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Mortgage News Daily - Mortgage And Real Estate News

Tuesday, May 27, 2008

Congress Should CAP the Interest Rate on past ARM's that lead to foreclosure!

Mortgage News Daily received an email this week from a reader with an intriguing idea for, if not solving, at least lessening the foreclosure crisis. What we loved about it was its simplicity.

The reader said that she works with a real estate attorney in Florida, one of the three states most heavily impacted by foreclosures. She said that her workload has shifted from helping her employer prepare and complete some 40 real estate closings a month to working with families facing foreclosure. She asks a very simple question:

"Has anyone ever suggested that we cap the interest rate on all those ARMs, regardless of the credit or income of the borrowers?"


The cost to the banks modifying these loans with the methods they are currently using, she says, has got to be astronomical. Consider the man hours necessary to answer the phones, gather the information the borrowers must provide and then reviewing these documents which appears to take at least 30-60 days. Now consider the cost and the effects of writing all borrowers that are 30 days delinquent that their original interest rate, whether 4 percent, 5 percent or even 6 percent and tell them that their original rate is now their current rate.

There have been several rate freezes proposed in the last 8 months, but most were so constrained by eligibility, time limits, and so forth as to be massively unhelpful.

There are a lot of holes in this idea, but at its heart there are components that might work. The problems?

First of all, the 30 days delinquent requirement almost guarantees that thousands of paid-to-date adjustable rate mortgages will immediately become 30 days delinquent, so scratch that part of her suggestion. Better to base eligibility on the date of the loan (when did teaser rates first kick in?) or the size of the contractual rate jump.

There would have to be a mandate from somebody - Congress, the Federal Reserve, Treasury, to fix those rates and the immediate objection is going to be that the government is interfering with the property rights of the lenders and/or investors who own the loans or that those investors will be reluctant to cooperate because it cuts their profit margin.

That ship has sailed.

Both because of the losses they are suffering and because lenders have been all too eager for the government to feel their pain - and do something about it - it is time to take definitive action that will solve the problems of more than a handful of borrowers, and solve those problems instantly.

Then there are those standing on the sidelines who will mightily resent borrowers getting any break in rates and terms. No matter that every foreclosure in their community is costing them in property values and probably tax revenue. Their refrain remains, "these people bought houses they couldn't afford; they don't deserve a bailout." It is time to get over what an earlier generation would call a "dog in the manager" attitude.

This suggestion is akin to a solution proposed by Congress in which the Federal Housing Administration would be empowered to guarantee loans that have been written down by the original lenders to reflect current home prices, but her plan could be implemented with no new bureaucracy and very little in the way of expense and manpower.

Congress's bill would require an appraisal of the property and does nothing to lessen the workload of the lender or servicing staff charged with collecting and reviewing the information which their bosses view as necessary to processing workouts or restructures. Worse, it would require a potentially catastrophic investment of federal money should FHA have to make good on substantial numbers of loan guarantees.

The idea requires willingness on the part of the lender/investor and a postage stamp.

One can imagine countless variations on the plan. The rate freeze/reversal could be temporary - perhaps limited to two years - or apply only to those whose new rate would be in excess of a given number - perhaps 7 percent. Borrowers might be offered a carrot - if they get caught up on their arrearage and then continue to pay on time under the new loan terms they might be put on an expedited list by the lender for a permanent workout, which the servicer could have the luxury of time to effectuate or to sell or refinance the house at today's relatively low rates without government assistance.

If lenders and servicers decide to continue on their present course of waiting for the government to bail them out or doing workouts according to their current formula, the number of foreclosures will continue to rise. And what is the cost of those foreclosures? It is probably a more staggering figure than you had thought. We will detail those expenses, not only to the lender but to the affected homeowner, local government, and the neighborhood in another article this week.

What do you think? Could a plan this simple work? Why or why not? Please share your thoughts below.





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Saturday, May 24, 2008

Homesale Guaranteed --- Part 1 of a series

Worldwide Internet Exposure!

In today's world, over 80% of new homeowners surveyed, have indicated they searched for homes on Internet before and while working with a buyers agent.

That means, therefore, that as a Seller, you need to have a major marketing presence on Internet, above and beyond the rest of the homes on the market competing with you. That is precisely what I do for each and every one of my listings ---


I will totally maximize the exposure of your property listing on Internet -- over 2500 real estate sites throughout the world ( including but not limited to realtor.com, yahoo.com, aol.com, excite.com, msn.com, nwmls.com, homegain.com, lendingtree.com, etc)
.
Since 1998, I have been a leading Agent on Internet each and every year --- day in and day out!

When you list your home for sale with me, it will be announced to over 4 million real estate agents throughout the world, not to mention their clients.

The KEY to marketing, is marketing to Buyer's Agents, not just to potential buyers directly.

It is the agent who the buyers rely on for direction, for advice, and overall representation. It is for that reason that I am one of the few agents that target buyer agents first and foremost.

Buyers Agents are in direct contact with their buyers and we have a better chance of reaching buyers through their agent then attempting to contact buyers directly.

This difference in marketing focus, separates me from 98% of the real estate industry. Clearly a distinct advantage that I have proven time and time again.
When I list your home for sale, your property is advertised worldwide within 24 hours! On top of that, I personally own, operate, and maintain over 200+ web sites, including the very popular "Ultimate Home Search Website" at www.PreviewPropertiesInc.com.

It is a leading website, even frequented by real estate agents from other companies, as well as their clients.
For more information about the HomeSale Guarantee process, go to:

www.Homesale-Guarantee.com





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Friday, May 23, 2008

Treasury's Paulson Sees End in Sight for U.S. Credit Crunch

In an interview with CNBC, Treasury Secretary Henry Paulson said that the U.S. has been in a rough patch but is coming closer to the end of the current credit crisis.

Paulson was encouraged by the current government-sponsored entreprises (GSE) reform package and expects the U.S. economy to strengthen later in the year. He reiterated his position that the U.S. has a strong dollar policy and that the long-term strength would eventually return to the currency.

Paulson stated that the current policies in place can deal with problems the economy is facing, stating, "ultimately, the fundamentals will restore confidence in the U.S. economy."





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Tuesday, May 20, 2008

Is the housing crisis over?

We can all breathe a sign of relief.

The housing crisis is over??????

At least that was the headline on the editorial page of the Wall Street Journal earlier this month when Cyril Moulle-Berteaux, a managing partner of Traxis Partners LP, a hedge fund firm based in New York made his case that the housing market is hitting bottom right now.

Some of what he says makes sense; some sounds more like tip-toeing past the graveyard; but his arguments are worth looking at so we can look back in six months and judge his claims historically.

Remember, while we review Moulle-Bereaux's arguments, that the Journal's news pages are known for straightforward and bias-free reporting, but the paper's editorial pages are widely regarded as being in the service of politicians and corporate America. While op-ed pieces tend to be more balanced than the editorials, they still tend to have a rightward tilt.


Moulle-Bereaux prefaces his arguments with the caveat that he does not expect prices to return to 2005 levels; in fact he feels that may not happen for another 15 years. He is merely stating that the downward trend in sales and pricing is not intensifying as the financial and mainstream press would have us believe.

The current housing bust, he says, is actually nearly three years old. Sales hit their peak of 1.4 million annualized sales in the summer of 2005 and have dropped 63 percent since then. Housing starts are down more than 50 percent which, when adjusted for population growth, takes them back to the previous lows of 1982.

In addition, residential construction now represents only 3.8 percent of Gross Domestic Product; a 15 year low, and will probably set an all time low by the fourth quarter of 2008.

But, Moulle-Bereaux argues, the very factor that caused the bust in the first place is going to save the market: affordability.

Americans enjoyed virtually unprecedented access to homeownership during the 1990s and early 2000s. It took 19 percent of average monthly income to service a conforming mortgage on an average home purchased during that period. But, as prices increased by double-digit percentages in many parts of the country during 2005 and 2006, mortgage costs rose to 25 percent of monthly income. And for first-time homeowners the cost of homeownership went from 29 percent of income to 37 percent and buyers who actually intended to live in the houses they were purchasing began to pull back.

The good news, bad news is that prices have now fallen an average of 10 to 15 percent - much more in some previously hot markets - while incomes have continued to rise; (while there is a school of thought that would argue strenuously that real wages have actually been stagnant, we will grant Moulle-Bereaux his point) while mortgage rates are down 70 basis points from their peaks. Guess what, housing has returned to the 19 percent of monthly income level for repeat buyers and 31 percent for the first-time homebuyer.

