Archive for February, 2009

CYA Clause for my REO Buyers

Check out our Investment Property Seminars under upcoming events or click the button to search the MLS. ScottThere are so many loopholes and bear traps that these REO banks put their documentation when buying foreclosed properties. Here is just one clause that I use to protect my buyers as much as possible:
Buyer and [...]

There are so many loopholes and bear traps that these REO banks put their documentation when buying foreclosed properties. Here is just one clause that I use to protect my buyers as much as possible:

Buyer and seller agree that if property is condemned, loses its zoning or rental license, has new code compliance orders issued, or otherwise changes status with any governmental jurisdiction prior to closing, the buyer may cancel this agreement by written notice to the seller’s agent and all earnest money will be returned to the buyers.

This clause is especially important when dealing with vacant properties in Minneapolis or Saint Paul.  Occasionally between the accepted offer and the closing, the city can come in and slap the property with a vacant building fee or more code compliance.  You want your customer to have an out if those costs could be too high.

Beware of the Short Sale Straw Buyer Scheme

On the radio yesterday I heard that “the officials” were saying that cybercrime and identity theft are up dramatically. They blame it on the weak economy. I guess criminals are getting laid off and taking pay cuts like the rest of us and are therefore putting in some extra hours to make ends meet!
The following [...]

On the radio yesterday I heard that “the officials” were saying that cybercrime and identity theft are up dramatically. They blame it on the weak economy. I guess criminals are getting laid off and taking pay cuts like the rest of us and are therefore putting in some extra hours to make ends meet!

The following is my explanation of sale that I was involved in. I was only made aware of the design of this sale at the closing table and really pieced it together after reading about similar scams in following weeks. This scam did not affect me or my buyer, but as you will read, probably affected the seller and bank. While I am not implying these next people are criminals, their techniques sure don’t smell on the straight and narrow. I have heard the Department of Commerce is looking into it. You can decide for yourself.

Situation:
Buyer/Investor watches the pre-foreclosure lists.  He contacts a homeowner on the list (who may or may not be selling his house) to buy their property.  Buyer/Investor writes the offer contingent upon the bank approval for a short sale on the house.  The homeowner signs docs and/or gives the buyer/investor personal information linked to the loan to negotiate with the bank on the homeowner’s behalf.  Sometimes this will be in the form of a power of attorney.  Occasionally, the document will not allow the homeowner to even know the details of the short sale.

The buyer/investor will begin negotiating with the bank on the short sale.  Typically he does not disclose to the bank that he is also the buyer of the property!  In my sale/example, it turns out he was telling the bank that he could get them no more than $75,000 for the property even though the seller had paid $180,000 only 2 years previously.  At the same time, other properties in the neighborhood (of the exact same layout, age, and condition were selling for $115,000).

Concurrently, the buyer/investor puts the home on the market looking for a “replacement buyer”.  This could be you; it could be one of my customers.  In this scenario, they were selling the property through a real estate agent on the MLS for $113,000.  They were set at the correct price for that property.  The buyer/investor is betting on being able to sell the property to the replacement buyer prior to the short sale falling apart on him.  The investor/buyer often has no liability or responsibility to execute on his purchase.  He will have lots of contingent fine print that gets him out of the deal if he can’t get the bank to take the short sale or more importantly if he can find the replacement buyer.

Problems:
On the surface, you may be thinking, why is this bad? This buyer/investor is just good at pulling all the pieces together and making money being the middleman. Let’s examine who can/will get hurt:

• Homeowner gets hurt if they waste time with this buyer/investor while the clock is ticking during the redemption period.  If the buyer/investor walks, they get nothing but closer to losing their house.
• Homeowner gets hurt as often these buyer/investors are not negotiating in favor of the homeowner with the bank.  They can possibly leave the homeowner with a large unsatisfied debt (of the difference between the mortgage and the sale price)-most legit short sale real estate agents will insist that the bank waives any deficiency judgment.
• The selling bank gets hurt as it only receives $75,000 for the property in the short sale when the retail buyer (you or my customer) actually would have paid $113,000 for the property.
• Although the buyer of the property is usually oblivious to this scheme, they can be hurt if the buyer/investor does a double close and leaves chain of title issues These can happen as these buyer/investors will often use a land trust or other legal instrument to hide their identity/liability.

These type of schemes are hard to spot on the buyer’s side of the transaction. All we ever see is paperwork back and forth with names we don’t recognize and situations we are not aware of. As a seller, though, you need to keep your eyes open in this market as new schemes or “creative programs” are popping up all the time.

Free Daily Foreclosure Listings Email

Are you spending hours and hours on the Minnesota MLS sites trying to find that needle in a haystack.  Are you looking for that foreclosed property for just the right price in just the right area?  Do you kick yourself if you miss a day of looking at the MLS?
I have had a lot of [...]

Are you spending hours and hours on the Minnesota MLS sites trying to find that needle in a haystack.  Are you looking for that foreclosed property for just the right price in just the right area?  Do you kick yourself if you miss a day of looking at the MLS?

I have had a lot of requests lately for this so I am putting the offer out to everyone.  Go to this simple registration form, fill in your preferences, and I will set up a daily email with all the foreclosed properties that meet your criteria.

How easy is that?!  Every day you will get an email automatically that you can look through at your leisure.  The new system even has the ability to put properties in the “trash” or in your “favorites” to track.

Scott

The Downward Spiral of Financial Death

Every week I talk to countless real estate investors.  They may be my customers, sellers of properties, or even just people I run into.  As you can imagine, many of the investors that bought properties at the top of the market (2003-2007) are evaluating their options. Most are simply going to hold on, keep the [...]

