By Ilyce R. Glink and Samuel J. Tamkin
Saturday, March 8, 2008
As if Detroit and the rest of Michigan haven't suffered enough.
Last year, Detroit led the United States in foreclosure rates, with close to 5 percent of its households entering some stage of foreclosure, according to RealtyTrac, an online marketplace for foreclosure listings.
That was nearly five times the national average and almost double the rate of foreclosures in Detroit in 2006.
But every cloud has a silver lining. Just ask Ralph Roberts, a real estate agent in Detroit who says he has bought and sold more than 2,000 foreclosures.
"This could be a great time to buy a home -- if you have the resources," he said.
Roberts, the author of "Foreclosure Investing for Dummies" and "Flipping Houses for Dummies," said in a recent interview that he thinks more than 6 million families are in distress nationwide.
"Maybe 1 or 2 million are behind in their mortgages, and more have received their foreclosure notice," he said. "But 2 million families will lose their homes this year."
Roberts said now is the time for fire-sale prices on such properties.
"Properties could double in value over the next 10 years," he said. "But you have to be willing to go in, buy them and hang on for the longer term."
With foreclosure investing, he said, you get what you pay for. His book on foreclosure investing isn't of the "get rich quick with no work and zero down in cash" variety. Instead, he values doing as much homework as possible ahead of time.
To learn how to read complicated real estate and tax records, he suggests you should do an exhaustive search on your own residence. Once you become familiar with how the information you know to be true is laid out in tax records, deeds and other documents, you can begin to research homes in distress.
In addition to doing due diligence on a particular home Roberts recommends creating a file that contains a copy of the foreclosure notice or notice of default; title commitment and a 24-month history in the chain of title or the last two recorded documents; a copy of the deed with the current homeowners' names; the last recorded first mortgage, so you know how much the current homeowners owe (some of this may be available online); copies or documentation of all liens against the property, including property tax liens; a map showing the location of the property; your exterior home inspection (with photos and videos), plus neighborhood photos; the city worksheet on the property showing all repairs, inspection reports and other information; local multiple listing service data showing how much comparable homes are selling for in the area; a copy of the tax bills and notes on whether they are paid; notes from meetings with or calls to neighbors, if you met with them while doing your research; and a copy of the property evaluations on which property taxes are based.
"Most people, when looking for a foreclosure, think 'no' -- they don't think 'know,' " Roberts said. "To buy a foreclosure successfully, you have to build a Rolodex, get on the Web, talk to brokers and go do your research."
Roberts said the Internet has been a boon for foreclosure investors.
"Go to the county's Web site, and see what kind of information they have listed. Sign up for the local legal newspaper. It costs about $1 per week," he said, adding that he subscribes to a number of foreclosure Web sites, some of which charge for membership. "You get what you pay for."
What I like best about Roberts and his books is that he appears to care a lot about consumers. He cautions foreclosure investors to think about homeowners and their redemption rights. He warns against being dishonest. (Foreclosure-rescue fraud schemes have grown exponentially, according to the latest figures from the Federal Trade Commission and the FBI.)
He has put a lot of time and money into fighting mortgage fraud (see his Web site, http://www.flippingfrenzy.com). Last year he published "Protect Yourself from Real Estate and Mortgage Fraud," written with lawyer Rachel Dollar.
There's more information on another of his Web sites, http://www.ralphroberts.com.
Q: My wife and I have perfect credit and have stayed in our small, affordable home for five years. We chose not to trade up because we believed the real estate bubble would burst, and we hoped we could buy a more valuable home on the cheap.
Today we looked at a beautiful house that is worth less than the mortgage amount. The problem is that the whole house will need new carpeting because the owners' dog was not well trained. Further, the owners are chain smokers.
How do I determine how much lower than the asking price I should offer? And, more important, why is the owner involved in the negotiating if the lender is the one that would really lose out?
A: Until the lender forecloses on a property, the ownership doesn't change. That's why you're negotiating with the homeowner and not the lender. If the lender foreclosed, you would be negotiating with the lender's real estate agent or the lender's representative -- which might not be any easier.
Focus on what the property is really worth. Take a look at similar homes (in a similar condition) that have recently sold. How much did they sell for? If they were in better condition, you can subtract the price of replacing the carpet, painting the walls and doing whatever else you need to do to get the house in perfect condition.
It's possible that the home's list price reflects the lower prices of homes sold in the neighborhood. If that's the case, yucky carpet and smoky walls or not, if the price of the property is on par with what is selling, you may not be able to get any more cash off the top to cover these necessary improvements.
The next step is to present your offer. If the seller agrees, you would still need to get the lender to agree to the terms of the sale, if the price means the lender will have to accept a short sale. Make sure you get the lender involved early, or you might waste everyone's time.
Here's another concern -- if there is more than one lender, you will need to negotiate with both or all of them simultaneously. In cases where the primary lender is going to have to take a haircut, there will be no money left for the second lender. That may mean that the second lender won't agree to the sale.
When going into a short sale, know that the deal will probably be much more complicated that you might expect. I would hire a real estate lawyer to help with the negotiations, and perhaps rely less on the agent.
I am buying a new home that is not yet under construction. My contractor has asked for a "commitment letter" from my bank. My contractor then said that we would write up a contract.
When do I need to hire a real estate lawyer? And because I am a first-time home buyer, whom can I go to with questions?
You should hire a real estate lawyer as soon as possible, especially because it sounds as though you are not working with a real estate agent.
If you don't work with a real estate agent, you need to hire someone to work on your behalf, walk you through the deal, answer your questions and make sure your rights are protected. A real estate lawyer fits that bill. You can find a good one through your local or state bar association.