"In other words," Moulle-Bereaux says, "homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in."

But what about all of those unsold houses? Can prices stop falling with so many houses in foreclosure or standing vacant and unsold? Moulle-Bereaux relies on history to assure us they can.

He references five past market corrections and claims that in each, when home sales bottomed, "the pace of house-price declines was halved within one or two months." This because, by the time sales stop dropping, inventories have usually already dropped as well.

That, he says, is the case right now. New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March, an 11 months supply. And while this is a 25-year high, it is similar to the situation in 1974, 1982, and 1991 when such data was followed by slowing in home-price declines within the next six months.

Inventories are being brought down because construction activity has been falling for such a long time that new home sales are about on a par with home completions, and sales should be pulling ahead, perhaps by as much as 50 - 100,000 units annually, in a matter of months. He speculates that inventories will drop even faster to 400,000 - or seven months of supply - by the end of 2008 which will impact on prices, although they won't stop falling entirely until inventories reach five months of supply, a level that has historically signaled tightness in the market, sometime in 2009.

Here he is overlooking any impact of inventories of existing homes. In March, the last month for which data is available, the National Realtors Association estimated a backlog of 4,058,000 unsold homes or a 9.9 months supply. This was a 1 percent increase over the February number. Unlike with new homes, there is no convenient spigot to turn-off the number of previously-occupied homes coming onto the market. People continue to be transferred, downsize, or die while forced sales and foreclosures appear set to continue for the short term. But assuming that Moulle-Bereaux reading the housing tea leaves correctly, how will all of this affect the broader economy? MOULLE-BEREAUX lays out a number of positives:

  • The housing market has been subtracting a full percentage point from GDP for almost two years. Any improvement in the market should stop this bleeding.
  • When the rate of price declines comes down "there will be a wholesale shift in market perceptions." The market is valuing houses, i.e. the collateral for existing and future loans as though the declines will continue for another two to three years. When this perception changes it will have significant impact on the view of future delinquencies, foreclosures, and credit losses that lenders expect they will face.
  • Fewer homeowners will be underwater on their mortgages and will thus have less incentive to walk away from their obligations.
  • Reaching further out, a slowing house-price decline could stabilize if not increase the value of a lot of the securitized mortgages that have ravaged the financial markets with write-downs and subsequently reported losses. "Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets' perception of risk related to housing, the financial system, and the economy."





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Friday, May 16, 2008

Fannie Mae Announces Single National Down Payment Policy

Fannie Mae (FNM/NYSE) today announced a new, national policy on down payment requirements for conventional, conforming mortgages the company will purchase or guarantee. Starting June 1, 2008, Fannie Mae will accept up to 97 percent loan-to-value ratios for conventional, conforming mortgages processed through its Desktop Underwriter® (DU®) automated underwriting system, and 95 percent loan-to-value ratios for loans underwritten outside of DU, in all geographic locations in the United States. The new national down payment policy will supersede the policy the company adopted in December 2007 that required higher down payments in markets where home prices are declining.

"As a part of our 'Keys to RecoveryTM' ( http://www.fanniemae.com/homebuyers/pdf/keys_to_recovery.pdf  )
initiative, we are today announcing that we will be equalizing the down payment requirements for borrowers in all parts of the country, regardless of local market conditions," Marianne Sullivan, Senior Vice President, Single-Family Credit Policy and Risk Management, said. "This new down payment policy reinforces our goal to support successful home-owning, not just home-buying, as we seek to bring liquidity to all communities and help the housing market recover."

The new national down payment requirements of 3 or 5 percent will apply to loans for purchase of single-family, primary residences. Down payment requirements will vary for other occupancy, property and transaction types. The company will implement systems and operational changes over the summer to accommodate the new national policy.

"We are able to adopt this new, national down payment requirement, even in markets where home prices are declining, because our new automated underwriting risk assessment model DU Version 7.0 will limit risk layering and assess each loan more precisely," Sullivan added. "At the same time, we believe that equity matters, especially in this market. Down payments are a critical success factor in homeownership -- and responsible lending is good business."

Since the housing correction began, Fannie Mae has expanded its mortgage guaranty business to serve the market's urgent need for stability, liquidity and affordability. The company also undertook steps to help protect borrowers, manage the increased credit risk in the market, and fortify the company's capital position. Among these steps, the company has continued to assess and establish new pricing, eligibility and underwriting criteria for its business that more accurately reflect the current risks in the housing market and guard against the potential for foreclosure. These changes have been incorporated into DU and have included adjustments to credit risk assessment, loan-to-value ratios and down payment requirements, among other factors.

Among the changes in response to market conditions, in December 2007 Fannie Mae adopted a "Maximum Financing in Declining Markets Policy" that restricted the loan-to-value ratios on properties in markets where home prices are declining, essentially requiring higher down payments in these markets. The new single national down payment policy announced today will supersede that policy.

Fannie Mae Senior Vice President Jeff Hayward stressed the company's commitment to special affordable lending programs to support homeownership for families of modest means. "We are stepping up to provide more liquidity and affordability to some of the most distressed communities while also seeking at least a 3 percent down payment investment through our Desktop Underwriter system from borrowers to help ensure their success."

Fannie Mae will continue to provide support for homebuyers that need down payment assistance, and will continue to allow loans with Community Seconds® up to a maximum 105 percent combined loan-to-value ratio. Community Seconds allow a borrower to obtain a second-lien mortgage to help cover down payment and closing costs, with funding typically provided by a state or local housing agency; an employer; or a nonprofit organization. Fannie Mae also offers MyCommunityMortgage® and Flex mortgage products, which permit down payment assistance programs in the form of gifts and grants.

"We recognize that down payment assistance programs remain a viable tool for borrowers who can afford a mortgage long term, but might need a little help getting started," Sullivan said.

As part of its "Keys to Recovery" ( http://www.fanniemae.com/homebuyers/pdf/keys_to_recovery.pdf ) initiative, Fannie Mae is expanding its partnership with the National Council of State Housing Agencies. The company will provide up to $10 billion in financing to help Housing Finance Authorities (HFA) serve first-time homebuyers of modest means. In some cases, Fannie Mae will purchase HFA mortgages that have greater than 97 percent loan-to-value ratios.

The first "Keys to Recovery" ( http://www.fanniemae.com/homebuyers/pdf/keys_to_recovery.pdf )initiative that Fannie Mae announced on May 6, 2008 also includes: streamlined refinancing for Fannie Mae borrowers whose mortgage balances exceed the value of their homes; improved pricing for jumbo-conforming mortgages to help borrowers in high-cost areas; and a neighborhood stabilization initiative with the Center for Community Self-Help for targeted areas with high home foreclosures.





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Low Cost Tips That Gives Your Home Saleability

1.  Paint it!

Cost: $60 for two gallons of Benjamin Moore interior paint -- enough to paint the walls and ceiling of a 12-by-15 room.

A little paint or varnish can go a long way toward improving your home's value. One fresh coat (along with a little sanding and caulking) wipes out the scuffs, chips, cracks and other damage that clearly convey wear and tear. Make your first priority the front door, where everyone from visitors to potential buyers lingers.
 
You're standing on the front porch and you have a good 15, 20 seconds just to look.  Inside, don't forget to freshen up the baseboards, doors and ceilings after you tackle the walls.

Just remember to stick to neutral colors if you're thinking of selling sometime soon. Buyers might not share your appreciation for the eye-popping combo of Fireball Orange and Traffic Light Green in the kids bedrooms.
 
2.  Basic Maintenance!
 
Cost: $350, however if you negotiate it, you should be able to reduce the cost to $295-300 for a home inspection, including walk-through and report of suggested fixes.

"You have to be careful with remodeling because you can spend money in the wrong place and not get it all back," says Lyle Martin, co-founder of Assist-2-Sell, a Reno, Nev.-based real estate brokerage. A common mistake: making aesthetic upgrades while ignoring basic maintenance. New bathroom tiles mean nothing if the plumbing is faulty or the underlying wall has dry rot.

If you don't address these problems before putting your home on the market, it'll cost you. Buyers traditionally negotiate a $2 discount for every $1 in damage that turns up in a home inspection.

