Archive for October, 2007

Are you interested in pre-foreclosures and short sales? This is the 6th in of a series of pre-foreclosure investing articles published in this magazine. Short sales are one of real estates most thrilling acquisition strategies. Short sales are about obtaining properties at good prices by resolving peoples problems. Short sales are multi player win-win transactions. Here are the parties involved in a short sale. Satisfy them all and you will be rewarded!

Home Owner

Properties in foreclosure tend to have problematic title issues. Officially, the owner is the person appearing in the county records as owner of the property. The ownership of the property is shown in the document known as deed or title. The easiest way to know who the owner of the property is, is by obtaining a trio from a local title company. The best way to confirm all the parties with right of ownership on a property is to read the title report.

Often properties have more than one owner. This is because property can be co-owned by a married couple, friends or business associates. This will be immediately evident in the deed. However the deed may not show all the present owners because owners can be added or taken out of title via quit claim deeds or other similar title instruments. That is why, when it comes to finding all the owners of a property, nothing beats a title report.

The home owner is not necessarily always the same person as the mortgagor. This is not uncommon with properties in foreclosure.

Mortgagor

The mortgagor is the person that took a loan and secured it with the property in foreclosure. The mortgagor is the person legally responsible for paying. The best way to know who the mortgagor is, is to see the document known as the deed of trust or trust deed.The mortgagor will be listed as grantor. See sample.

It is often with properties in foreclosure that the mortgagor and the owner are not the same person. Below are a few examples of the cause of this situation.

• The property gets deeded to another person without refinancing. Properties that have been bought subject to existing financing have this problem.
• Properties in which, because of divorce, where there are two mortgagors home owners, one of the home owners has quit claimed out the property to the other person without refinancing.

Under both of this conditions the mortgagor that quit claimed out of the property or deeded the property to someone else has no ownership rights over the property but are still fully responsible for the mortgage.

Creditors

Creditors are all institutions, businesses or individuals secured through trust deed or lien by the property . Creditors secured by a property can include banks, individuals, municipalities, home owner association (HOA), ex-spouses claiming child support, etc.

Properties in foreclosure often have more than one creditor. To buy a property in a short sale the investor needs to negotiate and settle with each of the creditors, one by one. The best way to confirm who all the secured are is to review the title report.

Loss Mitigation Officers

This is the banks representative assigned to resolve the issues associated with a defaulted loan. When dealing with banks, the loss mitigation officer is the person with which short sales are negotiated. Loss mitigation officers work for the banks loss mitigation department.

The loss mitigation department is the banks unit in charge avoiding, reducing, and minimizing losses due to loans in default. Most banks have an actual loss mitigation department, separate from everything else. Loss mitigation officers are debt collectors. As such any information given to them will be used to collect on the debt.

Trustee

The trustee is the person or entity in charge of foreclosing the property in behaves of lender. The trustee is usually an attorney firm dedicated to performing default services for lenders. Some of these firms, such as Northwest Trustees, Regional Trustees and Cal Western Reconveyance are very large, with hundreds of employees, and are foreclosing at any one time several hundred properties. Other firms are smaller real estate attorney firms.

The specific function of the trustee is to foreclose, according to law, in behalves of a lender, in order to collect on a debt. In addition, depending of the specific agreement with the lender, the following additional services are additionally performed.

• Provision of payoff statements
• Collection of payments
• Negotiation of short sales
• Collateral preservation (lock-up and winterizes the property if vacant)

To learn more about the trustee services see the following trustee websites.

Northwest Trustees – www.northwesttrustee.com

Regional Trustees – www.rtrustee.com

B ishop , W hite & M arshal – www.bishoplynchwhite.com

Trustees very greatly on how accessible and easy to deal with they are . Some of them, such as North West Trustees have user friendly web sites, an available specific assigned representative with a direct phone line and a quick response time. Other, can only reached through 1-800 numbers with multiple menus to pass through, long waiting periods and no specific representative to deal with. Unfortunately, when it comes to dealing with the trustee there is no choice. You have to work with whoever you have to. Because of this, the profit potential of the transaction must justify it.

Additional Lien Holders

These are any other creditors or lenders secured by the property. These include first mortgages, second mortgages, judgment liens, tax warrant liens, city and county taxes, home owners association (HOA) liens, contractors mechanics liens, etc. The best way to locate them is in the title report.