Every week I talk to countless real estate investors.  They may be my customers, sellers of properties, or even just people I run into.  As you can imagine, many of the investors that bought properties at the top of the market (2003-2007) are evaluating their options. Most are simply going to hold on, keep the property rented and expenses low and wait out the drop in value.  Others that had a blip in their financial lives and can’t support the property any longer may need to do a short sale or let it go to foreclosure.

Then there are a few other investors.  These are the ones that have just simply decided that they are tired of dealing with the property (not for financial reasons).  I am amazed at this group.  Because of the glut of short sales and foreclosures, these investors think that is not a big deal to let their property go.  In fact, they are almost cavalier about it saying:  “I am so sick of this property, I am just going to let it go back to the bank.  Everyone is going to have a foreclosure on their record shortly so it won’t affect me very much.”

This true story goes out to all those cavalier investors that think life is just going to be fine if they let their property go to a short sale or foreclosure, simply because they are tired of dealing with it (not for financial reasons).

Mike (not his real name), an acquaintance of mine, bought 5 properties in 2004 & 2005 from another Minnesota Investment Real Estate agent that really didn’t care much about Mike.  He bought some single family houses and some duplexes.  While Mike is not in the cavalier group, he did make some rookie landlord mistakes along the way in managing his properties.  He didn’t evict some tenants as early as he should and then held out for too high of rent often, resulting in vacant units.  All in all, he was a decent real estate investor.

Unfortunately, Mike is self-employed and the downturn in the economy hit his business hard.  Mike had some vacant units and with the downturn in his income he had to miss 2 mortgage payments in a row on each of the 5 properties.  He is making his payments again and has worked out a repayment plan for the payments he has missed (an additional amount each month for the next 8 months).

As I mentioned, the cavalier investors think it is no big deal to have a short sale, foreclosure, or just missed payments on their credit.  Maybe it isn’t a big deal, but here is Mike’s account of how those simple missed payments (not even a short sale or foreclosure) have affected Mike’s life:

• Despite setting up a repayment plan, Mike’s phone rings almost every morning at 8:00am with a call from one of the mortgage companies asking when he will be paying his missed payment.  He explains he is on a repayment plan and the caller (usually from India) reads their screen more and finds that information.
• At least once per month he receives a collections letter from one of the 5 mortgage companies stating he missed his repayment plan.  Again, he has to take time, call them and sort it all out with a person in India.
• The missed payments have hit his credit report.  Surprisingly his credit still shows a 650.
• He received a letter from American Express stating that they are reducing his credit limit from $15,000 to $1 above his current balance of $2000.
• Mike has a business credit card from US Bank that he uses almost daily for buying supplies, charging purchases on-line, and entertaining clients.  US Bank also sent him a letter reducing his credit to $10 above his current balance.  His ability to produce income in his business is being threatened.
• The lease on his vehicle was up shortly after the missed payments.  Although he had a stellar payment record previously, no company would give him a loan or lease for a new car.  He had to have his parents buy the car and he now pays them.
• Despite having a mortgage rate on his personal house of 6.5%, he can not refinance to save himself money because of the black marks on his record.

While I am not suggesting that you should not do a short sale or let your investment property go into foreclosure, make sure you are doing it as the absolute last resort. Mike will tell you that it is no fun constantly wondering where this downward spiral will end.

Fannie Mae Allows 10 Properties Again!

(I wanted to find a sound byte of a choir singing “Alleluia”)
If you remember, in October 2008, Fannie Mae followed Freddie Mac and lowered the number of financed properties a person could hold to only 3 (4 if you include your personal residence). In an exciting and stunning change, Fannie Mae has reversed its [...]

(I wanted to find a sound byte of a choir singing “Alleluia”)

If you remember, in October 2008, Fannie Mae followed Freddie Mac and lowered the number of financed properties a person could hold to only 3 (4 if you include your personal residence). In an exciting and stunning change, Fannie Mae has reversed its decision effecting March 1. As you can imagine, these changes come with some extra hurdles, but that is OK. Read all the details at Rob Bonahoom’s Investment Mortgage Guy Blog.

I have been telling my customers that we would not see this reversed any time soon.  I am always a cynic and see the goverment of just getting in the way most of the time, by reducing free trade in place of government regulation.  I figured it was going to be a bank sometime in the future that would see a need for borrowing money to people like me that own more than 3 investment properties.  Today I am happily wrong!

To LLC or Not LLC: That is the Question

[ February 25, 2009; 6:30 pm to 8:00 pm. ] Back by popular demand.  The last time we had this Investment Property seminar we had 50+ people attend; standing room only!  Get registered early to reserve your seat.

A common question that many newer investors ask is: “Do I need an llc to buy investment properties?” or it might be: “How do I protect my personal [...]

Back by popular demand.  The last time we had this Investment Property seminar we had 50+ people attend; standing room only!  Get registered early to reserve your seat.

A common question that many newer investors ask is: “Do I need an llc to buy investment properties?” or it might be: “How do I protect my personal assets and myself if I am sued?” In these days of frivolous litigation, it is important to have all the pieces in place in case you find yourself on the defendant side of a lawsuit. Or, maybe you already have an llc or two set up, but are not sure if it was done correctly or if it would protect you.

Attorney Matt Engel has helped many investors get their corporate liability shield set up (or fixed). Matt will
talk about why to set up an llc, how you should hold your properties (personally or in the llc), what documents you should be preparing annually to have a fully functioning llc, and lastly what can happen if you don’t do all the above.

This seminar is geared for both the newer investor or the investor that feels like they need some help in these areas, and much more! This will be a workshop format to allow you time to get your questions answered in a group setting.

Register for the seminar by filling out this quick registration form or call 612-281-5419 for more information.