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Tsunami of Foreclosures - Will You Be Collecting Shells When It Hits the Beach?

September 12th, 2009 categories: Real Estate News, Temple City Tribune

I’ve never witnessed a tsunami first hand, but I’ve been told that before the devastating wall of water devours everything in it’s path, like a hungry sea beast coming in for a glorious feast, there are a few moments in time that seem quite magical to the innocent and unsuspecting.

The water line temporarily recedes, making it excruciatingly tempting to prance delightedly along the shoreline collecting shells, fish and other treasures that have suddenly become accessible.

And apparently, it can be such a fascinating and engaging activity that you might fail to notice the darkness forming on the horizon as you fill your goodie bag to overflowing. By the time you do . . . well, it’s usually too late.

I recently read the following from John Mulkey:

“If the economy is improving, do we really have millions more foreclosures coming? According to the U.S. Treasury, the answer is yes. In written testimony to Congress, Assistant Secretary for Financial Institutions, Michael Barr said that, regardless of the success of mortgage modification efforts, we should still expect millions more foreclosures.

Mr. Barr’s testimony is certainly not welcome news for those anticipating a significant recovery in the housing market. In fact, it is an indication that significant recovery is still years away.

And there are other factors that confirm the fragile state of both the economy and the housing market. Recent reports have indicated that there are almost 3 million active, interest-only loans with a total value of almost $1 trillion, with loans of about $500 billion set to reset within the next 30 months. Then we have a large group of Option Arm mortgages set to recast during the next 2 years. These loans have a combined value of more than $125 billion.

The rising number of bankruptcies, up 36% in the second quarter over last year, with wealthy families filing at double that rate, creates a ‘perfect storm’ of disastrous consequences for the housing market. With the likely prospect of millions more foreclosures coming, home prices and home sales will remain depressed until the market can achieve stabilization. And achieving stabilization will be a slow and painful process.”

Of course, certain areas of the country will be hit harder than others. Even here in California, (one of the hardest hit together with Florida and Arizona) there are pockets that are devastated, and pockets that seem almost immune.

And I don’t especially care for being a Prophetess of Doom . . . my brand is ‘Note Queen,’ which is rather harmless and mostly silly, really.

It’s just that I feel strongly about helping people triage (can you tell I used to be an RN?) their financial lives carefully. The real estate market may be fine where you are, and it may get even tougher. And if it does, how will your quality of life be affected?

If you’re holding on for ‘just a couple more years’ until the market ‘recovers,’ then stop it. Sell now, especially if you’ve got negative cash flow and your net worth is less than $5 million.

If you’re happy owning your property for the next 12-20 years no matter what happens, then fine. Hold out for your price and terms. But if your emotional and financial well-being depends upon the successful sale of a piece of property in the next 10 years, then quit dawdling.

And if deferring capital gains is important to you, download your free copy of a report I created entitled “How to Avoid Paying One Red Cent to Uncle Sam When You Sell Your Property” at www.AvoidCapitalGains.net.

There are a lot of investors out there picking up pre-foreclosures and REOs like sea shells before a tsunami. Prices seem good now, but they could get even better, despite all the government’s shenanigans in the ‘free’ market.

Be sure to sign up for: Seller Financing on Steroids: Pumping Paper for Power, Peace and Profits (it’s up there at the top of the site!). Defer capital gains & sell fast for top dollar, regardless of market conditions (and have a note that’s worth something!)

When You Can’t Sell Your Note, Do a Little Rain Dance - Published in the Temple City Tribune

July 16th, 2009 categories: Note Business, Selling Your Note, Temple City Tribune

As a note broker, I’ve had my share of notes that I simply couldn’t do anything with. Here’s one I was presented with recently:

A delinquent seller carry back note secured by commercial property in West Palm Beach, Florida.

The original deal looked like this:

Purchase price: $510,000
Down payment: $76,500
1st TD: $433,500
Interest rate: 7.5%
I/O monthly payment: $2,709.38
Due in: 60

The seller/note holder had received payments like clockwork for 2.5 years, and then, the tenant of the 3,000 sqft warehouse started defaulting on his lease. In the interim, the property buyer/owner had lost her job, so she had no way of making the payments on the note.

The note holder no longer lives in Florida, she lives in Southern California. This was a headache she just wanted out of . . . if she could get at least 50% of the loan balance.

Most commercial property is heading toward a world of hurt. Even assuming that once the defaulting tenant was evicted, another tenant paying $3,000 a month could quickly be placed, the maximum value of the property at a 12 cap was something like $300,000.