By far the most common type of additional lien holder is the second mortgage lender secured by a property in default in which the first mortgage is foreclosing. The majority of the good short sale profit opportunities come from this situation. Under these circumstances the second mortgage lender is compelled to discount because most likely it will loose more principal if the property is sold at auction. That is why second mortgages always have higher interest rate than first mortgages.

Title Company

A title company is a neutral party that examines the title, issues a preliminary title report, acts as escrow (or settlement) agent, records documents, and issues the title insurance policies for a transaction . The main business of most title companies is to sell title insurance and close real estate transactions. Escrow is the closing a real estate transactionwhen all required documents and funds are placed with a third party for processing and disbursement.

Title companies want to do as many transactions as possible. They need the investor to be successful and close a lot of transactions with them. To help the investor do this, title companies provide great resources. These include real estate investing essentials such as:

• Property information
• Farm lists
• NOD lists
• Access to online real estate information

Escrow Agent or Officer

The escrow agent is the title companys representative engaged in closing a transaction. This is the person that will be handling, in behalf of the title company, all the documents and funds needed to close a transaction. Escrow officers are regulated by the state and the title company they work at. An escrow agent willing to work in short sale transactions is one of the most important and valuable members of the pre-foreclosure investor team. Not all escrow agents are interested in working in short sales.

Appraiser

The appraiser is a licensed third party professional who estimates the dollar value of a property. An appraisal is the estimated dollar value of a property based on a detail study of the property.

Appraisers are involved in determining the value of property in foreclosure only when the bank requests it. This is usually when the loan is government guaranteed, about 30% of the time. Appraisals cost over $400 and Broker Price Opinions cost less than $100. Either way, they give the same result because both use the comparable value method of to determine the value of a property.

Appraisers and BPO Realtors are usually hired by the bank through a third party company dedicated to serving exclusively this need of the foreclosure industry. One of the larger companies dedicated to this is Asset Valuation and Marketing (AVM). Companies such as AVM have a large pool of appraisers and BPO Realtor. The main difference between an appraisal and a BPO is that the appraisal is a formally presented and printed study on the value of the property.

BPO Realtors

BPO means Brokers Price Opinion. BPO Realtors are realtors that provide property price opinions. Because of price difference, lenders usually hire for BPO rather than appraisal.

Brokers that do BPOs are usually in the business of listing bank owned properties. These realtors usually get paid less than $100 for each BPO. The main reason for a realtor to want to do BPOs is to get bank owned listings. The problem is that this creates conflict of interest. For them the more properties make it back to the bank the better. However, the chances of the same realtor that did the BPO getting to list the property if it gets repossessed are low. Because of this it is good to always be professional and be in good terms with the BPO realtor.

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Please contact Oscar Mornate for Permission to post this article on your site. Credit for the article must be give to Oscar Morante, Best Short Sales

… and How Much Will a Bank Discount in a Defaulted Loan?

What is a Short Sale?

A short sale is the sale of a property for less than what is owed on it . This happens in over mortgaged properties. These properties are worth less than the total amount of debt that encumbers them. As a result they cant be sold for what it is owed on them. Selling at what is owed on them places these properties above market value. Been above market value makes them un-sellable. In other words nobody will pay for them enough to cover all what is owed on the property. Most properties in pre-foreclosure that can not be saved by the owner are over mortgaged.

In a short sale the creditors authorize the home owner to sell the property for an amount lower than what is needed to pay all the creditors secured by the property . Creditors accept short sales in order to cut their losses. They rather get a specified amount through a short sale than risking getting even less or nothing at a foreclosure auction sale. Whether or not, and how much a creditor chooses to discount on the amount owed on a property depends on how high is their loss risk.

Short Sale versus Release of Lien

Good short sale acceptances are the result of successful discount negotiations with creditors. There are two possible outcomes out of a discount negotiation with a creditor: a short sale or a release of lien. Both have the same result at closing the sale of the property. However, the implications for the homeowner are entirely opposite.

In a short sale the creditor settles in full the amount owed by the debtor for a value that is less than what the creditor is owed. The remaining balance is forgiven. The home owner does no longer owe anything to the creditor.

In a release of lien, the creditor removes its security interest in the property but the amount owed is not forgiven. The home owner still owes any balance owed to the creditor.

