbors sign (and notarized) that we could record giving us permanent possession of the area in question. Now we had more than enough frontage and area to meet all the city requirements. Because the lot fit the city criteria for the subdivision we didn't meet any resistance and proceeded through all city meetings. Once the new lots were approved we were able to record them.Financing this project was the trickiest part of the whole deal. The simplest way would have been to pay cash for the original parcel, record the lot split and then sell or refinance the property seperately. We tried to do a conventional purchase and ran into many challenges...Equity Partner...new lending guidelines limit a traditional borrower to 4 financed properties! It doesn't matter how the properties are financed (which includes property that is seller financed). In order to be able to continuing doing these residential deals we found several clients who wanted to participate in investing. A partner has to have several things to qualify as an equity partner: 1) documentable income, 2) low debt (income to debt ratios), 3) good credit (over 700 is preferable), 4) cash reserves (liquid assets in savings, available home equity, retirement account monies, etc). Simultaneous closing...buying a property and then selling the same property using the proceeds of the second sale to fund the first. Our lender thought of this brillant plan to sell the lot and use the proceeds to cover the down payment on the house (since we had 2 seperate properties after the lot split). In this way we could own the house with no money out of our pockets. However, the title insurance companies have decided that this kind of transaction is not insurable. The reason is that we cannot sell something that we don't own and we cannot use the proceeds of the sale of the property to finance our purchase (we have to show that our money stands seperate from the money of the second transaction). So we used different (short-term) funds for the property purchase and the sale of the lot proceeds to pay off the short-term funds.Seasoned Funds...funds that can be documented and shown to exist for a period of time (usually about 2 months or more). The down payment for the original purchase needed to be seasoned, or at least documented to show that they were not a loan or borrowed funds that would need to be reported on the loan application. The overcome the seasoning issue we were going to use the proceeds of the lot sale as our down payment. Obviously that was not an option due to the simultaneous closing issue. What we finally realized is that we could borrow the funds for the down payment as long as there was no monthly payment (interest could accrue but would be paid at the end of the term of the note) and the money was secured by a trust deed and note to a completely different piece of real estate. With no monthly payment there is no debt service and those income to debt ratios are not affected. And with the note secured to a different piece of property it is no different that a home equity line of credit and is considered seasoned funds.Tax IDs...tax identification numbers are used to identify each parcel of land (much like a social security number for a person) and is used for a government municipality for taxing purposes. Originally our lender wanted to use the lot proceeds to help finance the property purchase and so he had us record the lot subdivision. Since the bank loan was only going to encumber the lot with the house we had to use its specific tax id and not the old tax id representing the entire original parcel. It took 4 weeks for the county to show the newly assigned tax id numbers for each lot and we couldn't proceed with the loan until the new numbers could be shown. In addition, traditional residential lending cannot encumber parcels with multiple tax ids. Because we were purchasing 2 parcels instead of one (due to our lot split) we had to create a second REPC (Real Estate Purchase Contract) for the flag lot.Extended Closing...the deadline for settlement of the purchase contract is extended beyond a traditional timeframe and may be tied to a specific event in the deal process. Our original REPC was a full price offer with an extended closing (the closing date was set to 14 days after we had city approval of our flag lot subdivision). We managed to expedite the city process by meeting all the submittal deadlines (and our surveyor was very helpful in getting the necessary changes made). Just before our first closing deadline our first investor backed out of the deal. We had to find a new investor for the project; with a new investor came new funding processes and we needed more time. We increased our earnest money and released it to the seller to "buy" more time and extended our closing 30 days. The next deadline came but we had to wait for the tax id numbers to be assigned because of our lot split so we increased our earnest money and released it to the seller and gave ourselves a new extended closing deadline (a few days from receipt of new tax id numbers). The extended closing ultimately save this project and all our work into the deal.Instant Equity through the Foundation to Success! When we found this house it was already a decent deal at $165,000. After the lot split we had a house worth $158,000 and a lot worth $60,000 for a total of $218,000. That represents $53,000 of instant equity! The deal would have had an even greater equity position had we completed the transaction in 2 months instead of 12 months (this property went under contract the first time in September of 2007 and finally closed in August of 2008) due to our current market factors.While this process was lengthy and filled with problems, loopholes, and conditions, it has proven to be a valuable learning experience. I would hope that future investors won't make the same mistakes that I made on this project!

Personal Opportunity

2008-08-12T13:38:00.000-06:00

I have talked to quite a few people who are scared of this market. But there is opportunity everywhere. The majority of the people I talk to have are living in one of the greatest opportunities available, there own home! The home that you live in is one of the greatest assets you'll ever own and no matter how much the neighbor's house sold for you always know that your house is worth more! So what are you going to do about that value that your home possesses?If there is equity in your home why don't you use it for good investments, especially if they are backed by real estate? Your home is a piece of real estate so you obviously believe that owning real estate is a good idea. But in our current market the investment that you made is currently lossing money, your equity. What would happen if you used that equity to invest in a real estate project that was guaranteed to make money in this market? What if you used that equity to buy an income producing property that would not only pay for itself but would pay off a new mortgage so that over time your net worth was consistantly increasing? How would your life change?Obviously, increasing your net worth and cash flow do make sense so why don't more people invest their home equity in our real estate projects? The reason is that most people are scared and the fear of the unknown has a crippling effect on the decision making process. And these same people will rationalize that owning their home free and clear means that they will always have a place to live even if all their other investments don't work out. Unfortuneatly those people are only partly correct. Picture this: a person invests $500,000-$600,000 to own an investment that has a value of about $200,000; then this person has the opportunity to pay an additional $2,000 a year (in taxes) and $200 a month (in utilities) plus additional monies in maintenance for the privilege of keeping this asset. OR Picture this: a person borrows some money from their home and buys an income property; this property pays them monthly to own the property, over time the property pays its self off so that it is owned free and clear, and the income from the property pays all expenses and pays you for your faithful service and foresight; you now own a $200,000 property that pays you $2,000 a month and pays the expenses.I hope that I can help more people see the value of investing using their home equity. Home equity, just left in the property, is subject to the ups and downs and whims of our market. But home equity that is used for investment is guaranteed to pay forever. Those who understand this simple idea will still own their homes, will still get any market appreciation but will also gain the value of the cash flow and increased net worth from investing their home equity.

Opportunities Abound

2008-08-11T13:38:00.000-06:00

Right now we are facing a very difficult real estate market. In general terms we are facing a market correction. Very simply put, that means that prices for real estate are going down (correcting). This has caused many people to become scared of real estate in general. As far as I can tell the reason property prices are going down is that the value being assigned to any given property is not being supported by the property itself. When people invest in real estate it seems that they buy a property with the hope that someone else will come along and think it is worth more. No work is done, few improvements made...so why would someone else think that a property is automatically worth more?One of the great things about our style of investing is that we actual do something to the property. This isn't just about adding carpet and paint to a bad house ("lipstick on a pig"); that just gives you a bad house with new carpet and paint. As you look at property there is a hidden value called its "highest and best use" that most people never see. The reason is that most people are not willing to take the time to learn and train themselves to see the opportunity (and it takes a lot of work and effort). Sometimes the hidden value involves carpet and paint but many times it does not. I hope that as I work with my clients I will be able to help them understand and realize the hidden value that a property possesses and the abundant opportunity that is available in our marketplace.