Aim to complete a few small maintenance projects each year, like fixing that creaky floorboard or replacing a cracked light switch plate, advises Martin. Not sure where to start? Hire a home inspector to point out which areas would be problematic were your home on the market.
 
3.  Energy Efficient Upgrades
 
Cost:   $500 to replace your old clothes washer with an Energy-Star certified Frigidaire washer (including a $50 utility-provided rebate and an estimated $50 in energy savings the first year).

Energy-efficiency projects such as installing Energy-Star windows or swapping for a high-efficiency furnance are one of the few upgrades that hold their value in a down market Not only will such improvements cut your energy bills, but they'll also be more attractive to buyers who are hunting for more earth-friendly homes.
 
Homeowners should display their utility bills as documentation of the effects of those energy-efficiency improvements, as it will make a big difference on how your hoe is perceived.

Look for incentives and rebates through your utility providers and state and local governments. And don't forget about federal tax credits. Both the House and Senate have given tentative approval to an extension of the energy-efficiency tax credits from the Energy Policy Act of 2005, which offered a credit of up to $500 for select projects completed in 2006 and 2007. The two-year extension could become law by summer. Look to the Tax Incentives Assistance Project to refresh your memory on what criteria projects must meet to qualify. 

4.  Outdated Fixtures! 

Cost: $86 for an American Standard faucet, 10 drawer pulls and 10 knobs.

Giving a room a more modern look requires little more than a screwdriver and some new fixtures. New hardware can completely freshen a house.
 
Things that are outdated are things that buyers would turn their noses up at.  As far as fixes go, it's dirt cheap. New drawer handles or knobs can be had for as little as $2 each. There are also plenty of options out there for personalizing your space. Home Depot lists almost 900 kitchen and bathroom faucets priced below $50. You might also try swapping out ceiling-mount light fixtures or doorknobs.
 

5.  Landscaping.

Cost: $200 for five each of dogwood, forsythia and red-flowering butterfly shrubs, plus $100 for enough mulch to cover 200 square feet of planting beds. But don't get carried away, not at the expense of noticeable maintanance requirements especially.

A good first impression is crucial however. Your carefully groomed landscaping -- or, in contrast, weed-overgrown jungle -- is one of the first things a potential buyer notices.
 
Enhancing curb appeal is something every seller does. You'll score even more points with a yard that was obviously fixed up long before you listed your property.

Savings can be had as well, as long as you plant wisely. Drought-resistant shrubs require less water, while perennials won't require repeat plant purchases in coming years. Leafy deciduous trees shade your home from the hot summer sun, and allow maximum heat transfer inside during cold winters.




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Monday, May 12, 2008

Another Program To Aid Subprime Mortgage Crisis

Another program to aid in the subprime mortgage crisis has been announced by Fannie Mae.

As with most recent initiatives, whether designed by lenders, Congress, or the President, the intended audience of Fannie's program is limited, but it does target a sector of troubled borrowers that has not received a lot of attention - the "underwater" borrower.

Being underwater in the current market means owning more on a mortgage than the underlying security - that would be the house - is worth. Some borrowers actually took out a loan that was near 100 percent loan to value, others have watched their equity disappear as housing prices plummeted. Were the borrower to sell the house or refinance under today's economic conditions he would have to bring cash to the closing table to make up the difference between the loan or sale proceeds and what is actually needed to retire the old debt. (He might be able to convince the existing lender to take a "short payoff" to reduce or eliminate the deficiency but this is a tough sell when the loan is current.)


Fannie Mae's new program would not, as the bill authorized in the House last week does, require existing lenders to write-down mortgages to a level where refinancing is feasible. Fannie will instead refinance new loans adequate to cover the old debt. This does not bail out the borrowers boat - he is still underwater - but might result in a lower payment because of a reduced interest rate, a fixed rate, or a slightly extended amortization period.

Under the new rules Fannie will refinance mortgages at up to 120 percent loan to value and the program appears to be limited to loans that are paid to date and that Fannie either owns or insures.

Fannie estimates that 150,000 homeowners could be helped by such a program.

The thrust of the program is obviously to buy time. Fannie is betting that, by refinancing homeowners, it will assist them in keeping payments current and that in the long-term house prices will improve to a point that these loans will become adequately collateralized. Critics are already saying that this is also a way of pushing losses into the future so as not to impact Fannie's fragile bottom line or capital reserves; that if prices continue to deteriorate more homeowners, lacking equity, will simply walk away.

Still, this new program will provide a place where as many as 150,000 people can hope to find help. Stack enough of these limited-focus programs together, wherever they come from, and the universe of battered borrowers may all find a place for hope.





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Friday, May 09, 2008

American Housing Rescue & Foreclosure Prevention Act (HR 3221)

Dear Beryl:

Earlier today, Congress passed comprehensive legislation that will strengthen our housing market and help American families avoid foreclosure. I strongly support this legislation, and I am writing to update you on my work to address the downturn in our housing market.

Turmoil in our country's subprime mortgage market is hurting our economy and putting millions of families at risk of losing their homes. That is why Congress has passed the American Housing Rescue & Foreclosure Prevention Act (HR 3221).

If this bill becomes law, it will create new tax credits and make changes to the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac to help American families avoid foreclosure and achieve home ownership.

The centerpiece of HR 3221 is the creation of a new program that will allow the FHA to refinance mortgages for homeowners facing foreclosure. Under the terms of the program, homeowners can refinance their mortgage with the FHA if their lender agrees to reduce their mortgage principal by at least 15%. In order to ensure that this program is not abused, the government will recoup a portion of the profits that the homeowner makes when they resell their home for a higher price in the future. I am confident that this will help Americans keep their homes and pay off mortgages they can actually afford.

HR 3221 will also strengthen the housing market by creating a refundable tax credit of up to $7,500 for first-time homebuyers and temporarily increasing the low-income housing tax credit. These changes to our tax code will help make the dream of home ownership a reality for millions of American families, including low-income families seeking affordable housing options.
Additionally, HR 3221 includes other commonsense housing reform measures, such as:

-Strengthening regulation of Fannie Mae, Freddie Mac and the Federal Home Loan Bank;
-Permanently increasing the FHA loan limit to help families in high-cost housing areas;
-Expanding access to reverse mortgages through the FHA; and
-Increasing the Veterans Administration home loan limit to make it easier for veterans to achieve home ownership.

HR 3221 passed the House of Representatives on May 8th. Members of the House and Senate will now meet to develop a final version of comprehensive housing legislation to send to the President.

Please be assured that I will continue to work with my colleagues to address the subprime mortgage crisis and help Americans achieve home ownership. Please contact me in the future about issues that are important to you.

Sincerely,

Rick Larsen
United States Representative
Washington State, 2nd District

Friday, January 04, 2008

LEGISLATIVE UPDATE

Update # 1 - Mortgage Relief Passed by Congress & Signed Into Law by the President!

On Thursday, December 20th, President Bush signed into law a bill passed by Congress: HR 3648 –Mortgage Forgiveness Debt Relief Act of 2007.  The three major points are:

Elimination of the "phantom tax" on foreclosures, short sales or other discharges of debt on a primary residence.  Consider this scenario:  A property is worth $250,000, and the mortgage balance is $300,000.  Under the old rules, if a lender forgave the $50k difference as part of a foreclosure, short sale, refinance or loan modification, the borrower had to claim the $50k as income and pay federal income taxes on that amount.  The new law eliminates this "phantom tax", and the forgiven debt is no longer treated as taxable income to the borrower as long as certain requirements are met, such as the discharged mortgage balance must be on the taxpayer's principal residence.

The tax deduction for mortgage insurance premiums is now extended until December 31, 2010 instead of expiring at the end of 2007.  The same rules apply as before in terms of the income limitations etc., and these rules are covered in the taxation section of the CMPS curriculum.

The capital gains exclusion is now $500,000 instead of $250,000 for an unmarried individual who sells their primary residence within 2 years of the time their spouse has died. 

This new guideline applies to sales after December 31, 2007, and provides relief for widows and widowers by giving them a 2 year window from the time their spouse has died to sell their home and receive the $500,000 exclusion.  Of course, the same rules apply as before, where the individual(s) need to have lived in the home as their primary residence for 2 out of the last 5 years.  You can read the full version of the bill by visiting the Library of Congress THOMAS web site and searching for HR 3648.  Version # 6 (the enrolled / ENR version) is the final version that was passed by both the House and Senate.