A creditor that authorizes a short sale will issue a settlement letter stating that the debt is settled in full for a specified amount. This letter becomes part of the escrow instructions the title company needs in order to close the transaction. In addition the settlement letter will state that the home owner is not liable for any of the creditors loss and that the loan will be reported to the credit reporting bureaus as settled. This subject will be presented in further detail later in this chapter.

A creditor that releases a lien will , prior to releasing the lien, make the home owner sign a new promissory note, not secured by a trust deed on the property, stating the value of the debt and the terms of payment. Typically creditors prefer short sales to releases of lien. This is because it is very hard to collect an unsecured debt from a person in financial hardship. This subject will be presented in further detail later in this chapter.
Why and When Do Creditors Discount

Creditors do not discount because they like it. They only discount if they are cornered into the unpleasant situation of loosing in their investment. In other words creditors discount because if they dont they will loose even more. The higher the chance they will get paid at the auction sale, the lesser the chance they will discount, if at all. The lower the chance they will get paid at auction, the higher the chance and amount creditors will discount.

Creditors discount debt secured by real property based on their convenience and risk.

• If they will surely get paid they will not discount at all.
• If they will most likely get paid most of what they are owed they will discount somewhat.
• If they will definetely loose an amount but still get something at the auction, they will discount based on how much are they sure to get at the auction. The short sale that will be approved will most likely be just above what the creditor expect to get at the auction.
• If the creditor will most likely get nothing at the auction, they will be inclined to discount heavily in order to get a recovery.

In addition, banks and other large institutional creditors, discount according to their own policies. The type of loan also affects a banks ability or latitude for discounting and accepting short sales. This subject will be presented in further detail later in this chapter.

Regardless of the type of creditor secured by the property, the chances of them getting paid at the auction sale are directly correlated to their secured equitable position in the property. All this is reflected it the title report. For the moment it suffices to say that the further down a creditor is in the title report, the less likely it is going to get paid and the most likely the creditor will discount. This subject will be presented in further detail later in this chapter.

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Please contact Oscar Mornate for Permission to post this article on your site. Credit for the article must be give to Oscar Morante, Best Short Sales
(C) 2006 Advanced Real Estate Concepts, LLC., Portland OR. All rights reserved.

The Key to Being Effective in Pre-Foreclosure Investing

To confidently compete in the pre-foreclosure arena, every investor must master the mechanics of foreclosure. The events of foreclosure, the timeframes, the disposition of the proceeds of sale, and the effects of the sale these are all important landmarks in navigating through the foreclosure process. To be effective in pre-foreclosures, the investor must see through the foreclosure process as clearly as through glass. Understanding the mechanics of foreclosure allows the investor to effectively evaluate an opportunity, develop a strategy, provide a solution that satisfies all the parties involved and, as a result, come out with a profit.

Oregon State law chapters ORS 86.705 through 86.770 govern foreclosure procedures in Oregon. This is a must-read for all pre-foreclosure investors. With the understanding of this law and specialized real estate legal counsel, the pre-foreclosure investor will be well-equipped for profiting in this arena.

This article is oriented towards pre-foreclosure success. I, the author, am very effective in this field, Im not a lawyer. This article should not be taken as legal advice. The purpose of this article is to provide a clear view of the foreclosure process through the scope of pre-foreclosure investing. With that in mind, the reader will find this material informative, entertaining and valuable. Most pre-foreclosure investing takes place in the single family, and up to the 4-plex markets. These loans are secured by residential trust deeds, and it is here where we will focus.

The seeds of the foreclosure process are really planted at the moment a real property is financed by a lender through a secured loan. The lender, in order to feel confident of recovering the principal plus interest, requires the property owner to pledge the financed property as collateral. If the loan is not paid or defaults, the lender is entitled to use the collateralized property to get paid. This is called securing a loan by mortgaging a property. This system was most likely invented by the Babylonians at least 2000 years before Christ. Mortgages and foreclosure are indeed a very old business.

Well executed, legal, real estate financing has two components. These are the securing instrument and an obligation.

In the state of Oregon, the preferred instrument to secure real estate loans is the trust deed or deed of trust. The trust deed secures the financed property as collateral. The preferred instrument to delineate an obligation is the promissory note. The promissory note dictates the terms of payment of the secured loan. If there is a default in the terms of payment delineated by the promissory note, the trust deed will be used to secure performance by using the collateralized property. This is called foreclosure.

