All Forum Posts by: N/A N/A

Yes Flipper, I did.

I can agree with the "majority of loans" statement and I agree with the sub-prime market issue.

The quarterly deadline comes into play with the 100 x value statement.

Who controls the business activities of banks? The investors who invest in them. These investors get quarterly reports, if the bank does not perfom well, investors pull out. These quarterly reports are derived from the banks income statemets. When a property becomes controled by a bank as an REO, it goes onto the liability portion of the banks income statement. So the more expenses the bank has on homes in REO state, the worse their income statement appears to investors on a quarterly statement.

Now the 100 statement, a bank just doesn't make money out of thin air, they are able to leverage the money in their accounts like we do when we borrow from them. The leverage is roughly 100 for every 1 dollar available. When the home is in the hands of the owner, the home is an asset for the bank. So let's assume the home is valued at $100k, that would be $100k on the assets list of the bank. It is actually bigger when you calculate in the ammoritized value. However, when it becomes a liability to the bank, meaning the bank is holding the paper on it, the bank loses out on the leverage of the $100k in assets and susstains the $100k,a $200k adjustment on the income statement. Now bring into play the 100 to 1 leverage on their money, that means that their ability to borrow and lend has dropped by $200k * 100. So a bank really doesn't want to keep this on their books.

Most banks don't even keep these REO's local anymore unless they are a small localized bank. These REO's go to the Nationa headquarters where they are then marketed as REO's. They sit there for a short time, if not sold, they write them off on their taxes. The government takes over the property in exchange for the writeoff. The govenment then commissions Fanny Mae and Freddy Mac and other agencies like them to put them back on the market. Usually through programs like HUD or other low income housing programs.

Now let's get back to that "sub-pime" coversation. I find it interesting that you recogniz the the sub-prime as being investors who pick these loans up as money makers on the service side, the key word that caught my eye was investor. Investors control the banks, and a different set of investors control the loans in sub-prime. Doesn't the sub-prie investor also write off their losses on loans? One handling paper, the other handling tangibles, both wanting the same thing, their money working for them and when it doesn't they write it off. Just an observation.

I cannot get into the details of how the banks and Fanny Mae or Freddy Mac transfer the property, but the information I have stated is what I was taught when I began learning about this aspect of the process. So whether financial or administrative, I don't know the finites, this is just how much I do know and understand of the process.

If you know more about how that process does work, I would be interested in hearing about it.

I try to be courteous and polite about my business. If you want to know how I learned what I know, I will answer, usually through an email correspondence. I am not a salesman, I view myself more of a teacher or mentor. I love teaching what I know. I am here to benefit from the forums services.

[EDITED BY MODERATOR]

Although, any fowl words about Robert Kiyosaki will get me riled. I have a tendency to come to his defense as it was a strong part in changing my life and providing me with ways to help other people deal with their RE issues.

Thanks.

Although there are many reasons why someone goes into foreclosure and many issues can change the condition, I would like to give you a glimpse into the eyes of one I know.

In the begnning, this hard working couple both wih decent jobs find they are doing well. They make great pay and together, they clear say $100,000 annual. Life is good, they decide to have a child between them, and they are successful at doing as they planned. He is a software engineer, she works for a office supply warehouse, but she had to quit due to complications in the pregnancy.

They evaluate the situation and decide they can tighten their belt and survive the pregnancy without her income. They find they can even manage picking up a family van to take into account the new member in their family head count. The money is tight, they make it each month with about $200 to spare.

Death of th DOT com's comes into play. Then comes the Microsoft lawsuit issue with the contractors and the monopoly federal judgement against Microsoft. This hits his wallet really bad. His contract ends and he is out interviewing for a new job, only to find that the software industry is in a down trend. He is competing litterally against 5000 other resumes for the same positions. bills fall behind, times get hard and desperate. They talk to family and friends for help, but all they can do is offer advice. Ever know someone who didn't have advice?