Update # 2 - AMT Relief Passed by Congress (FINALLY)!

After much drama and a few rounds of chicken between the House and Senate, Congress FINALLY passed AMT relief on Wednesday, December 19.  The President has indicated a strong willingness to sign this bill into law, and it is currently awaiting his signature.  Under this one year patch, approx. 20 million taxpayers have escaped the clutches of the AMT.  However, approx. 3.5 million taxpayers are still expected to be subject to the AMT.





Start the year off right. Easy ways to stay in shape in the new year.

Friday, December 14, 2007

Senate passes FHA subprime help

   


Fri Dec 14 17:42:48 UTC 2007

WASHINGTON (Reuters) - The Senate on Friday overwhelmingly passed legislation that would expand the nation's largest federal homeownership program in a move that could help struggling subprime borrowers avoid foreclosure.

The bill would loosen underwriting standards at the Federal Housing Administration so that the program can help 200,000 troubled borrowers save their homes, according to the overseers of the program.

The FHA is a Depression-era program conceived in 1934 that was designed to insure the mortgage payments of low-income borrowers who might have trouble winning a loan.

The U.S. House of Representatives has already passed its version of FHA reform, and now lawmakers will take the two versions of the bill to a conference where differences are worked out. The bill will then be presented to U.S. President George W. Bush to be signed into law.

Supporters of reform have said the program can be retooled to save hundreds of thousands of borrowers from foreclosure as the current mortgage crisis takes hold.

"HUD's Federal Housing Administration can provide many homeowners with a fairer, more affordable, and more sustainable alternative to costly subprime loans," Department of Housing and Urban Development Alphonso Jackson said in a prepared statement.

As envisioned, the FHA reform legislation would raise the current loan limit from $362,000 to at least $417,000, which is the same cap on loans that binds mortgage finance companies Fannie Mae and Freddie Mac.

The final vote was 93 lawmakers in favor and one against.

 
Take Care & GOD Bless!
BerylGosney

"a leading Buyers Agent on internet"
serving 8 Western Washington Counties
TOLL FREE: 888-348-9686 x224
Cell Phone: 425-344-2222





Sunday, November 04, 2007

Buyers: An FHA Government Loan is worth considering

It’s the start of a new fiscal year in Washington, and for the FHA it’s been a great time to be in the mortgage insurance business.

The latest figures from HUD show that FHA applications had an annual run rate of 1,285,800 inquiries in the first 15 days in October. This is up 74.6% when compared with a year ago.
Actual FHA applications during the first two weeks of October totaled 51,287 inquires, a figure that rose a whopping 99.4% over the past year.

A total of 25,823 loans were actually endorsed. Of this number, 53.1% were for home purchases, 32.1% were refinances and 14.9% or reverse loans, or what HUD calls “home-equity conversion mortgages” or HECMs.

What these figures mean is that the FHA program — which had actually been on the ropes for the past couple of years — is doing quite well. The program is insuring loans, loss levels are tolerable, and a vast new market for government insurance has begun to appear with the introduction of the FHASecure product.

No one would be surprised if fiscal 2008 turned out to be another banner year for the government program.

Contact BERYL GOSNEY at 425-344-2222 or berylgosney@aol.com for more information on how easy it can be to qualify for a FHA purchase!

Tuesday, October 02, 2007

FHA Bill Passes House Finance Committee

Washington, DC - The U.S. House of Representatives today overwhelmingly passed H.R. 1852, the "Expanding American Homeownership Act of 2007," which will revitalize the Federal Housing Administration (FHA), a federally insured loan program that for over 60 years has been a reliable source of affordable fixed rate mortgage loans, especially for first-time homebuyers.

The measure, originally introduced by Representative Maxine Waters, Chairwoman of the Subcommittee on Housing and Community Opportunity, and Barney Frank, Chairman of the Financial Services Committee, will enable FHA to serve more subprime borrowers at affordable rates and terms, recapture borrowers that have turned to predatory loans in recent years, and offer refinancing loan opportunities to borrowers struggling to meet their mortgage payments in the midst of the current turbulent mortgage markets.

"There is an affordable housing crisis in America. In recent months, that crisis has exploded beyond the poorest renters and homeowners, to threaten the domestic economy. H.R. 1852 is a necessary step in walking us back from the brink and in the direction of meeting the housing needs of all Americans," said Chairwoman Waters.

"A revitalized FHA program will help future homeowners realize the dream of home ownership, and will prevent many first time and inexperienced home buyers from being pushed into loans that are unaffordable or difficult to understand," said Chairman Frank. "The bill we passed today will help people all across America because we have enacted provisions to allow the FHA to insure loans in high cost areas."

Specifically, the bill includes the following important provisions:

  • Lower Down Payments. Authorizes zero and lower down payment loans for borrowers that can afford mortgage payments, but lack the cash for a required down payment.
  • Housing Counseling. Authorizes more than double the current funding level for housing counseling, to help subprime homebuyers and borrowers late on mortgage loan payments.
  • Subprime borrowers. Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers, without authorizing unnecessary fee hikes on such borrowers.
  • Reverse Mortgages. Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses, by removing the loan cap to avoid program shutdowns, raising loan limits, and by reducing the maximum fee lenders can charge for these loans.
  • Multifamily Loans. Raises FHA multifamily loan limits, so these loans can fully fund construction costs in high cost areas, and enhances sale of foreclosed FHA rental housing loans to localities, so that affordable housing can be maintained in local communities.
  • Affordable Housing Fund. Authorizes up to $300 million a year from the bill's excess profits for affordable housing, instead of returning such funds to the General Treasury.
  • Higher Loan Limits. Adopts the Frank/Miller/Cardoza amendment that would raise FHA single family loan limits, which now bar loans above 95% of the median home price in each local area and shut FHA out of higher cost home markets. The amendment raises the FHA loan limit in each area to the lower of (a) 125% of the local area median home price or (b) 175% of the national GSE conforming loan limit. The amendment also retains the bill's provision for a nationwide FHA loan floor of 65% of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 "if market conditions warrant."

In addition, the House adopted an amendment to the bill to direct FHA to make available refinancing loans to existing qualified homeowners who are in default or at risk of default due to rate resets or mortgage market conditions, and to authorize lower down payments for such purpose. The amendment also includes provisions to address problems arising from inflated appraisals.



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Sunday, September 23, 2007

Invitation to my XING network

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425-344-2222
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Thursday, August 02, 2007

Is Real Estate a Good Investment Choice?

Introduction

There are many areas one can invest in. Since I was 15 years old I have looked for the fastest, most effective way to accumulate a lot of wealth, with the least amount of risk. I am now 58. While looking for this road to truth, I spent a lot of time in the school of hard knocks. The school of hard knocks is a very interesting but painful school to attend. It is also the most expensive way to learn something, but when you graduate you have a PHD in what to do and not do with your time and money. The schools I attended were: Investing in businesses as a silent partner, owning my own businesses, working for another family member-in my case my father, buying publicly traded stocks and securities, penny mining stocks, commodity trading, investing in gold and silver, real estate private lending, real estate development, real estate remodeling, buying foreclosure properties. I also worked as a real estate problem solver/matchmaker, bringing business owners together with business buyers, and matching up real estate owners with real estate buyers.

Writing about all of these activities would take an encyclopedia, so we will limit this essay to the kinds of situations you can run across in the real estate school of hard knocks. I will present my solution with the given situation. There are more than one possible solution and I invite you to come up with other possible solutions as you read. If you get some value from my experiences that will hopefully lower your tuition to the real estate school of hard knocks. Feel free to e-mail me your comments, alternate solution or stories. Do, please, let me know that it is all right for me to publish them.

My Real Estate Philosophy

As a way of introducing myself, I thought you might find what lessons I have learned, after all these years of real estate, interesting. Buy real estate instead of stocks, bonds, mutual funds, or commodities. When you pick a winner in one of these non-real estate areas you can make 5-10 times your money. When you are wrong, in one of these non-real estate areas, you can actually loose up to 90% of your money. In real estate, if you are not greedy-not trying to get rich quick-in one year, you can make 100 times your money, on the upside. The downside risk is only based on how well you looked at all the possibilities ahead of time. If you did, the downside risk is reduced to only the holding time to fix a mistake. If you rush in and do not explore all the possibilities of a business venture, you can actually loose 100% of your money. In my mind an upside of 100 times profit is better than 10 times profit.