A trust deed is a means to convey an interest in the financed property to a trustee in order to secure a loan. The trust deed involves three parties: Beneficiary, Grantor and Trustee. Beneficiary is the person financing the property or its successor. This person is the lender, also known as the mortgagee. Grantor is the person obligated to perform (pay) as per the promissory note. This person is the homeowner, also known as the mortgagor. Trustee is a person employed by the beneficiary to make sure that the grantor performs. Financing a property is the equivalent of a shotgun wedding; if the groom does not perform he will be shot by the brides brother. The trustee in the trust deed is usually the title company which handled the real property financing transaction.

As you can see, the mechanism of foreclosure is put in place at the moment of financing. It is ready to be activated as soon as there is payment default. In the event of default, the beneficiary is entitled to exercise, through the deed of trust, the payment of his principal plus interest. In other words, the beneficiary (lender) will ask the trustee to foreclose the grantor (homeowner) in order to use the collateral (property) for making the loan perform (get paid). When this happens, the following events, timeframes and effects take place.

Events of Foreclosure:

1. Succession of Trustee. The original trustee is usually the title company which handled the lending transaction. This arrangement remains in place through the life of the loan until default. The original trustees are title companies such as Ticor, Fidelity or First American Title. Title companies, although they can do it, are usually not in the business of foreclosing. Because of this, at default, the beneficiary usually selects a successor trustee. A successor trustee is usually an attorney firm specialized in the business of foreclosing. Northwest Trustees and Shapiro & Sutherland are two examples of such firms. The successor trustee is in charge of all matters related to foreclosure. From now on the successor trustee will be referred to as the trustee.
2. Service and Publication of Notice of Default and Election to Sale (NOD) . The trustee must record and send a letter to all parties with a recorded secured financial interest in the property stating that the subject property will be sold in order to satisfy the secured loan. This letter is commonly known as the NOD letter. This letter must be sent to all parties by certified mail or served in person. Failure to not serve all secured parties may invalidate the process. The secured parties are usually second mortgages, lien holders, child support beneficiaries, tax lien holders, etc. The letter shall state the property description, amount of the principal, payoff value in full, amount needed to cure, and all contact information, as well as time, date and location of the scheduled auction sale.
3. 3 Sale of Property. The sale of the property is held as per the time, date and location set in the notice of default and election to sell letter (NOD letter). Anybody can bid on the property except the trustee. The winner pays cash at the time of sale and receives, within 10 days a trustee deed demonstrating his ownership of the property. The new owner is entitled to possession of the property on the 10th day after the sale.

Timeframes:

This is the time available for pre-foreclosure investing.

1. Total Length of Process. In Oregon a minimum of 120 days between the date of service of NOD letter and date of auction.
2. Notice of Sale Publication. A notice of sale is published in a newspaper of general circulation, once a week for four consecutive weeks. The last publication can be no later than 20 days prior to auction.
3. End of Right to Cure. The mortgagor (or homeowner) as well as any other party secured by the property is entitled to cure the loan in default until up to 5 days prior to auction. Within those five days before auction, the only recourse to retain the property is to pay the loan in full. The beneficiary (or lender) is not obligated to accept the loan to be cured. They can do so according to their convenience.

Disposition of Proceeds of Sale:

The proceeds of the sale are distributed according to the following priorities. The very fact that the junior liens may not be paid creates the pre-foreclosure investment opportunity.

1. Compensation for attorneys and trustees.
2. Payment of obligation secured by the trust deed.
3. 3 Payment to all recorded junior liens by order of priority.
4. 4 Payment to the grantor (homeowner) if anything remains for him.
5. Basically, the lawyers get paid first, followed by the first mortgage holder, then everybody after that. If there are any bones left, they go to the owner.

Effects of the Sale:

This is where buying at auction gets tricky and creates the pre-foreclosure investing opportunity.

Termination of Interests. All interests on property by liens junior to the foreclosing trust deed are terminated. All interests on property by liens senior to the foreclosing trust deed remain in force and must be satisfied. This means that the highest bidder at the auction, by buying the property, must now pay all taxes, senior mortgages and senior liens. These are not foreclosed out. For example, if the foreclosure is on a first mortgage, the buyer will not have to pay for the second mortgage and anything that came after. Most likely the buyer will only have to pay for the unpaid taxes, HOA and city liens. If, on the other hand, the foreclosure is on a second mortgage, then the buyer will have to pay for the first mortgage in addition to everything else.