They get their notice of delinquency, along with all the other bills, shutoff notices. Before they make it to the notice they have already stopped reading letters from people offering to consolidate their debts. All of them want even mor money from them than the consolidation will save. So it is pointless. Now the notice goes out and the phone begins ringing off the wall. People begin hanging around their home for hours staring, taking pictures, dropping off letters and notes. 10 - 20 per day is mild to say the least. These are people who all promise to help them and save their home, instead, they are trying to figure out how to get $25k or more out of the deal but they put on a good show. The couple is quickly memorizing the lines that these people say and become numb to the statements. At some point the owners, laugh and close the door in someones face when they hear the first 3 words.

The calls stop coming in not because the phone is shut off, but because the owners can't stand the flood of calls from sharks wanting to take away something that has been in the family for 17 years, their home. They just want some help to find a solution.

Wife tried to take her job back, but Dr wouldn't allow it. He tried to take jobs for half his previous pay, but market is still flooded. Just a year before all this hit, they had refi'd their home for home improvements they were doing, it put them at 80% LTV, but when the market dropped, it lowered their LTV as well and they were upside down, so no lending agent wanted to work with them.

The insanity factor was running full tilt. The man was crushed, he could do nothing more than run on auto pilot, hunt for jobs, remodel to improve the value and maybe make enough improvements to make the home worth a better LTV to get some help. Working night and day on the solution, driving off the sharks that wanted his families home. Now the next collapse of his reality hits... his son is born into turmoil. Frequent visits from strangers wanting to take daddies home. Causing daddy more stress anxiety, fear, petrification starts setting in.

Pink Floyd song plays in his mind over and over. Now he has another child and it's needs to deal with on top of this, diapers, milk, baby items galore.

A contract comes through, he starts getting the debts paid and off his back, but he had to take a job at half his previous pay, and he can't make enough to cover the bills. Borrow from Johny to pay bob, to pay susan, etc becomes the name of the game. He tries to negotiate to stop the preceedings, but they want all the money caught up before they stop the action, it is too late, so he tries to save everything else. Six months later, he finds that the contract is coming to an abrupt end as his company is performing a re-organization, he is cut from the contract. The cycle of hell resumes for another 8 1/2 months.

During this time, his wife wasn't able to work due to health conditions during pregnancy, he is still alone. No one to turn to, no one to help. Things are getting worse. Three months into the situation and the new van ends up with a seiged engine. Their folks pass them a beaten down van to replace the one lost, less than a month after that, the lenders on the van come to do a repo, at least he won't have to put it in the shop to get it repaired, he thinks to himself.

Just as the wife's health begins to return, she reports to him that jr is going to have a playmate. Yep, another one on the way.

Notice of trustee sale shows up. Now the sharks get vicious and ugly. Drilling through the numbness a piercing dagger of failure on the man. A man who at one time had never known the word failure, a man who thrived on success even against all odds. Now this dagger was drilling his brain that he was losing his home, he was never gong to be able to successfully pull out of this and he might as well sell to them at a 20 - 30% loss.

All the while, he kept looking at the living room he had remodeled completely with his own hands, the bedrooms, the new infants room, the back deck, the storage units, the front yard rose garden and landscaping all done with his hands, blood,.sweat and tears. The precious items that made his home speial to come home to every day, now this vulture wanted it. Now they were gonna get it and that was all there was to it, nothing more he could do.

A new job came through, but it was too late, they had already received their notice to vacate. It was gone, all of it, lost without a fight, without mercy or compassion, long hard years of work only to lose it by a little letterstating 90 days to vacate. 17 years of memories now becoming someone elses dreams. It was all gone.

Yes, this was me. So remember, even though it means business to you to help these people, it doesn't mean the same to them. Don't pretend to help them, work with them to cope, but don't drill them with a fate they know long and true. They have just spent the last XXXX amount of time letting that sink in. Instead, be a friend, be sinsere, educate them and show them you want to work with them through these trying times.

