About Foreclosures

2009-11-27T17:33:00.000-08:00

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Foreclosure Crisis Not Close to Over

2009-09-24T01:09:00.001-07:00

There have been mixed reports about the housing market as of late. Home prices appear to have stabilized in California in the Major Metropolitan Areas of California (San Francisco, Los Angeles, San Diego). Home sales are also rose in Q3 2009 by approximately 10% thanks to the $8,000 tax credit for first time home buyers (whose deadline of November 30 was extended until the middle of next year).

However, a story reported by CNN Money discusses that 1 in 4 mortgages are currently underwater in the United States. This means that the homeowners owe more on the mortgage than the house is worth. Also foreclosures are up by 5% from Q2 2009 and up 23% from Q3 2008. This is significant because its shows that the housing market still has more correcting to do. The overvaluation of homes is now causing pressure on homeowners because they do not want to pay more for a house than it is worth.

Another big c0ntributing factor is the high unemployment rate in this country. Simply put, people out of a job don't purchase homes. That being said, predictions don't have employment returning to normal levels until 2012.

One more factor contributing to the worsening housing crisis is the unavailability of credit. Although the FED interest rate is near zero, banks are very reluctant to lend and are starting to issue much stiffer lending conditions which is making it harder for the average American to purchase a home.

All of these factors, overvaluation, unemployment, and tight credit are contributing to the downward pressure put on home prices. This should provide some excellent prices for real estate in 2010.

Outline of President Obama's Foreclosure Plan

2009-02-22T21:11:00.001-08:00

Below, is an outline of the key points of the Obama foreclosure plan; which takes a more proactive stance in preventing foreclosures than in previous presidential administrations.

The plan will aid 9 million people; at $75 billion;
Provides lenders a $1,000 incentive per loan to refinance with borrowers;
Provides borrower a $1,500 incentive to refinance their exisitings loans;
Will reduce payments for borrowers on loans by $1,000 per year for a five year
Relax restrictions on Fannie Mae and Freddie Mac to refinance existing mortgages
Modify existing mortgages to help home owners in danger of deliquency.

These measures should help to prevent some new foreclosures and provide some stability to the housing market. However, housing prices should continue to decline as new foreclosures continue to occur, more homes become deliquent (because Obama says that his plan is not designed to help everyone in trouble, some people are going to have lose their homes) and because it will take several months for these new programs to be enacted. There will still be plenty of opportunities for investment however, Obama has made it perfectly clear that his programs are not designed to help investors in the housing boom. To receive the aforementioned benefits, you would have to provide proof that you live in the home.

News and Notes

2008-06-02T19:56:00.000-07:00

I wanted to discuss a few of the interesting things I have heard in the news lately. According to the AP and Yahoo! News, construction fell again for the 26th straight month. That is absolutely astounding. The number of homes that are being build has been decreasing for the past 2 + years! This is interesting because this should have been an indicator to speculators, investors, and aspiring real estate owners that this cycle of rising home prices was coming to an end. In the future, anyone looking to get into real estate should look at these numbers as the signal as supply and demand issue that was left unchecked. What any investor has to realize is that the housing market is governed by the same rules of supply and demand that any other market is governed by in a capitalist economy. Therefore, simple indicators like decreasing production and increasing supply signal a slowdownh in the market. This is the same in manufacturing and the same in any other kind of market that is heard on the news.

Another interesting side note is a news report by National Public Radio on Thursday 5/28 which talked about a real estate agent who was down on his luck since the housing crash and couldn't afford the payments on his flat in Spain. His brilliant idea was to raffle the house off. For 5 euros, you could get a ticket that, if called, would make you the owner of this flat. For a $500,000 flat, he earned $650,000 in raffle tickets. Perhaps this is a new business model? I want to hear people's thoughts; let me know if you find this interesting.

Lenders Not Helping The Crisis

2008-05-28T23:03:00.000-07:00

CNN and sfgate.com reports that many lenders are having a hard time conducting short sales and helping those people facing foreclosure get out of their loan. For those who are unfamiliar with the term "short sale"; this is a situation in which the borrower wants to sell their house to get out of a loan they can't afford so they take an amount that is less than what is owed on the loan and asks the lender to forgive the rest.