My philosophy on real estate ownership has changed in the last 15 years. I used to think that selling at the top of the market was the smart move and buying in the crash. Now I feel that buying when prices are down is still a smart move but never selling is the way to go. In order to hold on to a property in a down market you require proper planning to survive the crash. This I call a back door or emergency plan. This is have a plan and knowing what you will do if everything goes wrong with you original plan. When you have a backup plan, you rarely need it. This is the basis of my philosophy. With this understanding, you might more clearly see why I did what I did in these situations.

The Stories and article:

The area of real estate investing is one of the most complex because it is a combination of law and real estate. It is one of the most interesting because fortunes are made and lost in this area, and the numbers are so enormous. Lastly it is an area where crooks can make a lot of money and many times get away with it. Following are some stories (case histories) I have dealt with and some articles I have written on the subject of fraud in real estate. Finally, I have included an article on the basics of foreclosures and real estate in general, for your interest. I hope you enjoy them.

The Stories:

Story #1:
It was early March 2000 and I received a call from Kevin. He said that he had heard about me from some mutual friends. He wanted to speculate in buying HUD houses (Properties that the Government had foreclosed on). He wanted to buy them, fix them up and then sell them at a profit. He had heard that I had bought many foreclosures in the 1970’s and 80’s and he was hoping I could advise him. We met for lunch and he told me his life story. The important part of this conversation is that he had bought a boarded up 14 unit apartment building in downtown San Bernardino, across the street, from one of the roughest high schools in California.

By the end of the meeting, I had figured out that he had overpaid about $75,000 for the building, he had already wasted $200,000 trying to remodel it, and it was still $100,000 away from being finished. He had bought it 1.5 years ago and a large part of his costs was the interest on all his loans, related to this project. He was now broke, and in deep trouble, but in his mind, the badly needed money was coming.

It is interesting to note where he got the money to invest in this project. 4 years earlier he was given money to buy an apartment building by his father. He was given enough money that he only needed a very small $150,000 real estate loan to purchase a building in Pasadena that cost him a total of $525,000. In order to buy the San Bernardino rehab project, he first refinanced the first trust deed on the Pasadena building and jumped the loan balance to $385,000. When that money was gone he borrowed $74,000 as a second Trust Deed on both the Pasadena and San Bernardino properties. By the way, that loan cost him 15% interest and $15,000 in up front fees to get the money. Before we parted, I told him that he made a very expense mistake in buying San Bernardino. I explained that from the day he bought the building it was a sure bet that the project would fail. I then had to tell him that I would not lend him any money on San Bernardino, to save his butt.

Over the next 2 months I received periodic phone calls, telling me the progress of the fund raising. One of those updates I was told that the existing 2nd Trust Deed lender was saying that he might give Kevin the added $100,000 he needed to finish the project. At the same time, Kevin also believed he had found a bank that might refinance all the loans of San Bernardino. The difficulty with the bank loan was that the appraisal fee was $3,000, and it had to be paid in advance, even to just apply for the loan. Again Kevin asked me for money. Again I refused to put more good money down his black hole.

Then one morning I got a call from Kevin, “If I don’t make the $2,000 payment to the 2nd trust deed holder, he will start foreclosure in 2 days. Kevin also told me “The 2nd trust deed lender said that he would buy the Pasadena apartment building for what I had paid for it, 4 years ago, $525,000.” The offer had a stipulation to it. Kevin had to bring the loan current first. In my mind, if Kevin could bring the loan current, why would he even bother to sell the property for a wholesale price? I couldn’t believe what I was hearing.

After hearing all of this I decide that it is time I stop saying no and help. What Kevin thought he wanted was a real estate loan for a lot of money. The truth is, that money was not the solution to his problem. The problem had to be different than what Kevin believed, which is why the problem persisted. The real situation was not more borrowing. More borrowing meant more money down the drain.

Experience has taught me, “If the problem was what Kevin thought it was, it wouldn’t be a problem.” What does this phrase mean? A businessman has a financial set back. He thinks that with some short term funding he can recover from the set back and return to the top. After looking around, our businessman will usually find the money, but strangely enough the problem doesn’t resolve. If the problem did correct itself, then the businessman was right about what the problem was, and the problem would be gone. Usually the money doesn’t help, but the businessman doesn’t understand that. He doesn’t realize that the problem wasn’t money in the first place. If it were, the problem would now be gone. Lets continue the explanation. The last money borrowed is now gone and the problem persists, so our businessman goes out to find more money to solve the problem that didn’t solve with the money he borrowed, the first time. What happens the second time? The same thing. The money is used up and still the problem continues.

Our businessman is working on the wrong problem. The problem is not money, or the problem would have been gone. Kevin thought the problem was money. It wasn’t. He had already poured $300,000 into the San Bernardino building, on top of the $209,000 1st Trust Deed loan that came about when he bought the building. Before he was finished, he spent over $500,000 in a building that needs $100,000 to finish, but was only worth $475,000, after it was finished.

What could I do? Use what the good lord gave me. 30 years of experience, on the subject of getting out of problems that I created when I was young and inexperienced. Here was the war strategy. I got Kevin to agree to turn over total management of the two properties to me. Knowing that I was managing the property and working on what I believed was the correct problem, I felt comfortable about loaning money on this deal. If I can’t trust myself to solve this problem, whom can I trust? I started by loaning Kevin $25,000 to make needed repairs to the Pasadena building, pay the property taxes and to bring the first and second loans current on the Pasadena property only. Nothing was to be spent at this time, on the San Bernardino building.

Now that I controlled the Pasadena apartment building, I discovered what repairs the building needed. The list was so long it took one man three months, full time, to fully handle it. I then did a very detailed market study and determined what the market would pay in rents. I asked the tenants for a list of everything they wanted done in their apartments to be happy. I then did everything the tenants requested and I then raised their rents 30%. After the building was full, I raised the rents another 15%. The value of the building went up and I received an offer for $725,000. This was $200,000 more than its value 6 months earlier. I put it into escrow, and then I realized that I could raise the rents some more. I raised the rents again in escrow and forced the buyer to pay another $25,000 for the building. Bringing the price to $750,000. That $225,000 profit was needed to help cover the money being lost in San Bernardino.

Author’s Note: The escrow fell through and the building was kept until this update, December 5, 2004. The building is now in escrow for $1,583,000

What did I do about San Bernardino? I contacted the seller/lender and asked him if he would like me to pull the security guard out of the building and let him have it back in foreclosure. He didn’t want it back, even though he pretended that he was willing to do that. He offered me $25,000 in incentives to get me to personally lend the money necessary for the completion of the building, so he wouldn’t have to take it back. For 3 months he tried to get me to put money into the building, with the idea that once I put my money in I wouldn’t walk away from it. The real story was that I wouldn’t put a dime into that black hole until I figured out how to make it recover at least $100,000 of Kevin’s lost money. I asked for a $70,000 discount on the note, and offered to pay him off. We negotiated for two months. Just when I was ready to finish the deal, the seller sold his note to someone else for only a $30,000 discount. I was not able to make the money I wanted because now the new note holder wanted 100% of interest and principal due. This threw a monkey wrench into my negotiating. All this time, I had a buyer standing in the wings to buy the building from Kevin while I was negotiating. I was then forced to sell the property to this buyer and Kevin recovered only a little bit of his investment. The lender and I were both playing a high stakes poker game. I lost this round. If I could have gotten the payoff reduced, Kevin would received a large hunk of money from an “as is” sale. This is what I call playing “Craps” on a very big Monopoly board.

Author’s Note: The buyer, thinking he was going to put $125,000 to finish the remodeling, notified me, after one year, that he had spent $300,000 to finish the building. The apartment building values were increasing rapidly during this time period, so Kevin’s project was increasing in value at the same time the buyer was going deeper and deeper into construction costs. The buyer made out all right in the end. If the market had died, he would have lost $200,000 on this building after Kevin had already lost a fortune. It’s all about timing, isn’t it?

Kevin learned that money alone was not the answer to his problems; he needed a Genie, to turn his turkey into a swan.

