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Making Money Out Of Fore Closure

Jul 2nd 2010 at 10:50 AM

The number of home loans fore closed  each year has steadily increased over the past 30 years. According to the U.S. Census Bureau, the number of homes in foreclosure in 1980 was 114,000. The number of homes in foreclosure in the last quarter of 2009 was 937,840 properties. One in every 136 U.S. housing units received a foreclosure filing during the quarter — the highest quarterly foreclosure rate as stated by RealtyTrac  the leading market place  for fore closure properties .

Financial experts list six main factors that have contributed to the skyrocketing number of nationwide foreclosures:

1. Over extended first-time homebuyers: State and federal government agencies worked aggressively to make lenders ease up on their credit qualifications, which helped a record number of first-time homebuyers acquire homes. Or rather…mortgages. However, most of these first-time homeowners did not have the cash reserves that are necessary when owning a home. When an unexpected bill came along – whether it was a home repair bill, a car repair bill, or medical expenses, their money went to pay that rather than their mortgage. Once one payment is missed, it is usually impossible to catch up. Such homes typically end up in foreclosure.

2. Local economic downturns: Just as businesses go through cycles of growth and contraction, so do towns, cities and states. Local economies are experiencing an economic downturn due to foreign competition, not to mention the practice of outsourcing jobs to countries like Mexico and India. Thousands of people lose their jobs due to such practices,and thus through no fault of their own, are unable to pay their mortgages on time.

3. Predatory lending practices: There are two types of people, in the financial world. People with good credit, and people with bad credit. People with good credit are generally rewarded by having low interest rates. People with bad credit, because they have proved themselves to be untrustworthy when it comes to handling money, are typically rewarded by having to pay higher interest rates. ( Catch-22). Because they have bad credit, they are forced to pay higher interest, but  because they have to pay higher interest, they find it harder to make their payments. The term “predatory lender” has been coined to describe lenders who “prey” on borrowers who are unable to get conventional loans, by offering them what are called “subprime loans.” These loans typically have onerous repayment terms — very high late payment fees and very high interest rates. People who receive subprime loans are typically the first to go under during a economic crisis.

4. Lax practices by government-backed loan programs: Loans guaranteed by such government backed programs as the Federal Housing Administration (FHA) and the Department of Veterans Affairs (DVA) had less stringent qualification standards than conventional loans (even when conventional loan standards were lowered due to government intervention). These underwriting standards resulted in lenders making loans to borrowers who had poor credit, poor histories, and debt-to-income ratios that made it probably that they  would not be able to repay their loans . And indeed, this proved to be the case.

5. Loans with high loan-to-value ratios: Up until very recently, individuals who wanted to purchase a house had to make a substantial down payment. As a result, they had a vested interest in keeping their payments current. Within the last few years, a new policy was instituted by lenders (at the behest of the government) to help those who couldn’t afford such a down payment – by allowing them to pay very little or even nothing at all. Having no money of their own actually invested in the home, they found it very easy to simply walk away as soon as they started having problems making their monthly payments.

6. Artificially low interest rates: Recent interest rates on loans were the lowest in forty years. This allowed borrowers to buy larger and more expensive homes than they normally would have done. The problem with these large loans is that they are typically based on two incomes. When one of the borrowers loses his or her source of income, the mortgage payment suddenly becomes too difficult to make. If that second source of income cannot be replaced, and if the borrowers cannot sell the home, foreclosure usually ensues.

The United States is in a time of economic crisis. The economy is soft, and a variety of poor lending policies (whether on the part of lenders or on the part of prospective home owners) have caused overextended homeowners to default on their mortgage and deed-of trust-loans in record numbers.

Now more than ever, it is time for Joe and Jane Q. Public to start living within their means. But it’s going to be several years before that happens – and indeed will probably require behavioral  change via  legislation. In the meantime, they are becoming motivated sellers, and you can help them, and yourself, at the same time.

Buying Homes from Owners who are in Foreclosure is Not Unethical , these people  are having financial difficulties .If they are in pre- foreclosure they need to sell their homes, to recoup their losses, and start again. Losing one home to foreclosure does not mean that they will be unable to get back on their feet and acquire a new home. Pre-foreclosure property investors actually help these individuals get as much money as possible for their home, which will allow them to get back on their feet all the quicker.

A handfull of people without any special skills are working 3 days a week and making ridiculous amounts of money, some as much as an extra $90.000 a year . (Full Details Here)

Do You Have the Necessary People Skills?
The Needed Skill Set In order to be successful at you investing, you are going to need many skills – not the least of which are people skills. You will have to negotiate with home-owners who will very likely be distraught,  you will have to negotiate with lenders who will want to get as much money as possible for their property, and you will have to negotiate with a buyer who will pay you what you want for that property.

You Can’t Rely On Others – Acquire Your Own Specialized Knowledge
There are many self-proclaimed experts in every profession. Listening to them may sometimes help you, but more often than not can harm you. Just as a friend’s “hot stock tip” seldom pans out.

You need to do your own research, and make your own decisions from your own knowledge.Talk to real estate, title and escrow agents by all means – soak up what they tell you and check it — make sure that what they tell you is correct!

Cutting Out The Middle Man When you buy properties directly from individuals whose mortgages or deed-of trust-loans are in default and facing foreclosure, you bear the responsibility for all the communication.

It is you– not a real-estate agent – who negotiates with the original owner, with the lenders, and with the buyers – who are buying through you rather than through a real estate agent. Because these buyers are dealing with you personally rather than with a real-estate agent, they may or may not be familiar with the process, or able to gain the financing they need to buy the home.

When purchasing a pre-foreclosure property, time is of the essence. You need to conduct your research into your potential home purchase (and research into who might be available to purchase it) and ensure that there are no structural problems with the property, and purchase it before it goes up for auction. Sometimes this purchase can be within a
day or two of the actual foreclosure!

As well as knowledge, persistence is imperative. As with any business, it
may take a while for you to find your footing. You may approach several people about selling their property before you finally achieve your first sale. The first sale is always the hardest, after that it typicallybecomes easier.If you’re going to make $90,000 a year, you need to be extremely organized and business-like.

Recommended Resources

The 130+ page Preforeclosure Profit Funnel manual is rock solid

RealtyTrac, the nation’s leading online foreclosure marketplace and the most trusted source of foreclosure information:

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