Three years ago, I took over my mortgage after a divorce. My ex-husband had accumulated a load of other debt, and my credit history was good. It was the best decision at the time.
I refinanced our loan into a 3/1 adjustable-rate mortgage with an initial 5.625 percent interest rate because I had planned on selling this year. But with the housing market in dismal shape and no homes selling in my area, I have to do something because my payments are a big drain on my monthly income and might increase in September.
Alimony was part of the agreement, but my ex-husband has lost his job. So I'm on my own with a teacher's salary and $2,318 a month in house payments.
I would love some ideas on how to save and bring in extra income to augment my talks with my banker, financial planner and accountant.
Don't beat yourself up about the mortgage you took out three years ago. All you can do is make the best decision possible at any given moment. From your description, it sounds as though taking over the house was the best idea at the time.
Now we're three years down the line. Let's look at some of your options:
First, you can try to sell the house. While we are in the worst housing market in the past 40 years, more than 5 million homes will be sold this year. One of them could be yours. There are still properties that are receiving multiple offers.
How can you make that happen? Your house will have to look better than all other homes in the neighborhood and be priced the most competitively. Then everyone will look at your house, and someone could make an offer.
Your second option is to refinance. Because you don't plan on staying in your house for too long, I would refinance to an interest-only loan. While you won't add to your equity, you will cut down dramatically on your house payments. If your credit it good, you should get a great rate.
Another option would be to rent out a room for a year or so. This would help defray expenses even as you prepare the house for sale.
If someone has a cash-flow problem, there are only two ways to solve it -- cut spending or increase income. In your case, you might try to do both. If you can add some tutoring hours to your week (which might be tough, given how much work teachers already do), it could help your cash flow.
A final option may be to do nothing. You need to investigate your current loan terms and determine what might happen to your interest rate if rates remain stable for the rest of the year.
You may find that your loan is set to the 1-year Treasury rate plus a margin (or markup) of about three percentage points. That's common. If that's the case, your interest rate may go down when it resets in September and stay that way for another year.
You not only would save the cost of refinancing, but also would buy yourself another year in which you can choose the best time to sell your home. If your loan is set to another standard and that standard today would cause your interest rate to go up, the "do nothing" option may not be the right move.
Is there ever a time where it is ideal to pay off my mortgage?
There are a number of reasons to pay off a mortgage.
First, I believe in doing whatever it takes to help you sleep well. If paying off your mortgage helps you catch a solid eight hours, that's a good reason -- even if keeping your cash invested elsewhere would be the better choice financially.
You should also consider paying off your mortgage if you're heading into retirement or into a period of your life where your cash flow will decrease. If you don't have to make that payment each month, it can help smooth out your budget and provide you with more resources to do other things.
Finally, if the interest rate on your loan is higher than what you're earning on the cash, then you should consider refinancing your mortgage or paying off the loan.
Can you live in one state and claim residency in another? Our home is one mile from the state line, but we want to claim residency in the other state.
If you live in one state, you can't claim residency in another. You can split the time you reside in one state or another. But if you own a home, vote in your district, have a driver's license from the state, receive mail at your home, send your children to school and consider one state your home, you can't simply "claim" residency in another state. Even if that state is one mile away.
My younger brother spent a year working for a mortgage company that helped people whose homes were in foreclosure. He ended up putting 10 houses in his name in the hope that these people would pay him and then buy back their houses after a year.
This hasn't happened, and my brother had to leave the business because of financial problems. He figures that the owner of the business has stopped paying the investors who own the loans and that they are now calling him because they can't reach the real owners of the properties.
My brother is fearful of a lawsuit. We own a cottage together. The cottage is in his name, and we split the payment and upkeep 50/50.
We're afraid that these investors may try to take our cottage. My brother mentioned doing a quitclaim deed that would put the cottage in my name. The mortgage would be in his name alone.
Would this protect our cottage? Have I given you enough information to help us?
You have given me probably too much information. Your brother should have known better than to take title to property he did not own.
If the owner of the mortgage business wanted to have the title to the homes, the title should have been in the owner's name or the owner's company's name.
There are people in the marketplace who claim to help homeowners with their financial troubles but who are really only out to make money for themselves at the expense of distressed owners.
Some companies claim that if a homeowner is in financial trouble, the owner can transfer title to the home to the company. Then, when they get back on their feet, the company will, for a small fee, transfer the title back to them.
But in practice, the homeowners are wiped out of any interest they have in the home, and the so-called helpful mortgage company either resells the property or refinances it, taking all the equity out of it.
There's a name for this scam: It's called mortgage-rescue fraud, and the Federal Trade Commission and the FBI are concerned about the proliferation of such schemes.
It seems that your brother might have participated in that type of venture. A legitimate business would never place title to homes in the name of an employee. Your brother's bigger issue is, perhaps, having participated in such a scheme and having the authorities come after him. He should seek the help of a lawyer immediately.
With respect to the cottage, the quitclaim deed transfer is not likely to work. If your brother has creditors coming after him, the cottage is at risk. If he transfers title to you, the creditors will have time to unwind the transfer to you. When a debtor tries to get rid of assets right before a creditor has a right to those assets, the transfer itself can be a fraud against the creditors.
If you help your brother by taking title to the cottage, you may find yourself in hot water, too. Because the cottage is in his name, it is presumed to be his. The fact that you share expenses is irrelevant.
To learn about other options that may be available to you, please talk to a lawyer.
Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is "100 Questions Every First-Time Home Buyer Should Ask." Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through Glink's Web sites, http://www.thinkglink.comandhttp://www.expertrealestatetips.net.
Copyright 2008 Ilyce R. Glink and Samuel J. Tamkin
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