Story #2
Janet is the daughter of one of my oldest and wealthiest friends and clients. We have been doing real estate deals together since 1975. Janet and her husband started buying distressed real estate in Phoenix Arizona in 1994, which was 8 years ago when it was the thing to do. It was now Dec 2000. The market appears to be slowing down and did after September 11, 2001. Janet had been continually borrowing money from her father, whenever things got too difficult. She later sold everything in Phoenix and bought property in Northern California. Then in 1999, one year before I was brought in, she started buying real estate in Kansas City. One day Janet’s father called me and asked for my help. He had loaned his daughter $200,000 and felt that everything she owned was upside down. (Loans more than the market value.). This was further complicated by the fact that if she sold her properties, to pay off her father, the capital gains taxes would eat up any cash, from the sale. On top of all this, Janet kept asking for more money to keep up the payments on the properties that had a negative cash flow and didn’t have enough rental income.

He hired me to help his daughter and agreed to pay my fee. I would work with this 40 years old kid, to get her to return her fathers $200,000 and make herself totally debt free. Janet and I met. She was brilliant. She did know what she was doing, as far as picking good real estate deals. She owned, at the time of our meeting, 10 properties located in 2 different states, and there was $500,000 in equity. If we could get it out, before her father had a stroke things would be great. Janet agreed to the arrangement, happily, if I would be her adviser, not his. Her father agreed to fund whatever money was requested as long as I approved it. Also I had to be the one to ask Janet’s father for the money, since the upset between the farther and daughter was getting unbearable.

This is what we did. A list of needed repairs was created for each of the 11 properties. Bids were received and the work ordered to be done within 30 days. This was not to take months. It had to be done immediately so we could go to step two. Step 2 was to put on the market all of the expensive Northern California property. To my disbelief, Janet wanted to move her family, to a new city, in the middle of all this and her father agreed to let her do it. She had found an old run down house that she felt was undervalued. That meant that her old residence was put into the group of properties to sell. Sell is what we planned to do. Everything was to be put on the market, and sold at the best price to be gotten, but sold regardless. The property in Kansas was to be repaired and fully rented. The properties that could be sold at what we thought was full retail, were also put on the market. The plan was that when everything was sold, the father would get paid off; the loans on the remaining properties would be paid off and the balance of the cash would be put into the bank. Since all of the Kansas deals appear to be a good investment, Janet could now continue to buy more Kansas property, (she had only been spending $25,000 on each deal) but for all cash. The rents coming in would generate enough income for her family to live on without having to ask for money from dad or touching her investment nest egg. That was the plan.

I forgot one last thing. Because many of the properties had been bought years ago on a 1031 exchanges (tax-free exchange), the capital gain tax was going to eat up the cash proceeds. That was one of the traps Janet fell into. She felt she couldn’t sell without buying a replacement. Of course by not liquidating before starting anew, she would never get out of debt with her real estate lenders or her father. The solution, for this problem was simpler than one would think.

First, the father did a 1031 exchange with Janet for one of the big profit houses. The father sold Janet his personal residences for no money down. Now Janet rented her father the house he lives in. So much for capital gains tax on the $150,000 profit in that one big sale. The second big profit was in the house Janet currently lived in. That was tax-free under the current laws. Since the other houses sold had smaller profits, it was decided that the business decision to get out of debt was more important than avoiding paying any taxes.

Author’s Note: That was the plan. So what happened? Janet decided she didn’t want to sell the junk in Kansas and fired me. She refused to pay her father back and as of December 2004 he had not seen a dime. Father has deducted what she owes him from her inheritance, which will be put into a trust administered by her brother for the benefit of the grandchildren. Real estate in California skyrocketed after 9/11/01 terrorist attack and her properties all doubled in value.

Summary: Everyone thinks that his or her problem is not confrontable and therefore unsolvable. I have found that someone other than myself can solve my un-confrontable problems in 10 min and I can do the same for them. It is not a question of being smarter, or more experienced, though experience helps a lot when coming up with easy solutions, quickly. It is really that we all are willing to confront someone else’s problems much easier than our own. When we are willing to confront our own problem head-on, solutions begin to appear miraculously. What I do is help people take their mountains and turn them into molehills. The molehills are then flattened with ease.

The Real Estate Fraud Articles:

These articles were published individually at different times. Here they appear all together, as parts 1, 2 and 3.

Fraud in real estate, are you being victimized? (Part I)

Rip off artists appear in all shapes and sexes. They usually are nice looking, well dressed and very smooth talkers. They, in conversation, tell you about a financial killing they made, or are in the middle of closing. Then they change the subject. A really smooth talker never asks or suggests you invest. They wait until you beg and plead with them to let you in on their great deal. At this point you are HAD. That means, " your goose is cooked and you are invited to the feast, because you are the main course." The logical question is how do you know, before you lose your money that you are going to be ripped off? The answer is independent research, and lots of it.

1) Find a friend, or a friend's friend who is an "expert" in the specific field of investment you are considering. Ask lots of questions and listen to him. Ask him or her how to make sure you are protected. In the years, 1990 to 1995, eight people I know paid the same real estate trainer over $5,000 each to show them how to buy real estate for "NO MONEY DOWN." The trainer claimed she got results. Not one of the students, all of who got to know each other, after years of trying, ever bought a property for "No Money Down."

Recently the same trainer is offering to get her students 100% financing on real estate, even with bad credit. The MARK (the name for a con artist's pigeon) thinks he is paying for an education. The education is that you are $5,000 poorer and you have the name of a loan company that will charge you 8.5% on a 1st Mtg. and 11% on a 2nd mtg. I will tell you how to find such a lender yourself and it will only cost you a phone call.

2) See an attorney or an accountant to review the deal, especially the paperwork. I have seen contracts that if you just read it yourself, word for word and think about what it said you would run like a wolf is chasing you. He is. One simple real estate contract allowed the con man to take the money out of the joint account before he did the repair work. He took the money and never did any work. Never release money until you have everyone's signature on the paperwork and your adviser has read the whole contract, word for word. If you cannot afford an attorney, do not do the deal. It is better to not make a profit than to loose what you already have. "A fool and his money are soon parted." Don't be the fool.

3) Get to know this person. Who are his friends? Who does he work with? What information does the real estate commissioner or the "Better Business Bureau." have on him or her? Ask for the names of people who have already invested with the "con artist", made their profit, and are out of the deal. Do not ask anyone who has gotten in but hasn't gotten out yet. Multi-level people love to have you talk to people that have just entered the group, just before you have.

One of smoothest people around was a securities investment adviser in Santa Barbara. He got hundreds of people to invest with him because hundreds of people had already invested with him. None of them did the level of homework they should have. The few people, who did do independent research, smelled a rat and didn't invest. Many of his investors have lost their whole life's savings; the rest just lost a lot of money, but will recover. If you think I am trying to scare you, then you are absolutely right. "Money should come in rapidly and be spent very slowly.

Fraud in real estate, are you being victimized? (Part II)

The phone range and Peter was on the other end of the line. "Willard, I have a friend of mine that has a real estate problem." I said, "Send him over." Two hours later, Jerry sat in front of me terribly upset. Three years earlier, he had been talked into buying a 4 unit building in partnership with Smooth Talker, a knowledgeable, smooth talking real estate salesman. Smooth Talker offered to find the property, arrange the financing, manage the building and even put up the down payment. Jerry was told that all he had to do was use his perfect credit to qualify for the loan and then sit back, wait seven years and the money would come rolling in.

Smooth Talker also promised that the two of them would do more deals and Jerry would make over $100,000. What Jerry did not know and would not figure out until 3 years later, was that Smooth Talker had no intention of splitting anything and Jerry could kiss his perfect credit goodbye! 3 years ago, Smooth Talker had Jerry and two other buyers, buy three buildings, located on one street. The buildings cost $150,000 each. Smooth Talker put up $1,500 down payment for each property, while at the same time, telling the buyers that he was putting in $12,000.00 for each. There was an unexplained difference of $10,500 each.

Smooth Talker also collected a $9,000 Real Estate commission on each. Smooth Talker also agreed to take the building in as-is condition, with no inspections and without requiring the seller to make any repairs. There were, unknown to Jerry $10,000 worth of air-conditioning as well as other work that needed to be done on the building.

Smooth Talker had those other two buyers borrow from the Federal Government a remodeling loan of $48,000 to make the needed repairs. When those other two buyers each got their loans, Smooth Talker took all the money and said he spent it on Jerry's building. Let me clarify that. Smooth Talker stole the money from the other two investors, telling them he used it on Jerry's building. That is still stealing. My research later showed that he did almost no repairs to any of the buildings, and what little repairs he did have done, were not even paid for.

