This video describes the sandwich lease option.  I also discuss details about how to structure the lease option to avoid some costly mistakes.

I discuss the 3 stages of foreclosure and talk about investing in each of those stages.  Also discuss the relationship between short sales and foreclosure.  I give some valuable advice on dealing with the pitfalls of foreclosure investing.

Wells Fargo increased the number of loan mods they completed by 64% last month  Not to be too much of a cynic, but my understanding is that 80+% of all loan mods fail within 12 months and the borrower again gets behind on their payments. 

With the new set of ARM adjustments (and the resulting foreclosure wave) coming, it will be interesting to see how common loan mods are going to get.  I hope that they are real solutions for folks and the real estate market can stabilize. 

What do you think?

Jeff Kaller has personally negotiated over 400 short sale and preforeclosure properties. With partners, various business people, as well as his team of loss mitigators, Jeff has lost track of how many deals they have done together, but suffice to say, it’s a lot more. Too many to count.

In the last seven years alone, Jeff has trained well over 100,000 people in live seminars how to do short sales and preforeclosures. Probably tens of thousands more on the Internet. His training is considered by many to be top notch.

To date, Jeff has negotiated DOWN over $1 Billion dollars in debt with banks and lenders on behalf of the seller. That’s no easy feat.

Donald Trump, (who’s no slouch when it comes to research) stated unequivocally, even at one of Jeff’s live events, that Jeff is “the best in the business” at what Jeff does. Ron LeGrand, the granddaddy teacher of the real estate investing business, says the same.

Jeff is grateful for their endorsements.  Register Now!

To date, through his student’s efforts and his own, over 1 million families have been saved from the indignities of foreclosure. Given our current economy, with your help, Jeff’s goal, his mission, his crusade is to save 1 million families more from foreclosure this year.

With your help, as well as others like you, he believes it can be done.

Jeff has the financial wherewithal to get deals done. He has up to a $20,000,000 short term warehouse line of credit for deals he is personally involved in.

The bottomline you should get from this is he walks his talk. Jeff and his wife Sofia, as well as the rest of the his team work this business every day… and they love it.

It’s very rewarding… financially, as well as emotionally… they get to help families facing foreclosure–that juices them, especially right now when the country needs us most.

Please join Jeff in his crusade to save 1 million families from foreclosure

Register now for the Turn These Economic Times To Your Advantage webinar series to see Jeff on Thursday night!

…it is not too late to get caught up. Quick, while
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The economy today is so different than it was 2 years
ago. You can’t use the same strategies to make good
money today. Lending is harder to get, buyers are
skittish, sellers are bombarded. You need to learn the
strategies that are working today.

The experts in this series are successful in today’s
economy. They have discovered the strategies that are
working. They want to share these strategies with you!
Now you need to do your part – register, catch up, and
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Tony Youngs was great last night!

Here are some of my notes from his presentation:

• Tony revealed 7 ways to profit from properties that are in foreclosure
• Tony talked about the ‘Ghost Inventory’ – the properties that the banks have gotten back from foreclosures but have not yet listed.  There are over 700,000 properties in this ‘Ghost Inventory’.  The banks are afraid to list them all because the resultant glut on the market would drive all prices down dramatically.  Tony talked about how to find these properties and how to buy them
• Tony talked about the ‘Hidden Market’ – those properties that are not listed and nobody knows they are for sale.  Again, he revealed how to find these and how to buy them
• He also talked about what to do with the properties once you have bought them.  He gave options for when you don’t have the money to close, when you want to own for a short time and also when you want to hold long term but maximize your investment.

Register Now!

The replay will only be available for a few days.  Go NOW!

The real answer is ‘it depends’. It depends on the situation and the parties involved in the transaction. Let’s talk about it from the Seller’s perspective and the Buyer’s perspective. We’ll also talk about the investor’s perspective in each of these roles. Remember, I am an investor, not an accountant – please check with your own accountant to confirm how this would apply to your own situation!

For the purposes of our discussion, suppose that a house sells for $150K and the seller takes back $100K as a mortgage as part of the sale (the buyer pays the other $50K as cash to keep this simple). The Seller owned this property free and clear – or owed less than the net cash received. Say the note has an interest rate of 6%, interest only payments (or more), with a balloon payment of the outstanding balance in 15 years. This makes the payments equal $500 per month – assuming only the interest is paid.

Seller – The Good:

The Seller can reduce the amount of tax they pay on the sale. When the Seller ‘takes back paper’ at the sale, that part of the equity of the house is not counted towards their capital gain. As payments come in over time, the principal received in each tax period is considered a capital gain for that tax period. Since our note is interest only payments, the $100K capital gain will be deferred for 15 years. This means that a seller can lower the tax they would need to pay for the house sale – both immediately and possibly as a total over time.

The seller gains an income stream from the note. For the next 15 years, the Seller will have $500 each month to spend – minus ordinary income tax (which will depend on the Sellers financial situation). The Seller actually makes more money for the sale of the house. The total amount this Seller earns is $150K + 15 years * $6000/yr = $240K.

As an investor Seller, this kind of financing can help you stabilize your income stream and result in better returns on your initial investment. Also, by offering seller financing, you may be able to demand a higher sales price at the time of the sale.

Seller – The Bad:

The Seller is still ‘attached’ to the house for the length of time that the note is collateralized by the house. This can be bad if the quality of the house is suspect, or the neighborhood value is declining – as the house decays or the defects are discovered, the security for the note (the house) looses value. This can be countered by requiring a larger down payment, charging a higher interest rate or doing more qualifying of the Buyer. For example, a Buyer who lives in the property is generally more likely to maintain or improve the property while a non-occupying Buyer may not have the same incentive to maintain the property (and the renter likely has no incentive at all).

