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TEN FACTORS THAT PRODUCE
DROVES OF DISTRESSED SELLERS
(Part 1)
By Bill Young
kmtpartners@ureach.com
Read Part 2
Notice we talk about distressed sellers, not
distressed property. This is a critical
distinction. If you are concentrating on
finding distressed properties, you will frequently
be out of luck.
How many times have you heard someone say
that they cannot find any deals since
there are no distressed properties in their area,
or the market where they live is so hot that even distressed
properties, like foreclosures are selling for full market
price?
They are like the suspicious border guards
that stopped and searched this little old fellow thoroughly as he
rode his bicycle back and forth across
the border everyday, never to find any
contraband. He was smuggling bicycles!
I think you will see that the factors we are
looking for produce distressed Sellers
in Any area, in Any real estate market.
In general, your objective is to find owners
whose dream house has become a
nightmare. Someone who is in pain equivalent to having
hot grits poured on his/her private parts! (For those who
may not be from the south, that is Really Hot!)
1. DIVORCE
When couples divorce, emotions often run
high. You may know what I mean. One or
both want to get away from the other real bad!
Often, the only thing stopping them is the sale of the house.
Or perhaps a judge may declare an immediate
sale of the property so that proceeds
may be split.
Many times, the remaining spouse cannot
handle the cost of upkeep alone on half
the income or less and is being dragged down
by the high cost of maintaining the house.
In these circumstances a quick sale, solving
their most pressing problems instantly
is more important to them than top price
or terms.
2. CARRYING TWO MORTGAGES
According to recent Realtor statistics,
about 16% of the sellers their members
encounter are under pressure to sell because
they are carrying two mortgages. And they cannot do that
for long.
Perhaps the sale of the old house fell
through after the new one was purchased.
The new buyer could not qualify for a mortgage.
Or maybe the couple was too excited and
optimistic and bought that new dream
house before the old dream house had sold and now
it was becoming, you guessed it, a nightmare!
I encountered a situation recently where the
couple had closed on a beautiful,
luxurious retirement home in a different state and
then sudden health problems forced them to remain in their old
home.
Their dream retirement home, lovely, brand
new, 3 bedroom, 2 bath high end condo,
had become a nightmare; draining their dwindling
resources. They were willing to walk away from their down
payment in return for immediate relief.
3. RELOCATION
The wonderful job offer, the promise of a
fresh start begin to darken as the
deadline draws closer and closer and the house has
not sold.
I hope you are beginning to see a pattern
here. The seller's distress can only be
solved by a quick sale of their property. This
is what you are looking for.
Maybe they have to relocate for immediate
health reasons and may even move before
the old house is sold. Nothing causes distress
like having a house in another state that is draining your
resources and/or giving you tenant or security problems.
It may not even be a matter of needing the
cash from the old home. Maybe they just
need to be relieved of the obligation of the
mortgage payments so that they can qualify for a mortgage on
the new house.
Maybe they must move to be near loved ones.
If only they could sell the %$%#@!&
House!
4. BANKRUPTCY
The person who goes bankrupt is under severe
financial pressure, by definition.
Getting rid of a property that is straining
the budget may give instant relief. This
may force an immediate sale of property, often
at discount prices or very easy terms.
Contrary to conventional thinking,
bankruptcy usually does nothing for the
person facing foreclosure except destroy their credit
even further.
The reason is that a house with a mortgage
on it is a secured debt. Bankruptcies
cannot eliminate secured debts, only unsecured
debts like credit cards.
I hope Champion Mortgage told you that when
they "Consolidated" all of
your unsecured credit card debt into a second mortgage, in
effect guaranteeing your credit card's would get paid and also
guaranteeing you would lose your house if you ran into financial
difficulty again.
Even for those that file a Chapter 13, wage
earner bankruptcy, the effect is most
often to delay, not prevent the foreclosure.
The reason is that in approximately 86% of
the Chapter 13 filings, the person's
monthly payments are Higher after the bankruptcy
than before!
This is because most of the delinquent
payments, including any mortgage
delinquencies, must be paid off in the next 3-5 years, very
often resulting in higher monthly payments than before.
Once 1 or 2 monthly payments are missed by
the strapped debtor, the bank can then
continue the foreclosure.
5. EXCESSIVE DEBT
When a person lets their debts get out of
control, debt payments at 110% of net
income, refinancing at "125%, no equity needed",
etc. (Champion Mortgage!) there often comes a time
when they realize they must get rid of the
large house payments or go under.
The sooner they can get the house off their
back, the sooner they can breathe again.
We will continue to look at more factors
that produce distressed sellers next
week.
Read Part 2
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