Smooth Talker cheated the poor workers out of their pay. No one could ever understand what he was doing. He even collected rent, pocketing any cash. When the buyers wanted an accounting. Smooth Talker wouldn't even supply it. When I came on the scene and demanded, as a matter of law, an accounting of what was received and spent. Smooth Talker didn't have any proof of what happen to all the money.

Jerry wanted out of the partnership but Smooth Talker didn't want the building sold; but he did want to make sure he got his due, if it was. He gave me a statement showing that he had put in $34,000 (which was not true) into the building and wanted that before any split of profits. This would have left Jerry receiving $5,000 and Smooth Talker making $46,400 on the whole deal.

To avoid being in this kind of a situation, I advice the following, before doing any sort of real estate deal; a) Evaluate your risk. What is your downside? Have a real estate expert study the deal. b) Set up operating and reporting guidelines with your partners. Put everything in clear English. c) Have everything reviewed by an attorney or an accountant. d) Choose your people partners with care.

Fraud in real estate, are you being victimized? (Part III)

Jonathan's Story: Jonathan had the sadist story I ever heard. You decide how the story turns out. It was 1997 and I received a call from Jonathan. He had received my letter asking if he wanted to sell his business any time soon. He asked me to come out and see him. Jonathan was 81 years old. He owned a woodworking factory that had been going for 40 years. He also owned two commercial factory buildings and had a beautiful residence that was debt free.

His wife, Janet, also 81, was the sweetest woman I ever met. They were both healthy and they loved each other dearly. They had no children or grandchildren. Janet had nieces and nephews on her side of the family. Jonathan had no living relatives of any kind. When I met Jonathan I adopted him. Sounds like the perfect picture, doesn't it. It was until 5 years ago.

Jonathan received a letter from Nigeria explaining that if he would front them some cash to pay off some government officials, they would pay him millions of dollars out of what the government owed them. You may have heard this story. It has been on 60 minutes. In fact Jonathan had heard this story; the problem was that he thought that his contact was different. They showed him legal documents, had Nigerian attorneys certify the validity of them and they did everything else necessary to con a rich old man into believing that his ship had come in.

Over the next 3 years, Jonathan stopped paying his real estate loans, borrowed on his factory equipment, ran up $500,000 in credit card charges and cleaned out his wife's separate bank account, all without telling her anything. Every payment to Nigeria was supposed to be the last one, and Jonathan was hooked. When I found Jonathan he couldn't raise what he thought was the last $10,000 necessary to finish the deal. His creditors were getting very upset and were ready to sue him.

As terrible as this sounds, Jonathan was the 3rd person that I have met in the last 10 years that has been stung by this scam. I cried. I know that at least $500,000 was sent. Jonathan thinks he sent closer to $1 Million. Jonathan decided that it was fate that sent me to him. He may be right. By the way my company name is Kismet Real Estate Investments, Inc. Kismet means Fate, Destiny, Karma, etc in Turkish, Indian, and Arabic. Time was very short, we had work to do and fast.

His wife knew nothing of what was happening, and I had to get Jonathan to tell her that they had gone from being millionaires to destitute in one conversation. Jonathan told his wife the truth. She forgave him. (Now that's love.) Her one concern was that she didn't want to loose her home. We were but a few weeks away from the creditors coming down on his business and her mortgage free house. In one clean swallow, they would put her into bankruptcy, a one-bedroom apartment and living on social security, which would have actually killed her. How much can one take at that age?

I went to work. First I promised Janet that no one would take her house away from her. She needed to trust ME, a total stranger, to not put the nail in the coffin. I do not know if I could have made the decision she had to make. We put her house in an irrevocable trust for her family when she died. That meant she had to give up ownership of her house, to me, a total stranger, in order to continue to live in it the rest of her life. Next we sold his two buildings to an investor who would work with us. The loans on the two buildings were equal to the market value at that time.

We then found a buyer for the worse of the two buildings and made a deal with the Small Business Administration, to lower the interest rate and payments on the remaining building. Those payments are about 30% of current market rents today. By making those very low payments, the lender who is on the building and the business equipment was happy. The result of all this was that Jonathan was able to keep his factory running and make just enough to pay his current living expenses.

Then the creditors, eight of them, started suing Jonathan, one after the other. Each tried to take the assets of the business. There was nothing to take. Some tried to go after the commercial buildings. That failed as they had been sold. One tried to go after the house. I arranged for someone friendlier than the bank to buy the bank's judgment at a discount and hold it until it doesn't make any difference. The bankruptcy attorney said we would never get away with what we were doing. He said that Jonathan needed to file Bankruptcy. Jonathan decided that he trusted my ability more than the attorney's advice. It has been 3 years now and all is quiet on the northern front. Jonathan and Janet are now 84 years old, still healthy, and still in love.

Everyone thinks that his or her problem is un-confrontable and therefore unsolvable. I have found that someone other then myself can solve my un-confrontable problems in 10 min and I can do the same for them. It is not a question of being smarter, or more experienced, though experience helps a lot to come up with easy solutions quickly. It is really that we all are willing to confront someone else's problems much easier than our own.

When we are willing to confront our own problem head on, solutions begin to appear miraculously. What I do is help people take their mountains and turn them into molehills. The molehills are then flattened with ease.

Foreclosure; the basic procedure:

In order for foreclosure to occur in California, there are certain basic things that have to take place. How this works, in the case of a Deed of Trust, called a ‘Non Judicial Foreclosure,’ goes like this - with regard to the time line.

The borrower (property owner) does not make the monthly payment to the person or institution that he or she borrowed money from. Technically, a default occurs the moment the first payment is missed. However, for practical purposes, most lenders do not really start the foreclosure proceedings until after the third payment is missed. A few only wait until the second payment is missed, but this is rare.

The procedure, once started, is continued on through to the end unless the property owner stops it by bringing the loan current (bringing it current means to make all back payments owed to the lender).

· Day 1 - A notice of default is recorded.

· Within 10 business days - The Notice of Default (NOD) is posted on the property, mailed to the property owner and published in a countywide newspaper.

· After 3 months - A sale date can be set for the property to be sold, in order to repay the lender their money. The Notice of Sale (NOS) is also posted on the property, mailed to the property owner and published 3 times in a countywide newspaper. The publications are one week apart, announcing the public auction.

· The recording of the notice of sale must be done at least 21 days before the sale date. A notice of sale is sometimes sent to the I.R.S, if necessary - it is not in all cases.

· 7 days before sale date, if this is a court action, the 7-day rule may apply.

· 5 business days before the sale date - The right of the property owner to re-instate the loan (bring the loan current) expires.

· Sales Date - the trustee, for the benefit of the lender to recover his or her money, sells Property to the highest bidder at a public auction.

Should we Buy, Sell or Hold real estate in this Market?

It has been said, “Buy land, they aren’t making any more of it.” It is really a true statement. Of course there is a lot of land to be had, some very very cheap. Other land like beachfront is very limited and over the years gets even scarcer. I have a book in my library written in 1964. It talks about buying California land. It makes reference to the expansion of Los Angeles into the surrounding neighborhoods, as would be expected.

It also talks about land prices in the desert and other outlying areas where city expansion even today has not happened. Funny, land that was never going to be useful for anything for at least 100 years was selling in 1964 for $40 per acre and is today dirt-cheap worthless land for $200 per acre. Even junk real estate has gone up 500% in 38 years.

So lets look at the question: Is real estate a “buy and hold” investment or a “buy and sell” investment. First I would like to investigate why people have actually lost money buying real estate. We are not talking about “no profit” or “breaking even” owning real estate, we are talking about actually losing money. Let me tell you a story of where I actually lost money, and a lot of it. In 1987 to 1989, the real estate market went up double in 3 years, much as it has been doing in between 2000 and 2002.

I bought 2 houses in rent control West Hollywood, with the idea of building 9 condominiums. Expected profit was to be $1 Million. The market turned south in 1990 and stayed that way until 1995, when it began to go up 5% per year. I lost that property which today would have made me $2-3 Million. Why did I loose it, when if I would have held it for 10 years, I would have been much richer than if I would have been able to build and sell those condos in 1990?