What makes it difficult for these short sales to happen is the way the debt from these mortgages are structured. Most of the debt from these mortgages were converted to very sophisticated securties (mortgage backed securities) that investors trade on wall street. Banks and other lenders thought it was clever to convert these high risk mortgages to securities and pass the risk on to investors. Unfortunately, in the aftermath of the mortgage crisis, borrowers trying to get out of these mortgages are having a difficult time because their mortgage is owned by several investors as opposed to a central lender.

It seems in many instances that the lenders are very reluctant to do much to help the borrowers stave off foreclosure. I think it really behooves the lender to conduct short sales quickly and to sell the surplus property they have on hand (REO's). The lose more money if they let a home go through foreclosure and then it just sits there not making money. Be aggressive when dealing with these lenders because they need to get this inventory off of their hands in order to bring in money. Often times, if you are willing to wait, you may be save a lot of money on short sales and REO's.

Has anyone out there participated in a short sale with a lender and had to wait a long time to find out if your offer was accepted? have you had trouble with lenders when trying to complete a deal on a short sale? Share your thoughts!

Who's To Blame?

2008-03-07T08:30:00.000-08:00

Recent reports show that foreclosures have hit an all time high in the US. According to the mortgage brokers association and CNN, nearly one million people face foreclosure on their properties and many more are falling behind on their payments. Many are seeing their homes worth more than the mortgages they pay for them and are just walking away. The increase in foreclosures will only exasperate the problem adn lead to increased foreclosures. This is good for speculators and investors but is really hitting the economy hard.

Now congress is looking for a scapegoat. Who else than the CEO's of these mortgage companies and financial institutions who make eight (or nine) figures while everyone else is losing their homes. Sure, their lending practices did cost a lot of people their homes and their credit, but Congress is diverting your attention from the real truth that lawmakers should have done something to regulate the industry. It went unchecked for to long, too many lenders were lending to borrowers with poor credit or sketchy employment history.

In other news, the country faces for the first time in its history a situation where the debt to equity ratio is less than 50%. Americans owe more on their homes then they are worth. How did this happen? Again, obtaining credit against your house was easy for a lot of americans and now after doing so are paying the consequences. It doesn't look good for the housing market right now.

Presidential Candidates Stance on the Foreclosure Crisis

2008-02-23T14:14:00.000-08:00

The presidential primary campaign is in full swing and up next are the Ohio primaries. Many of the voters there are deeply concerned about the foreclosure crisis and knowing the plans of the future presidents may impact your investment strategy for years to come. Knowing their stances and how they intend to deal with the mortgage crisis can have a significant impact on real estate investing for the future.

The candidates that are left which have a viable chance for the presidency at this point in the race are Hilary Clinton, John McCain, and Barack Obama. Below is an analysis of each of their plans:

Obama: His plan includes the formation of a 10 billion dollar fund to help people who are in danger of losing their home due to the subprime crisis. He also wants to educate people and encourage more disclosure from Lenders. Many people got into these loans without realizing the consequences of the Adjustable Rate Mortgages and then ended up losing their home. What does this mean for investors? In the shorterm, borrowers may be able to use the money in the fund to forestall the foreclosure process but in actuality, it is like putting a piece of tape on a dam that is about to rupture. 10 billion dollars cannot do enough to fend off the next wave of foreclosures. In the longterm, this may be a good way to educate people and thereby reduce the number of foreclosures but in the short term, it will only temporarily stop the spread of foreclosures.

Clinton: She wants place a 90 day moratorium on foreclosures and a five year interest rate freeze. She also wants to have state governments able to refinance homes for people facing foreclosure. This again will only prolong the foreclosure process and the interest rate freeze for home loans now may mean higher interest rates for future home loans which in turn will lower housing sales. The housing market in the long term may be slower than in previous years which may dampen the outlook for bargain investors.

McCain: McCain wants to stay with the current strategy explicated here: http://www.whitehouse.gov/news/releases/2007/08/20070831-4.html

Essentially, this strategy aims at creating legislation geared toward helping those who are facing foreclosure and easing the tax implications for those people who are selling their house for less than market value. This strategy simply does not do enough to help poeple who are in danger of losing their home. Investors should be able to still find deals even if these strategies are effectively implemented.

