DEAN GRAZIOSI: DEAN GRAZIOSI REVIEW – REAL ESTATE FEED BY DEAN GRAZIOSI

RealtyTrac indicates that real estate agents should expect short sales to account for 50 percent of their sales through 2012.  Projections are for 3 million foreclosure filings by December 31^st 2010 and another one million REO’s by the end of the year.  These are staggering numbers by anyone’s count. 

If you listen to successful investors, you will hear a consistent theme.  That idea is to lead the field, not follow it.  Investors who make the greatest returns often buy into seemingly bad markets and turn big profits as the markets recover.  You may want to observe how Warren Buffett invested during the shock waves of 2008.

As RealtyTrac suggests, the down market is here until unemployment improves and buyers gain confidence in the stability of real estate investments.  Those days will come and that is the time that real estate investors want to be going against the grain again.  Real estate investors always need to be reminded to buy low and sell high.  Buy in down markets and sell in up markets.  That’s the simple formula.  There s no emotion, no getting attached; simply buy low and sell high.

The formula is obvious but it still takes courage and planning to yield the big profits that make the risk worthwhile.  If the investor is entering the short sale market, a team of experts is needed.  That team should consist of an attorney, an accountant, a real estate agent who really knows the ins and outs of short sales and a general contractor. 

The coordination of these working parts can assure that you are buying low and responsibly.  The agent brings you potential properties, the contractor estimates needed repairs, the accountant crunches numbers, the attorney approves the contract and may assist in some negotiations and you are involved in every aspect of each expert’s work.

In addition to bringing you potential properties, the agent should also be scouring the market for qualified tenants.  After the house is repaired, you will want income to defer the expenses.  Lining up potential clients and qualifying them ahead of time is one of your biggest responsibilities. Imagine how comfortable you will feel with a property purchased low, an attractive mortgage and a ready willing and able tenant.  Remember that when the market turns up, you turnover the keys in a profitable sale. 

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Thirty-four states allow Homeowners Associations the right of judicial foreclosure.  In the past, this type foreclosure was almost non-existent.  Times are changing.  Foreclosure by a Homeowners Association is becoming more and more commonplace.  In fact, in states like Florida, you might say the practice is booming.

Under the terms of this type foreclosure, the homeowner has a defined amount of time after the Homeowners Association has taken title to redeem the property.  This is called the redemption period.  In each of the thirty-four states, that time period is different.

In Texas, the redemption period is 180 days.  In Florida, the homeowner has just 10 days to redeem his home.  After that, the Homeowners Association owns the home. 

Of course, where there are late homeowner fees, there are usually mortgage delinquencies.  In many cases, the bank may already be pursuing foreclosure.  This is why the redemption period has become such an important part of the process. 

Banks take notoriously long to finalize foreclosures.  If the Homeowners Association (HOA) forecloses and the redemption period expires, the HOA has a valid lien when the mortgage holder finally acts.  In many cases, this is the only way the HOA will ever collect their fees.

While it may seem harsh that the HOA resorts to foreclosure, the board of the HOA has a responsibility to protect their members.  The lawns still must be mowed, the snow must be removed and the services provided by the HOA may affect the value of every other home in the development.

Today, lenders want to know the financial strength of HOA’s.  It is more difficult to obtain a mortgage in a weakly managed HOA compared to obtaining a mortgage in an association with a history of good maintenance and strong accounting practices. 

The Boards of Directors of Homeowners Associations have a duty to the residents who do comply to collect late dues and fees.  Another part of that duty is to follow all legal options available to manage the association by its bylaws.  If you are purchasing a property in a HOA, it is good business to include a contingency relative to the status of homeowner dues and obligations in your purchase offer.   

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In case you missed it, we are in the midst of a protracted short sale buyer’s market.  The end is not in sight and from the lender’s side; the situation could get worse long before it gets better. 

Investor’s quickly realize that each short sale is different. Lenders have different policies for short sales.  While there are now government initiatives to aid both the seller and the lender, some lenders have a difficult time accepting short sales.  Like it or not, the value of residential real estate has declined significantly in the past two years.

Lenders can point at appraisers or even their own credit departments, but in 2007 very few Americans foresaw the fact that 14.6 million people would be out of work by 2010.  Lenders also have difficulty admitting that their lax credit policies including low doc loans and zero down payments have put them in this position.

Well, it has happened and 33 percent of all transactions involve distressed housing.  In fact the investor’s short sale offer may seem like a slap in the face to the lender but that offer may be the best price they will see.  Basically, the short sale offer is the bird-in-hand theory and it should be presented as such.

By accepting the bird-in-hand short sale offer, the lender avoids taking title and being responsible for maintenance, homeowner association dues and taxes.

However, to present the bird-in-hand rescue plan, the investor must do his part.  Make sure you have all the cash you will need to cover the down payment, various inspectors, closing costs and escrow in addition to the funds needed to restore the property.  Do not expect the existing lender to help with this transaction.  They simply want out.

Before the investor starts looking, make sure a pre-approval letter for financing is in place and that it has at least a six-month commitment.  Armed with that letter and all the cash you will need you are ready to go out and invest in a short sale.  The seller and the lender will not share your enthusiasm, but remember, you are their bird-in-hand and if they do not like it, there are other lenders and sellers who will.    

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