The Seller may not receive payments on time. Ultimately, the Seller can solve this by foreclosing – which is a process defined by the area where the house is located. For example, in Washington the foreclosure process takes about 4 months while in Oklahoma it averages about 7 months. During this time, the Seller will not receive payments and the house may be vacant or damaged. Again, the Seller can mitigate some of these risks by requiring larger down payments or charging higher interest rates. In our example, the $50K downpayment can mitigate some losses. For instance, if the payments stop and it takes a year to foreclose, the Seller will have lost out on $6K worth of payments. Since the foreclosure process is not free, let’s assume $10K cost (remember that the cost will depend on the location of the property).  This means that the Seller still has $34K in cash and now can resell the property. If the Seller can sell the house for more than $116K, then the Seller is still ahead (remember to also add the amount of payments that were received prior to the foreclosure). 

As a rehabber, I feel that investor sellers can also mitigate the quality / damage issues more easily than a homeowner. Part of a rehabber’s job is to manage the quality and costs of repairs and to focus our buying in areas of town that are more likely to appreciate.

Buyer – The Good:

It can be easier for a Buyer to qualify for the loan. Mostly because the lender has already qualified the property – the lender/seller agrees on the current value of the property and they have some history with the property’s quality. Additionally, many Sellers do not require as much documentation as an institutional lender would require to qualify the Buyer. Institutional lenders have a process that they use to qualify Buyers – this process is supposed to reduce the risk to the lender (the current economic situation was caused by a loosening of this process). Most sellers who do Seller Financing don’t have a process but instead do just enough to feel comfortable with the Buyer’s promise to pay.

Seller Financing can reduce the amount of money needed to buy a property. Some financing situations can result in zero down payment. For example, in a ‘subject to’ purchase, the seller may loan you all of their equity. For example, the seller may owe $100K on a house that is in disrepair. This house may require $20K of repairs and when fixed up may be worth $200K. A deal could be crafted for a total of $120K where the Buyer takes over payments on the $100K and owes the Seller $20K (to be paid when the Buyer completes repairs and refinances or sells the house).

Seller Financing allows an investor to buy a wider range of properties. An instituitonal lender may not qualify a property if it is in need of some serious rehab work. As an investor Buyer, this means that I may not be able to get a bank to lend me the money needed to buy the property (they may be more accomodating for construction loans, but there are limitations there as well).

Seller Financing allows an investor to hold more properties. Currently, institutional lenders limit the number of loans that a Buyer may have in their name. As an investor Buyer, this limits the number of properties you can own at any one time. The current limit is actually 10, but the qualifying process for more than 4 loans is very difficult – making a practical limit of 4 loans. Most Sellers don’t have similar limitations and Seller financing often does not show on a credit report, so this can be a nice way to avoid this limitation.

Buyer – The Bad:

It can be difficult to find a Seller that is willing to accept Seller Financing. The most common objection I hear is that they just want to cash out. When I dig deeper, often the resistance comes from not really understanding the good and bad aspects (Why did I write this article?!).

I hope this article helped you understand more about Seller Financing.  Please share your comments or experiences!

To use them, or not – that is the question! 

Bandit signs are those small signs that are stuck up on telephone poles or staked into the ground.  They say things like “we buy houses” or “stop foreclosure”.  The plus side seems to be that people do call in response to them.  The negative side is they are often illegal.

Tulsa, as well as other cities, have ordinances that restrict the use of signs.  Bandit signs can bring you a fine of $100/day per sign. 

The questions are:

* would you call in response to one of these signs? 

*If you use them, have you been fined?

Rob McKenna (WA state Attorney General) was the main speaker at the REAPS meeting on Thursday night.  He came to talk about the Distressed Property law that became effective on July 12, 2008.  The law was also known as HB 2791 as it passed through the legislature.

Rob started by describing the history of the law and also a bit about the Consumer Protection Act.  The AG office originally wrote suggested legislation to address certain types of real estate transactions that were frequently fraudulent. 

In all of these types of transactions, the homeowner was in default and were approached by people offering them assistance.  The fraudulent transactions involved ‘equity skimming’ – which is defined as buying the home and leasing it back to the original owner with an option to allow the original owner to buy back the property at some later date.  In the fraudulent cases, the terms of the lease were setup in such a way that the orignal owner was not going to be able to succeed and get their houses back.  This is, of course, fraud.  Every case that Rob described was actually prosecuted under the existing Consumer Protection Act (CPA).

I later asked Rob why new legislation was introduced when the CPA was sufficient to prosecute these cases – he indicated that the purpose was to regulate these types of transactions to make it clear to the investor how to legally / ethically execute this kind of transaction.

The problem was that the Senate committee chair decided to drastically change the proposed law and add a lot of extra badly written ‘crap’.  This included language to define a ‘distressed home consultant’ and a ‘distressed home conveyance’.  The language is so bad that Rob admitted that his office does not understand it and is focused only on the part of the law that they originally proposed.  Unfortunately, the law allows for civil penalties as well, so we all need to try our best to puzzle this out so that we can help the unfortunates that are trying to sell their house to avoid foreclosure.

Rob told us that the AG office is going to push the next legislative session to remove the bad additions to the law and return it to the originally proposed language.  The Realtor association is also pushing to change the language since real estate agents are not exempt from the liabilities of this badly written crap.

As you can tell, I do have an opinion about this law!

Please write your congress-critter in Olympia to encourage them to restore the original language!  [08/28/08] Joe added a comment and I read his blog and watched the video of the testimony.  It sure looks like Rob lied to us about not supporting the new language.  I have never liked any part of this legislation but thought that the original sounded better than what passed.  When you call your congress-critter, please suggest that the entire law get repealed.