Satisfaction of Obligation: The foreclosing trust deed is satisfied in full even if the lender does not get full payment of principal and interest or if there is a loss. All other interests in the property are foreclosed-out and have no further rights over the property.

Unpaid Parties: Any parties with secured interests foreclosed-out of the property and not paid, partially or fully, by the auction proceeds lose that secured interest in the property. Basically, they have nothing else to do with the property. However, the promissory notes of these obligations remain in force. Because of this, the foreclosed homeowner remains responsible for the payment of any unpaid balance. The result is that any party still owed on the property has to try to collect an unsecured loan. This is not easy. What are the chances that someone will pay a debt owed on a property that they no longer own? This is where the investor comes in.

Short Sale. The Pre-Foreclosure Business Opportunity:

Clear understanding the foreclosure process enables the pre-foreclosure investor to unravel the entanglement created by all the parties involved with the property in foreclosure. Usually, the total value of all of the principals and interest, taxes and liens is greater than the value of the property. As a result, there will be losses to everybody, including, sometimes, the senior lien holders. The goal of the pre-foreclosure investor is to obtain the property at a very convenient price by reducing the losses of all secured parties. This is called a short sale. A short sale happens when the creditors authorize the homeowner to sell a property for less than what they are owed. You, the investor, makes this happen through knowledgeable and skillful negotiation. Look forward to my future article on these negotiation techniques.

I hope this information puts you one step closer to achieving your own success in pre-foreclosures. Mastering the mechanics of foreclosure has worked for me and will work for you. Great profits will be your reward.

Please contact Oscar Mornate for Permission to post this article on your site. Credit for the article must be give to Oscar Morante, Best Short Sales
(C) 2006 Advanced Real Estate Concepts, LLC., Portland OR. All rights reserved.

It is the Key to Developing a Win-Win Transaction

Real estate transactions are not just about properties. They are also about people and life situations. We will call this the story. Every transaction has a story. A clear understanding of the story, with all the characters involved and dynamics of the present situation is the key to crafting a win-win transaction. This is especially true in the realm of pre-foreclosure transactions.

A successful pre-foreclosure transaction is always about extricating a homeowner out of the tight situation they themselves got into. Not only that. In addition, the homeowner needs to feel that he is also a winner despite having to sell the house in distress. In other words, the homeowner needs to perceive that he is better off because of your help. If not, the homeowner will feel taken advantage off. If this happens, things will not work out no matter how good you are at executing the short sales with the bank.

One of the main challenges of working in pre-foreclosures is that homeowners, to one degree or another, are stressed and defensive. They find themselves in the unfortunate situation of having to lose their house. Unless there is any equity, which is unlikely, their only options are to either sell or get foreclosed. Most homeowners in pre-foreclosure know this. Many have difficulty facing and accepting this fact. As a result they are unhappy about the situation.

The objective of the pre-foreclosure investor is to buy properties prior to foreclosure. To accomplish this, the investor needs to present a proposal that makes sense to the homeowner. To develop this, it is important to have a clear picture of the whole story. The best way to obtain this is by asking questions and listening. Effective listening involves sensory acuity and gut feelings combined with good knowledge of the foreclosure process. Listening effectively allows the investor to comprehend the story. With this, the investor will get a feel of the characters and determine if they are people he can work with. The investor must visualize the situation to determine whether it can be resolved. With this information, which is the story, it is a lot easier to develop a win-win proposal and strategy to buy the property in a way that satisfies the homeowner.

Understand the Characters

This is the most important part of the story. Problems do not appear by themselves. People create them. The aim is to determine if the homeowners or anyone associated with the property are people you can work with. The best way to figure out the characters is to ask open ended questions, develop a rapport and let them talk.

Ask yourself these questions: Are they telling the truth? Will they trust you? Are they worth of your trust? Are they realistic? How are they reacting to stress? Are they in a problem solving mode? Will they try to go around you? Do they want to be helped? Will they get you into a problem? Will you be able to satisfy them?

Visualize the Situation

You want to understand the dynamics involved in order to determine if you can resolve them.