So, I told the note holder that she would be very lucky to get 50% of the value of the property, or $150,000, and asked if she still wanted me to keep working on finding a buyer. She said ‘yes.’

I sent the note profile out to several buyers, and got virtually no response. No one wanted a commercial note in Florida that was in default.

So, I decided to give up . . . NOT.

I started thinking about other ways that the problem could be solved. If the seller would be willing to put the property on the market and sell, I could negotiate a short sale on behalf of my client, the note holder, and she would walk away with more than she could possibly hope for on the secondary trust deed market.

So, I posted a referral on Active Rain (a social networking site for real estate professionals). I communicated with 3 or 4 agents in West Palm Beach, and told them about the situation. As it turned out, one of them happened to know the owner personally.

They went to their friend about putting the property on the market, with a guaranteed short sale approval that would leave some money on the table for her. Nope . . . she wouldn’t do it.

Somehow, without personal or rental income, she was going to find a way to keep the property. Hmmm.

OK, let’s go with the flow . . . what if I could find a private lender that would give the owner a hard money loan? Then I would simply negotiate a short refinance (say around $150,000?), and still get my client what she wanted, leaving the owner in possession of her precious commercial property.

I don’t have the final word on this deal yet . . . I’m still waiting for the story to play out, but it’s fun to realize how many different ways there can be to create a solution. Note brokers and real estate brokers can often help each other out.

If you’re interested in notes in the Southern California market, feel free to sign up here. If you’re on this list, you’ll be notified of the local deals in property and paper that I come across.

Be sure to sign up!

When you opt in to receive ‘The Note Queen’s Seller Financing Newsletter,’ you get a Seller Financing Decision-Making Guide for FREE!

Rabies in the Park - Published in the Temple City Tribune

July 6th, 2009 categories: Land Trusts, Seller Financing, Temple City Tribune

Have you noticed the banners across Las Tunas between Kauffman and Golden West? There are two, side-by-side:

‘Wednesday Concerts in the Park,’ and

‘Rabies Clinic.’

Isn’t it great that you can go to the park and get bitten by some random rabid dog on Wednesday, and then go for your rabies shot on Saturday?

That is some great civic planning!

Seriously, though, sometimes you really can have your cake and eat it, too.

Last week I threw out the concept of the Title Holding (Land) Trust, and I thought I would follow up with a little more about that.

As I mentioned, most people think of holding title in a land trust for privacy reasons . . . a land trust owns the property (the trustee owns legal and equitable title), and you, the beneficiary, retain the power of direction. Judges and police officers find this feature very appealing.

In essence, this converts real property into chattel, personal property. You don’t own realty, you own personalty. You’re not on title, but you have 100% of the power and benefits of traditional ownership, plus some other nice features.

When you’re ready to sell, the land trust is also a great way to go if you’re carrying paper (offering terms, seller financing, etc.) for the next buyer, especially if he has less than a 20% down payment.

Since personalty is not deemed subject to partition by judgment creditors, unrelated parties holding property in this manner needn’t fear the property ever becoming the subject of: a creditor judgment, lien or charging order.

Neither would the property be the subject of a tax lien, any party’s bankruptcy, marital dissolution or probate . . . comforting when you’re the one extending credit.

This is why the land trust is superior to a regular old seller carry back, lease option or contract for deed.

In these scenarios, either parties ‘issues’ could affect the property in some way, which can be a real bummer.

Additionally, like I mentioned last time, if the buyer defaults, I don’t have to foreclose to regain possession of the property. I only have to evict him according to tenant law.

Why? Because in the land trust system, the buyer is really a ‘resident beneficiary,’ leasing the property from the Trustee (who ‘owns’ the property). So if they don’t perform on their ‘lease,’ they get a 3-day-pay-or-quit and lose occupancy.

Do you know that you can end up having to foreclose to regain possession of your property with a lease option or contract for deed?

A lease option (if an option fee is taken or rent credits given) can lead to an inability to evict a defaulting tenant. Such a tenant in default can claim having “Equity” in the property, and in so doing, force a judicial foreclosure process versus an eviction. Yuck.

With the contract for deed (buying property on a layaway plan), there is no means for eviction; the vendee (resident/buyer) holds an “equitable” interest in the property, allowing only for foreclosure, ejectment and quiet title in the event of a breach of contract.

The only reason I wouldn’t use a land trust to carry paper for someone is if I intended to sell (or thought I might need to sell) all or part of a real estate note (trust deed) created to raise additional cash.

[Always consult with your CPA, tax attorney and/or financial advisor before selling any real estate.]

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