The bottom line is these strategies are "too little, too late" they all try to help but they either don't do enough in the long term, have side effects for the long term, or just simply don't do anything. The bottom line is that investors should not be concerned with the plans of action of these candidates, good deals will still abound.

Buying "Subject To"

2008-02-03T09:20:00.000-08:00

I am reading a book entitled, "Making Big Money Investing in Foreclosures" by Peter Conti & David Finkel. I am trying to read more about this subject but every book I read, it seems like they are trying to sell me something. I was especially skeptical when the first chapter of the book reads: You Can Earn Up To An Extra $100,000 This Year In Foreclosures. I have heard that it is a good rule of thumb to be wary of claims or promises with a dollar amount attached.

This one chapter however, talks about a situation in which you can buy foreclosures with virtually no money down (which is particularly interesting to me). It is called buying subject to existing financing and he has a narrative that goes something like this:

-A seller wants to just "walk away" from a house
-You, buyer, know this and want to help
-You offer to buy this home subject to existing financing; seller deeds you the property for a small token payment.
-The seller is no longer burdened by the loan and you walk away with their house.
You make up the back payments and the house is yours.

That sounds fantastic! Essentially you are buying a home for a small token payment but lets take a look beneath the surface.

First, you must know that someone is willing to just walk away from the property. This isnt' completely ridiculous, many people as of recently are just walking away from their homes because the mortgage is worth more than the house is. Under this set of circumstances, buying "subject to" would be a horrible mistake because then you would be subject to a mortgage that is under water, worth more than the house is. That would be a costly mistake.

Secondly, If you are contacting people by mail regarding their foreclosure, they may think that you might be interested in purchasing the home, which is far more advantageous than signing the deed over to somoeone else for nothing. There is no way that I would tell a random investor that I would be willing to walk away from my property. That would be showing my hand way to early and would be a disadvantage to me.

Thirdly, most loans have a "due on sale clause". This is a clause that says the lender can call the loan due within thirty days if the home was sold without paying off the loan. The book claims that this is a device used to prevent people from paying down a loan with a lower than market value interest rate, and is a bargaining chip for the bank, forcing you to refinance.

Although this strategy is very appealing, you have to understand that buying a home this way is "subject to" a few conditions. You must know someone or get someone to tell you that they are walking away from the home. You must have someone willing to sign the home over to you and let you keep the loan in your name. You had better hope the bank doesn't call the loan due or they are willing to refinance. And finally, the home must have a fair amount of equity and the principle paid down for a refinance to work out for you.

Be careful of books that that promise wealth. Always consult a broker, attorney, or accountant with help with structuring financing for you home.

Reals Estate News and What This Means for Home Investors

2008-01-23T23:06:00.000-08:00

The housing market looks very grim for the average home owner. According to MSNBC, the median home price in California has dropped 15% from this point last year. A fifteen percent drop in one year on any investment is a very poor year, but in a market that is historically more stable, this is an enormous drop.

As a result, many homeowners are paying down mortgages that are worth more than the house is currently worth. This leads to a vicious cycle of borrowers walking away from their homes becuase they simply aren't worth what they are paying.

MSNBC also reports that new home building has dropped approximately 25% percent from this time last year. Homes and real estate are a market, which are drivien by supply and demand. When demand goes down, the supply rises. The huge wave of foreclosures have also increased the glut of homes that are on the market. Builders simply can't move the homes fast enough to justify building more.

This last week, in response to all the bad news in the media, the FED reduced interest rates by 3/4 of a percentage point. That is the single largest drop in the interest rate since the mid 80's.

What does this all mean for the home investor. It is definitely a buyers market. The foreclosures combined with the surplus supply are driving prices down. The low interest rates make money extremely cheap, it is inexpensive to borrow, and makes it ideal for people to buy. The monetary policy that is being conducted really is trying to encourage people to borrow and buy homes.

However, you must be careful when considering whether to invest now, because the market may not be finished bottoming out yet. According to inman news, refinancings are up 16.9 percent from this time last year. This is an indicator that the next waves of Adjustable Rate Mortgages are maturing which may mean more foreclosures and an increase in the number of homes on the market.

The news is full of indicators that can help you determine what the status of the market is and can provide many statistics which can help you approximate when the best time to invest is.