The mortgage payments on the houses totaled $6,600 per month, including taxes and insurance. The market rents were $4,500 per month, which I couldn’t get because West Hollywood rent control would not allow me to raise the rent, even when a tenant moved out. I was locked in to $3,200 rent which meant I was loosing $3,400 per month or $40,800 per year. Since I needed to hold the property for 10 years, which was 2000 before getting a great price for the property or the build condos, I needed to have the ability to put $408,000 cash into the property. This was after paying $700,000 for the property in 1990. I didn’t have the staying power at the time.

Real estate investors usually do not just buy one property at a time. They tend to own many. I have owned up to 30 properties at one time. I know people who have owned and managed 100 houses or 100 units at one time. It is not being able to support the negative cash flow that can wipe out everything you worked years for. If you understand this, and do not get excited by big profits and greed, you will avoid these kind of deals.

In hindsight, if you think this was not a good risk, you would be correct. At the time it appeared that the condos would be built and sold within 18 months and my partners and I would be $1 million richer. Things are not always as they seem in real estate. Of course if you had a mortgage payment of $2,000 and rent of $2000 including taxes and insurance. You would never have this problem. Or would you?

I know it appears that rents would never go down, but in real estate recessions they do. We never believe that our loan payment will go up but they do also. If you have an adjustable rate loan, maybe with a 6 month teaser rate, you will find your payments going up $150.00 per month every year and it doesn’t take more than a few years before the yearly increase gets expense to support, especially while property values are flat or dropping.

When buying property to hold, these risks must be taken into consideration so that you are not surprised by them but are in fact fully prepared for these eventualities. When people buy at the top of the market they always tell me they are in for the long run. But in fact they usually sell out at the bottom, after being hit real hard by the negative cash flow.

On the other hand, people who buy in bad markets, get increasing rents, decreasing interest rates and appreciating property values guaranteeing the investor success. By the time the market peaks out this investor is making 100% profit on the appreciation, double the rent needed to pay the mortgage and the ability to support the property for another 10 years if the market drops and the investor has not sold. Risk free, at this point, unless the investor borrows all his equity out to buy two more deals.

The bargain buyer is in the exact same situation as the top of the market buyer, except he owns 3 houses, not one. I had four friends who, in the late 1970’s, did this exact thing. They each owned 10-30 properties. One of them owned only beachfront Malibu properties. The result was the same for all of them. By the bottom of the market in 1983, all of them had lost everything. Two of the four also got divorced in those 3 years because of the financial stress from a falling market.

Lessons to learn: First, do not think you are smarter than the people who passed this way before you; you’re not. Second, markets never go up forever, have not performed as if they will. Third, if you are not prepared for the worst, it will kill you. If you are prepared, it will only hurt a little. You will survive and come away much richer in the end.





About the Author: Willard Michlin is an Investor, Business Broker, California Real Estate Broker, Accountant, Financial Distress Consultant, Well known Public speaker and Administrative/Business Consultant. He can be contacted at his Ventura, California office by calling 805-529-9854 or by e-mail at broker@kismetbusinessbrokers.com See other article by Willard at http://www.kismetgroup.com

Tuesday, May 15, 2007

It's Time For A GAS War!

by Beryl Gosney, Real Estate Professional

It's time folks! Baby boomers will remember for sure --- the gas rationing and gas lines of the 70's? Remember wage and price controls of the 60's. Remember the California Tax Revolt --- long live Proposition 13!

Well citizens of America, it should be obvious by now, that our country's leadership, (Nancy, Hillary, Harry, George, Dick, or their appointed no-names, are not about to do anything to challenge the billion dollar bonuses to oil industry fat cats, nor lead a fight to curtail our use of that inefficient liquid gold we call petrol.....

It's time for citizens to unite and revolt. Take matters in their own hands, despite government irresponsibility. Citizens need to self police and discipline ourselves ---- we need a GAS Diet!

Today is May 15th and the GAS tank in both my gas guzzlers are less than 1/4 tank. And, as a real estate agent, I need to fill up before the next showing of homes. But loyal me, I'm trying to honor my commitment made earlier in the week.

I got an email that said there would be a nationwide boycott on gas purchased on May 15th so the gas giants would feel the pinch all of a sudden, as they watch their daily revenue come to an abrupt halt.

Stop The GAS Money Rip-Off!

I did my duty, despite running on fumes because I want this boycott to be recognized..... The sad truth is, it didn't even make the local, let alone the national news. That's how divided and out of touch we've become. We can't even assemble a simple one day initiative and stick to it.

If we unite and pursue this GAS thing, it will show the terrorist an American show of strength and we can prove we are in fact, a country of and by the people.

Are you with me on this....are you going to start writing letters to the editors and to members of congress about the gas rip off?

Or, are you just going to continue to dip into the wallet, fill your tank only half full in denial, so you don't have to ever pay $50 to fill your compact, or $70 to fill your mid size and lucky cars tank?

Stand up and be counter folks ---- your single letter can spread like a cancer if you share it with your friends and neighbors. I'm trying to do my part --- are you ready to do yours?

Citizens, we have the "power" to send prices back into the $1.50-$1.60's ---- but it is going to take a collective effort.

Are you up to the task? --- I am!

Tuesday, May 08, 2007

How to Improve Your Home’s Curb Appeal

(ARA) – Does your home have curb appeal? Better make sure the answer is “YES” before you put it on the market. According to the National Association of Realtors (NAR), it just may make the difference between selling your property quickly, or having it linger on the market for months.

Just a few short years ago, when mortgage rates were low and the economy was booming, homes were selling almost as quickly as they hit the market. NAR statistics show it is now taking an average of four weeks to sell a home.

If it’s taking longer than that in your case, there may be a good reason. Perhaps your asking price is too high, or there’s too much competition in the surrounding neighborhood. Both are problems you can easily deal with.

Ask your realtor to run a report on comparables to see if your price is indeed too high, and in the meantime, drive up to your home and pretend you’re a potential buyer. What is the first thing you notice?

If your attention is focused on cracks in the driveway, paint on the shutters that’s peeling and dead branches hanging from the trees, it won’t take long before you come to the realization that your home isn’t selling because it lacks curb appeal. So what can you do about it? Make a list of the projects you need to complete right away, then run out to the closest home improvement store and buy your supplies.

* The driveway

Often the first step a perspective buyer takes on your property is on the driveway, so make sure it makes the right impression. If your driveway is gray and weathered, or worse, cracked and crumbling, this may scare off buyers. The good news is that repairing and beautifying your driveway can be done quickly and easily, and wow, what a difference it makes.

Start by thoroughly cleaning the surface with a spray on driveway cleaner and letting it dry completely. Once the surface is clean, you can apply your sealer using an applicator that has a squeegee on one side and a brush on the other to spread and smooth the mixture.

There are a lot of asphalt sealers on the market, but do you and your eventual buyer a favor by investing in a product that beautifies and protects. Black Jack Drive-Maxx 700 is a better quality blacktop filler and sealer that contains sand particles to help fill in the small cracks in the surface and it is enhanced with latex which helps with durability. It is a gel based sealer that applies faster, easier and with less mess, what a combination!

It would also be a good idea to have a bottle of Black Jack Blacktop Crack Filler on hand in case cracks should form after the driveway has been resurfaced. You can find both the crack filler and blacktop sealer at Lowe’s and other home improvement stores nationwide. Log on to www.gardner-gibson.com for access to a store locator.

Paint

If the paint on the shutters is peeling away, but the rest of the house looks okay, take the shutters down and repaint them. You may want to repaint the front door to match as well. It would also be a good idea to pressure wash the house and sidewalks, particularly if there are water or dirt marks from the sprinklers.

Landscaping

As far as the landscaping goes, start by removing all the dead branches and leaves from your trees and shrubs, and making sure they have shape to them. Overgrown plants are a big turn off.

You should also be sure the lawn is well maintained. If you don’t have time to cut it every week, and remove the weeds, hire someone to do it for you. And if there’s no color in the yard right now, add some. Pansies, petunias, marigolds and daisies look great whether they’re planted in flower beds or in pots by the front door. Either way, be sure to cover the dirt with mulch, which holds moisture and prevents weed growth.

Other tricks you can try to improve your home’s curb appeal, get a new front door, wash the siding and front windows and replace the weathered mailbox and house numbers. In the grand scheme of things, these small investments will pay huge dividends. They’ll set your home apart from the competition!

Courtesy of ARAcontent