Foreclosures: Win-Win Situations for Investors and Home Owners

The real estate market is ripe for people who are interested in smart real estate investments.  Why now?  Because of the increased number of foreclosures.  From my experience and observation, the reason we are seeing so many foreclosures is directly related to the mis-use/ mis-understanding of 100% and 100%+ financing and home equity lines of credit, aka, HELOCs, second mortgages.

Consumers have been taking out all the equity in their home, which is fine if the equity is placed in an income producing product and is accessible if they need to get to it (note:  See book list to the left - Missed Fortune 101, Doug Andrew).  Why would they need to get to it?  In the event of getting layed-off, relocated, divorce, injury, etc., and they need access to the cash either to sustain themselves until they get back on their feet, or if they need to sell the home.

What is happening is homeowners are taking out the equity, paying off credit cards, buying Harley's, and going on vacation, then "life" occurs, and they have to sell the home.  Problem:  They owe more than the current market value of the home + the cost of selling the home = they have to attempt to sell the home on their own and more often than not, they end up having to foreclose with their mortgage company(ies).

There are a couple of win-win situations that can occur to the benefit of the home owner, the investor and the mortgage holder.

1.  Negotiate a "Short-Sale" - the home owner or their representative can negotiate with the note holder a dollar figure that is less than the amount owed on the home.  This keeps the mortgage company out of the real estate business (which they do not want to be in), keeps the home owner out of having a foreclosure on their credit history, and gets a reduced price of the investment property for the investor.

2.  In the event that the home owner has plenty of equity in the home and for whatever reason they need to sell the home because they can not make the mortgage payments, they may chose the option to drastically reduce the sale price.  Why would the do this?  The chances that the home will sell are much greater, it will keep them out of going into foreclosure, and allows them to remove the stress and anxiety of having the whole mess over their heads.  The trick with this situation is actually FINDING  a homeowner in this situation BEFORE they actually go into foreclosure.  If the home goes to foreclosure, it is a sure thing that the mortgage company(ies) will take ALL of the equity.  Therefore, by reducing the sale price, the home will sell, the foreclosure beaten, the home owner may even see some of the equity, the investor gets a good deal, and the bank is not in the real estate business.

In developing your real estate portfolio, it is critical to think long term, just like the stock market.  There will be some more information on the pro's and con's of investing to come.  In the mean time, it is a very good time to be a real esate investor, and even