Real Estate Articles - Ten Factors that Produce Droves of Distressed Sellers (Part 2)

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.

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!

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!

Can you see that our proposed deal, though it might have seemed one sided or even unfair, was a better solution for her?

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:

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.

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:

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.

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

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