Investment Strategies

2008-01-15T13:36:00.000-08:00

There are many different strategies one could use when investing in foreclosed property. I want to discuss the possbile pros and cons to the various strategies that are out there.

Speculation: This is used to describe investors that purchase homes they believe will go up in value in the near future just by the location of the home and the current market activity.

Pros - This strategy has the potential for huge gains. A few thousand dollars can be worth a hundred times that if you make the right decision as to the location of the property. It also typically doesn't cost as much to get started as investing in an area that is already established.

Cons - Speculation is based very much on luck. This not a good strategy because there are many risk factors to consider. You also stand to lose everything if you bet on the wrong property. A wrong guess could ruin you with this strategy.

Flipping: This term is used to describe a situation in which you purchase a property at a bargain with some very noticeable cosmetic/other issue. You fix the problem, theoretically raising the value of the home, and selling it at a price that covers the cost of the remodel in order to make a profit. All of this is typically done within a 90 day period.

Pros: Quick - This process doesn't take very long to accomplish. You pick a house with an issue that can be remedied in a month, lets say a landscaping project; fix it, and sell it for a profit. It is a very easy way to make money quickly.

Cons: It takes a lot of money to start, not only purchase the home, but also it requires money to fix the problem and make it presentable. Also, this technique supposes that the market in which you are trying to sell real estate is a hot one. Last summer, house flippers made tons of money because the market was white hot and everyone was purchasing a home. During a downturn, it may take you much longer to sell the home, which may hurt you, depending on how much money you have invested.

Renting/Leasing Acquired Property: This is definitely an option when you purchase a foreclosed home. You may be able to fix up the repairs and rent the property out.

Pros: This is a solid investment strategy. The focus is on long - term gains. You continually receive a check every month, plus the longer you hold the property, the longer it appreciates, which makes it worth more. You can then borrow against the equity, purchase another home, and use the rent to pay off the loan against the house.

Cons: This is a long term strategy; you will not make millions overnight with this strategy. It also takes a lot of hardwork and dedication to make the business plan work. You are going to be a landlord, which many investors don't like (you could hire a property management company). Ultimately if you want money quickly and easily, this is not the strategy for you.

This is a brief overview of investing strategies with real estate. I will be reading many of the books that are put out discussing the "secrets of real estate strategy" and I will be posting my notes on this blog.

Sources of Information

2007-12-29T00:50:00.000-08:00

One of the most frustrating things about real estate investing is the limited access to information. Most websites that offer comprehensive coverage of real estate investing or bargains are pay -to-use sites that cost 50 dollars a month. Most of the websites that offer free information are for a one week trial and then if you don’t remember to cancel it is fifty dollars a month as well. I have done my best to compile a list of sources that offer some really interesting material regarding real estate investing, foreclosures, etc. I will use this information to compile a list of foreclosures in my area and perhaps you can do the same for other investors in your area.

The County Clerk’s Office – This has to be at the top of the list of sources to find foreclosed homes. All notice of defaults are filed within the respective county and are public knowledge. This is the first and most reliable source of information. Essentially, this is where websites like Realtytrac and others compile their information. The drawback to this source is that copies of these notices are oftentimes quite expensive (i.e. 13 dollars to order it from the Santa Clara County Clerk) and these records aren’t available online; you have to go and copy these by hand.

RealtyTrac – Another very reliable source of information; a database containing information on foreclosures from all across the country. Drawbacks include the $50 per month fee they charge to access information available for free.

Legal Newspapers – Another great source, they commonly have many types of documentation of filed with the local municipality in their classified section (i.e. Notice of Default). The drawback once again is subscriptions are quite pricy and finding a local legal newspaper can be quite arduous. They tend not to advertise and some don’t have websites.

County Law Library – This has perhaps the best combination of accessibility and price of any source. The law library tends to be open during after work hours and has subscriptions to legal newspapers which have classifieds. You can make copies of these for fifty cents and be on your way.

Real Estate Investor Clubs – I had no idea these existed until I read a book about foreclosures a few months ago. There are literally dozens of real estate investors clubs in California and hundreds nationwide. Here is a website that has compiled a list of them along with location, time, and organization contact. http://www.reiclub.com/real-estate-clubs.php . This may be a good way to meet like-minded people and learn something about real estate investing.

