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TEN FACTORS THAT PRODUCE
DROVES OF DISTRESSED SELLERS
(Part 2)
By Bill Young
kmtpartners@ureach.com
Read Part 1
6. JOB LOSS/BUSINESS FAILURE
This is a big factor, post 9/11, Enron Melt
Down, Arthur Andersen Implosion, etc.
Most families have very little in the way
of cash reserves so any interruption of the paycheck produces
panic.
The house payment becomes a bigger factor
than the house itself. Getting rid of
the house quickly moves from the unthinkable
to serious consideration to an imperative to preserve
the little money they have.
Even if they should find reemployment after
a protracted period of unemployment,
playing catch-up is discouraging and down sizing
becomes appealing.
7. CAN'T SELL IT, LET'S RENT IT!
Owners forced to rent their single family
house because they can't sell it are
among the biggest "Don't Wanters" there are.
They are probably losing money month after
month if they have bought or refinanced
recently and have a big mortgage.
They will often have problems with the
tenants when the house is occupied, late
to no rental payments, costly complaints, repairs,
etc. When the house is vacant, there is a different set
of problems.
If, as frequently happens, the house is in
another state, multiply all the above
frustrations and hardships by 10!
I once picked up 2, 4 family brownstones
(town houses) worth over $500,000 from
an owner who had initially thrown me, my wife
and my attorney out of his office for making a creative, nothing
down offer on his properties!
It seems that one of the tenants he was
evicting, "forgot" to turn the
faucet off in the bathroom sink and let it run for a couple
of days.
We closed on the houses 30 days later with
not a cent out of my pocket, in fact,
the owner paid us $20,000 to cover the cost of repairing
the damage!
8. MEDICAL BILLS
This is a special category of excessive
debt. Often, older people are plagued by
medical problems which can drain them financially
and/or force them to relocate for health reasons.
I recently had a deal with a woman in
Galveston, Texas to buy her duplex just
by taking over her mortgage payments.
She had about $10,000 in equity which she
was prepared to walk away from in return
for a 2 week closing, which was very feasible
considering I did not have to come up with any money or
qualify for a mortgage.
She had injured her back in a construction
accident and now had a case of arthritis
which the humid Galveston environment was exacerbating.
She had tried to sell the house and could not. She
had already purchased a house in the dry northern part of the
state but could not move until she sold this house, which meant
she was carrying two mortgages as well.
Everything was going well until I learned
that the insurance company declared they
were not going to insure the downstairs apartment
since it was subject to flooding!
She eventually lost this house to
foreclosure.
Can you see that our proposed deal, though
it might have seemed one sided or even
unfair, was a better solution for her?
Fair becomes subject to interpretation when
a person's hair is on fire!
9. FORECLOSURE
Last year was a record for foreclosures.
This year the number will probably he
even higher.
I have discussed the reasons for the seeming
paradox, of record breaking housing
appreciation co-existing with record numbers
of foreclosures in a couple of earlier issues you can find
at this address along with the first part of this article:
http://topica.com/lists/1stForeclosureAlert/prefs/info.html
Foreclosure is an emotionally devastating
situation for the average family. I
know. We lost several properties to foreclosure,
including our personal residence in the real estate
melt-down in the 80's precipitated by Ronald Reagan's tax
law reforms which yielded the stock market crash of 1987.
You don't know what terror and humiliation
is until you lose the roof over your
family's heads. Try explaining that to your kids!
What most people don't realize is that the
foreclosure may be only the first step
in a 3 act horror show.
- Foreclosure
- Deficiency Judgment by the bank
- IRS at their door
If the house does not sell at auction for
enough to pay off the entire mortgage,
the bank may have the right to come after the
home owner with a judgment for the balance or deficiency.
Now, many states do not allow deficiency
judgments. However, they are still
subject to a levy by the IRS. It seems the IRS looks
at debt that you were legally obligated to pay, say your mortgage,
and then did not pay it is INCOME to you. They expect to
receive the taxes due on that income, in cash with your next
tax return!
I am not going to go into detail on all of
this right now. If you would like to
read a report I did on the perils of foreclosure,
go here:
http://communities.msn.com/foreclosurehelp
Suffice it to say, that when you show the
homeowner the grave nature of an
impending foreclosure, they become very realistic and
look for a quick way out, which you can supply them with.
I have ended up with millions of dollars worth
of real estate by preventing
foreclosures for many homeowners.
10. GREED!
Surprised? This is the joker, the wild card.
When the seller's greed glands release their
hormones, some very sweet deals are
possible. These sellers are technically not
distressed, although to see their anxiety to get the deal done,
you wonder.
Find a greedy seller, someone that wants top
dollar, probably has a very nice
property. Buy it on your terms.
If you know what you are doing, you can get
some very good deals this way. In fact,
my first house was bought using this tactic.
The seller, Stan, a Jamaican immigrant who
renovated houses for a living, would not
budge. He asked for $125,000 for a 4 family brownstone
in Brooklyn that 2 years earlier would have gone for $80,000.
I offered $100,000.
I knew the neighborhood was on its way up,
ironically in part because of people
like Stan, forcing the prices upwards.
Gradually, I let him bring me up. When we
got to $115,000, I caved in, with one
eensy bitsy reservation. I would pay $125,000,
but I could only give him 70% of the price in cash! He
would have to take back a 30% mortgage for 5 years.
He could not believe his ears. What was not
to like, mon? He agreed. We closed with
a 75% first mortgage from the bank. He carried
the 30% second.
I know, you think my math is off. Thirty and
75 equals 105. You are right. The extra
5%, $6,250 to be exact, was duly deposited in
the HIP Pocket National Bank, thank you!
By the way, the next year, I refinanced the
house, paying off Stan and pocketing
another $20,000 as values had sky rocketed during
the year!
So if you know more than the seller about
values or some special use you have for
the property that can increase its value,
by all means, let him win. Let him tell his buddies about
the fool that paid him full price!
The distressed seller is a theme that we
will return to again and again. He is
the key to buying real estate with No credit, No
money down and No bank qualifying
Read Part 1
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