It was this situation that got me to where I am today, bound and determined not to allow this to happen to anyone else. Now I spend my investing career helping to find the solutions and if all else fails, I help them face it as best I can. I even hook up with them after the fact. I don't talk much about their home, but I do make sure that they are doing better. I try to help them transition as best I can. Taking their home is my last alternative. Even then, in cases where it was a simple hard ship like I encountered, I try to set them up with a lease/option as a chance to keep their home with me owning it for a few years while they get back on heir feet. Keep in mind that if they trash the house after losing it, I actually don't keep my end of the dea either. I don't lne them up with their old home, instead I line them up with one that fits their financial needs, meanwhile, I improve their home. If in a year things get back to good for them, I offer them the lease/option for their home back. Then I let them earn it back.

I pull mine directly from the county in which the property resides. It is amazing how many homes come and go on this location, but it is still a healthy selection.

BTW: thanks guys for the explanation of the sharp drop in the RE market. The area you are talking about was recently written by MSN to be one of 5 of the worst states suffering the largest drop in the real estate market.

He's right, when you go to the auctions, you have 2 things against you:

1. The bank will attempt to recover at least 75% of their loss on this property. So they wil bid you up until you reach their min. You can achieve the same thing in a short sale without having to be under stress on the sale that an auction would bring.

2. Not only is the bank there to win, but so is the big buyer who has plenty of cash to work with and is sitting there waiting for new folks to clear out the low balls, then he walks away satisfying the banks needs.

Keep in mind that banks answer to investors on a quarterly basis. This means that they can take back a property and attempt to sell it again more than once. BUT, they have to have it off their books before the quarterly reporting occurs. Knowing when this is will give you an edge as to when it is critical for the banks to get rid of it. If it becomes a REO, then it becomes an expense that will cost the bank 100 times the value of the property. If they must, they will turn it over to an agency like Fanny Mae or Freddy Mac (government supported) agencies that serve as a balance between the RE market and the government control of the properties. The banks write it off if these agencies take it. Now it is dirt cheap, but by this time, the property is usually so bad that no one wants it and it needs a serious overhaul, like an angry owner forced into foreclosure and no one wants it so it ends up here.

The best location is pre-foreclosure as you get the best of the properties available and everyone wins, owner, bank, gov, and you.

Careful, it will get emotional when you reduce the earnings he is walking away with and it may make him pass on the deal. Just show him a spreadhsheet where you have done the numbers to explain how much you are going to let him walk with.

Not to mention, you are handing over $40k to him, but you have not indicated the money it will cost you to close on th property and get it in your name or how much you anticipate paying to get the house sold again to another. You need to consider the selling expenses when you have to turn around and sell it. If you plan on using your $30k portion to do that, then you could be in a world of hurts when the hammer falls and you find yourself holding the bag for a year.

Take the time to calculate the costs of buying and selling the place, include money for repairs in the event it is left in a less than adequate condition to sell. On the sale side, talk to a broker and find out how long the turn around time is on a home selling. If it takes a couple of months, then calculate your costs at double that amount.

Once you have calculated all this out, find out how much it would take to cover all that, consider it the cost of doing business, after all that money is set aside, you can then split with your new found friend. Personally, I wouldn't give him more than $5k to find a new location and move out, but if you want to be generous then great, I wish you well.

Oh yeah, one last thing to calculate in, you know this is going to be a short term capital gains, so you may want to set aside 30% of your earnings from the deal to be set aside as well to cover your capital gains taxes.

Hi my name is Larry Hayes, I live in Puyallup, WA. I am a Rich Dad member and fan. I believe in multiple streams of income and they are as follows:

Career:
Software Engineer

Investing:
CEO - Blessings From Earth - we create custom DVD's for many companies and artists in particular.

CEO - Investors Haven - Provides bird dogging services and investments

Independent Student Advisor for Nouveau Riche University

[EDITED BY MODERATOR]

Looks like you may want to consider a larger town for your research.