Government Websites – Not to sound like Mathew Lesko (the guy with the question mark suit) but there are many ways in which to get information from the government websites. HUD has a website that takes you to auctions they have by state for real estate properties. The website is http://www.hud.gov/homes/index.cfm .What is interesting is if you click a state, then location, it will take you to another company the government uses to outsource its home auctions/sales. These are potentially more resources for you to find foreclosed homes! Also try http://www.govsales.gov/html/index.htm . They sell all kinds of real estate, foreign and domestic.

Reputable Websites – There are many news sources that are extremely reliable and teach you many fundamentals of real estate investment. Yahoo! Finance has a section on real estate and they frequently conduct stories about the housing market (finance.yahoo.com). The Wall Street Journal has a separate journal online that has articles. It is The Real Estate Journal. www.realestatejournal.com . CNN and BBC always have informative articles relating to the housing market and the FED’s affect on the housing market.

I hope these different sources of information inspire you to do research on your next investment.

REITs

2007-12-21T23:29:00.000-08:00

One interesting way of investing in real estate is through investment vehicles called REITs. These are Real Estate Investment Trusts and these are companies that specifically invest and run profit providing real estate. Many are listed on the New York Stock Exchange and can be purchased as one would stock in a company.

This is interesting because many discussions about investing in real estate involve real property. You find the property, you conduct your due diligence, and you begin by contacting the present owner. This method of investing in real estate does not involve real property directly; however, there are many benefits.

The first benefit is that you do not need the massive initial sum of money to begin investing. Many properties require a large down payment, or in the case of foreclosures, requires the entire purchase price of the home up front. With REIT's, all you need is enough money to purchase one share of the REIT and you have invested in real estate.

The second benefit is twofold; REIT's keep your money more liquid and is much less complex than purchasing real property. Purchasing shares of a REIT are as easy as setting up an etrade account, transfering money in, and buying a share of the company. As you may already know, purchasing real estate is no where close to that simple and it is even more difficult to draw money out. It takes much more time and effort to get cash out of your real property than if you were to purchase a share in a REIT.

Finally, conducting due diligence is much easier with REITs than with foreclosed homes. You can go to finance.yahoo.com and find an index listing every REIT available to the public.

I hope that you found this information useful. More information may be found at finance.yahoo.com or with your stock broker. Please do your due diligence and perhaps you can take advantage of the many perks of owning REIT's.

Sheriff's Sales

2007-12-17T08:20:00.000-08:00

I want to talk about sheriff's sales. Sheriff's sales are yet another way to purchase property at a huge discount. The rules for such sales differ by county so check with your local sheriff's department in order to find out if they do sales and where they have postings. Below are the rules for the Santa Clara County Sheriff's department in California. They have postings for all sorts of things they have seized and are auctioning off, including homes/property. The listings are right below the rules.

1. If you are the highest bidder, you must be prepared to pay in cash, certified check, or cashiers check. Personal Checks, company checks, travelers checks or money orders are not acceptable.

2. If you pay by certified check or cashiers check then make check payable to Santa Clara County Sheriff’s Department. You may not endorse a check payable to you, or anyone else, over to the Sheriff’s Department

3. The highest bidder must be prepared to pay the full amount of his/her bid when:
a. The bid amount on real property is $5,000 or less or
b. The bid amount on personal property is $2,500 or less

4. If the highest bid for an interest in real property sold exceeds $5,000, highest bidder may elect to pay in full or deposit at least $5,000 or 10% of the bid, whichever is greater; within 10 days of after the date of sale, pay the balance due plus interest on the balance and costs acciruing with regard to the property sold.

5. If the highest bid for an item, group, or lot of personal property sold exceeds $5,000, the highest bidder may elect to pay in full or deposit at least $5,000 or 10% of the bid, whichever is greater; within 10 days after the date of sale, pay the balance due plus interest on the balance and costs accruing with regard to the property sold.

6. The Judgement Creditor may bid against all or part of the judgment, except that unpaid levying costs, preferred labor claims exempt proceeds, and any other claim required to be satisfied, shall be paid in cash or certified check or cashiers check. (CCP 701.590)

7. Prospective bidders should refer to CCP 701.600c regarding the liability of defaulting bidders an persona may bid on and purchase property at a Sheriff’s sale except employees of the Santa Clara County Sheriff’s Department and their immediate families.