What is it that led the homeowner into default? Who else is involved? Is there bankruptcy, divorce, law suits, liens, child support, judgments, probate, etc? Are there resentments? Is there enough time? Is foreclosure the only solution? Is this solvable?

Develop a Win-Win Proposal and Strategy

This comes out of understanding the story and asking more questions. One of the best ways to develop a proposal that makes sense to the homeowner is to start by asking what it is that they want. A great question for this is what is your ideal outcome? If the answer is an impossibility, help them work themselves down to a realistic expectation that they themselves figure out. A good proposal is always based on satisfying a homeowners realistic expectations. Anything above that amounts to selling the the sky and the stars. If the homeowners realistic expectations are met, then they will have won. Get another deal if the homeowners expectations are unrealistic.

A Good Real Live Example

A lady called me from San Francisco. She has two rental houses in Portland. One of them is in foreclosure, over-mortgaged and in heavy disrepair. The other has equity and is very nice.

Situation : She moved to San Francisco. She mentioned that because of bad business decisions and her mothers medical bills, she had over-mortgaged one of the houses. The renters did not pay for a long time, trashed the house and made unprofessional repairs. The property has two mortgages in default, City of Portland liens and a private lien from a friend.

Characters : The characters are the homeowner and the private lien holder. The homeowner is a single female in her early forties. She is a professional, wants to save her credit, avoid bankruptcy, foreclosure, and prevent any collections from either her friend or the second mortgage. She is quick to act and proactive in resolving the situation. Her realistic expectation is that someone bails the property out of foreclosure by buying it in a short sale. If the short sale is not good enough, she is willing to carry a promissory note for a deficiency balance. In addition to this she does not want leave her friend out in the cold.

Character Analysis : Through all of my interactions with her since the first day, my gut feeling is that the homeowner is someone I can work with. She has expectations that I can most likely satisfy. The friend is also realistic. He is willing to be flexible as long as he does not end up worse off.

Situation Analysis : A typical rental house foreclosure situation. The characters involved are proactively working towards a realistic solution. I believe that this is a solvable problem.

Win-Win Proposal and Strategy : With the understanding of the story this is easy. My proposal and strategy is this:

1) Discount the second mortgage as much as possible.

2) If needed, have the owner pay or sign a promissory note for the smallest possible deficiency the second mortgage will allow.

3) Re-collateralize the friends lien by securing it with the equity of the nice house.

4) For me: Obtain the property at the best possible price that still allows all of the above to happen. Most likely this transaction will close this week.

As you can see, real estate transactions are not just about properties. They are also about people and situations. This is especially true in pre-foreclosure investing. Because of this, it is paramount that the pre-foreclosure investor understands the story behind each transaction. It is the key to success.

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Please contact Oscar Mornate for Permission to post this article on your site. Credit for the article must be give to Oscar Morante, Best Short Sales
(C) 2006 Advanced Real Estate Concepts, LLC., Portland OR. All rights reserved.

First lets recapitulate last months short sale article. Short sales are a great way to obtain discounted property. Short sales happen when banks allow home owners to sell their properties for less than what they are owed. Short sales are one of the main techniques of pre-foreclosure investment.

We all know that foreclosures are caused by the default on the payment of a mortgage loan monthly installment. Default of monthly installment is primarily caused by debt-over burden. Debt over-burden in turn is caused by a homeowners over commitment to financial responsibilities. In other words, the home owner cant keep up with expenses, develops unsustainable debt and cant pay the mortgage. Understanding the underlying conditions that cause default is a key to effectively negotiate with home owners and initiate short sale transactions.

Underlying Causes of Foreclosure

Financial Slippage: This is the condition in which most responsible, smart and hard working individuals in foreclosure find themselves. We live in a capitalist system society. The system creates more opportunities but it is also less forgiving. Long term un-employment is devastating to the middle class. So is the astronomical cost of health care. People in this category often resort to tapping equity in order to make ends meet. If matters do not get quickly resolved, the house becomes over mortgaged; they default and end up in bankruptcy. Foreclosure comes next.

Over-Indulgent Lifestyles: It is often that people live at or beyond their means. For these people, as soon as there is an income disruption, extra expense or similar event, mortgage payments become impossible to pay.

Interpersonal Problems: Usually divorce. No one wants to take responsibility for payments or one single income is insufficient to make the payments. Therefore they default.