8. During the bidding, you may be asked to qualify yourself as a bidder. You will be asked how you intend to pay for the property and to show some evidence of your ability to pay. This is done for the benefit of the other bidders, your cooperation will be appreciated.
If you are the highest bidder, you must be prepared to do business immediately.

What is interesting is the rules give you a clue as to where to search for more information. Rule 6 mentions the civil code of procedure for CA. This may have additional information regarding foreclosures and property seizures. It will be helpful to become familiar with some of the laws regarding property foreclosure/seizure for California and elsewhere. A good (and free) resource for searching CA codes and laws is www.leginfo.ca.gov . This is a great resource for researching foreclosed properties.

Good Luck!

Purchasing Homes in Pre-Foreclosure.

2007-12-16T10:15:00.000-08:00

The foreclosure process begins with the notice of default that is logged with the county clerk. From that time until the auction, there is a three month period in which you may purchase the home. Many investors will search these properties from the notice of default, through to the end of the auction. Once that notice of default is logged, it is time to develop a strategy for how to contact the homeowner for a possible sale.

The first is to do your research. Make sure the home has no additional liens. This is important because you do not want to be responsible for someone else's loans against the property or unpaid taxes, etc. Determine the condition of the home. You may have a local real estate agent go around and take pictures of the property and perhaps do some of the research on the home for you.

Next, you want to contact the person who currently owns the home. Many investors will write a form letter and they will do blanket mailings to all of the homes they deem as potential investments. As I have heard and read, this method has a low rate of return phone calls, but it is worth a shot if just one person calls you to discuss a deal. You may want to get a professional broker or attorney to discuss the deal if the owner feels compelled to sell just to make sure that everything is legal.

Next, secure financing. This is perhaps the most difficult hurdle for most people when they get started in real estate investing. There are a couple of methods to help get started. You may want to start a partnership with someone. Perhaps in exchange for capital, you will do all of the legwork: finding the home, taking pictures, securing a broker, and due diligence. Before you propose this to someone, remember to do your homework. Have a list of homes you see as a potential investment and show them to the other person. Make sure you come off as confident, knowledgeable, and willing to work.

Another strategy would be to contact lenders. There are many lenders out there to contact to see if you can get preapproved for a home loan and proceed from there. Be honest and open with the lender and discuss your options. If they can't help, perhaps ask if they know a company that would finance your operation.

If getting preapproved doesnt' help, you may consider taking out a personal loan from your bank to finance your purchase. Many banks have limits for personal loans but start small; purchase a condo to start out.

Finally. you may want to consider taking a home equity line of credit out if you currently own your home. This would be a quick and cheap way of financing your first foreclosure.

Yahoo! has a great article on this subject, you may read it at: http://realestate.yahoo.com/Foreclosures/43206dfc796aef431100cc5d219c92dc

REO's

2007-12-13T17:44:00.000-08:00

Tonight's Article is on REO's. As mentioned in the previous post, a REO is a Real Estate Owned property. A person has purchased this home, defaulted, and has been put up for auction. If no one bids at auction, the house goes back to the lender and is put up for sale.

Banks do not want these properties. They are not making money for the lending institution because there isn't a person paying interest on a mortgage for the property. Therefore, the banks oftentimes will put these homes out on the market and sell them for less then the market price.

You may contact a lender and ask for a list of properties in your area but this can be an arduous task. Many times you will be transfered to and from different departments and may spend a lot of time on hold.

I have done a lot of searching for these properties and you may find them by going to many of the largest lender's websites' and typing in REO. Many companies such as Citibank, Countrywide Financial, and Wells Fargo have extensive listings on their website.

Below are a list of websites where you may find REO listings:

http://www.countrywide.com/purchase/f_reo.asp

http://www.citimortgage.com/Mortgage/Oreo/SearchListing.do

http://www.pasreo.com/reo/

http://bankofamerica.reo.com/search/

One good option to finding these websites and their contact information is to google a lending institution (the ones that lost their shirts in the credit crunch are a better bet becuase they typically have more inventory) and type in the name of the bank and "REO" (i.e. bank of americal reo). This will give you the website that has the listings.

Happy Hunting!

News and the Foreclosure process

2007-12-12T21:39:00.000-08:00

The BBC News reported today that in response to the credit crunch felt by many of the largest commercial banks, the FED, Bank of England, European Central Bank, and the central banks of Canada and Switzerland are teaming up to auction loans off to many of the commercial banks that have been hit hardest by the mortgage crisis.

Because so many of these commercial banks lost billions of dollars, banks are skittish about lending money, especially between other financial institutions. This is dangerous for the economy because banks lending to each other is one of the primary ways that money circulates in capitalist economies.

Tonight, I wanted to discuss the overall foreclosure process in California. The foreclosure process is pretty similar overall but please consult your states statutes regarding home foreclosure. The process starts with borrowers who are late on their payments to the lender. Technically speaking, they have breached their contract with the lender. The lender may file what is called a "notice of default" with the county clerk. This notice shall have the address of the property, the amount that is owed (usually the price at which the bidding starts), the person who owns the property, and the time and date of the auction.

This notice of default period lasts 3 months. In theory, this provides adequate time for the borrower to contact the lender in order to restructure the mortgage, refinance, or sell the property in order to avoid foreclosure (it looks really bad on your credit report if you foreclose!),

After this three month period, the home goes up for auction at the county courthouse or the county sheriff's office at a time and date determined by them.

This process allows many investors to purchase homes at several points. With the information that you can obtain from the clerk's office, you may contact the borrower and perhaps strike a deal with him to purchase the property. This is a great idea because many times the borrower is to afraid or embarrased to call the lender. You are also doing the borrower a favor by providing the opportunity to avoid foreclosure.

You may purchase the home at the auction. This is another opportunity to pick up a house for a discount. However, there are catches. The main catch is that you must have the money in full up front. The county reserves the right to check to see if you can pay for the property. Also, make sure you do your due diligence (research). If someone allows the process to reach the auction, there is a good chance there may be other liens on the property. In addition, there is a good chance they have not maintained the property.

Finally, if a home does not get bid on, the lender takes control of the property. These are called REO's. These are real estate owned property's and many large commercial banks have inventories of houses and other real estate that they are looking to get rid of. (they make no money with these houses because no one is paying a mortgage on them.) Often times, these homes are priced below market value.

I hope to go into each of these parts in greater detail in successive posts. I will also post notice of default information from the County Clerk-Recorder's office from Santa Clara County on this post. I will also attend an auction and report back for all those interested.

Thanks for reading all!

I am not an attorney and nothing I have said here constitutes any kind of legal advice. Please consult an attorney or real estate agent/broker before making deals.

First Blog

2007-12-10T22:51:00.000-08:00

The housing market is in bad shape. The largest mortgage lenders, such as Countrywide Financial, Citigroup, HSBC, and Washington Mutual have written off assets in the multibillion dollar range and are even beginning to lay off workers (http://news.bbc.co.uk/2/hi/business/7137708.stm). The crisis has not only extended across even the most prosperous states in the union, it has also affected international companies, such as the Swiss investment bank UBS.

Individual owners are feeling the backlash as well. The Associated Press just reported late last week that home foreclosures are at record highs across the country (http://biz.yahoo.com/ap/071206/home_foreclosures.html). The BBC news service, and CNN(http://money.cnn.com/2007/12/07/real_estate/foreclosure_hotline/index.htm?postversion=2007120719) are reporting similar stories that foreclosure rates all over the country are rising at an alarming rate. This has had a ripple effect throughout the economy and has not only forced President Bush to declare a moratorium on mortgage rates for ARM's (this freezes the interest rate so it keeps the monthly mortgage payments under control) but has also pushed the United States closer to a recession.

My interest in the housing market began during the boom of 2006 when it seemed like everyone was making money in the real estate market. Anyone could go buy a home, watch the value rise in literally a matter of months, and sell for a profit. Unfortunately for me, I wasn't able to cash in on the boom but my interest has led me to learn a great deal about the housing market, the foreclosure process, and various methods to search alternative home listings.

I hope that my interest may help provide some useful information for those who share the same interest, are looking to buy a home, or are just curious about the process. I hope you enjoy what I have to say on the subject, and find the information useful

Thanks All!