Death or Incarceration: People in this category stop paying sooner or later. Even if payments are up to date and performing, title problems appear. Eventually someone decides that the banks should not be getting paid. Default soon follows.

Over-Optimistic Lending Practices: Often, in their quest to get commissions, mortgage brokers encourage home buyers to commit to the maximum mortgage payment level that they can possibly sustain. Usually the reasoning is that the property will go up in value and the home-owner will be able to refinance. It is not hard to find 100% financed houses in which dual income homeowners pay up to 50% of their combined income in mortgage payments. Needless to say, for these people just about any financial challenge will result in default and possibly foreclosure.

Mortgage Lending Fraud: This is often the result of mortgage brokers specialized in sub-prime lending. These brokers embellish the financial capacity of unqualified home buyers. The home buyers end up with high interest loans and usually higher payments than expected. The result of this is that the new homeowner defaults soon after buying the house.

Irresponsible Homeowners: These are people that are irresponsible with their personal finances and / or take advantage of the system. They do things such as abandoning the property as soon as they feel like it, or refinance the house in order get cash and let the property foreclose.

These are the primary underlying reasons for foreclosure. Often home owners in foreclosure fit into combinations and permutations of two or more categories at the same time. The underlying reason for foreclosure is greatly helps in understanding where the home owner is at.

It is essential to understand the underlying reasons for foreclosure. This, in combination with listening to the particular situation of each homeowner, allows the investor to effectively negotiate short sale purchases.

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Please contact Oscar Mornate for Permission to post this article on your site. Credit for the article must be give to Oscar Morante, Best Short Sales
(C) 2006 Advanced Real Estate Concepts, LLC., Portland OR. All rights reserved.

Help the home seller. Help the creditor. Be rewarded.

Are you looking for discounted property? Then short sales are a great way to obtain a property below retail price.

Everybody knows that the quickest way to succeed in real estate is to obtain properties at a discount for either holding or flipping. Short sales are an excellent way to accomplish this. Because of this, the ability to execute short sales is an essential technique for all investors. When it comes to acquisition of discounted properties, investors capable of executing short sales are definitely at an advantage.

What is a short sale?

A short sale is the purchase of a property for less than what is owed on it by obtaining permission from all the secured creditors to do so.

Who takes short sales?

Any creditor, secured by collateralized real estate, whose equity position in the property is compromised. These creditors are better off securing the recovery of part of the principal rapidly rather than taking a risk by waiting for more. Short sales also happen when well secured creditors prefer discounting principal in order to obtain some money now rather than more later. By far the most common reason for a creditor to take a short sale is a pending foreclosure.

Foreclosure: The F word of real estate.

Other than short sale investors and attorneys, all parties involved in the foreclosure will inevitably lose.

The home owner , in addition to losing the property will have ruined credit forever. This will compromise the ability of the person to ever buy a new house through conventional financing. Not only that, if there is a second mortgage or other junior liens, judgments will be filled and collections will start in earnest. Does anybody think that owing money is pleasant?

The creditor has a non-performing loan with collateral at risk. What could be worse than owing money? The answer is not having the money lent returned. Being owed money given as a loan, and that may never be paid, is not only unpleasant. It is ugly!

Not only that. Chances are that if there are no mortgage payments, then there are no home owners insurance payments either. In other words, if there is a fire, the value of the collateral will greatly diminish. Such is the plight of creditors. To say the least, this is an uncomfortable situation.

Can things get even worse for a creditor? Off course! How about holding a second mortgage or a junior lien on a property? These creditors may never be paid. This is neither unpleasant nor ugly. It is nasty!

Be rewarded: Provide a solution to real estates F word.

Buying properties in a short sale is not about taking advantage of foreclosure situations. It is about resolving foreclosure problems.

Consider the doctor-patient relationship analogy. Doctors are well paid because they resolve problems the patients cant resolve by themselves. They do not take advantage of healthy people in order to charge a lot of money.

That is what the short sale business is all about. It is about providing a sensible solution for all parties involved in a foreclosure situation. Investors capable of doing that are well rewarded.

The creditor(s) get more of their principal quicker.

The owner avoids permanently ruining their credit and having further problems with creditors.

The investor obtains a discounted property.

Short sale investing is about win-win-win solutions. Provide solutions to real estates F word and be rewarded. Get started in the short sale business with this mindset. This is the best way to succeed.

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