Emil Emilov asked:


Hi, this is Emil from http://investing-in-property.com.

I hope you’re going to enjoy the following article on investing in real estate. If you want to know more visit my website.

The recent collapses in the mortgage industry have left a large number of consumers scratching their heads in an effort to better understand the economics behind borrowing money. From the opposite side of the spectrum, this rash of foreclosures has left many savvy real estate investors scratching their heads trying to figure out how they can make money from the foreclosed properties. Though the processes can be lengthy and rather complicated, the best place to start is with a basic understanding of how foreclosure works, and what it actually means.

Foreclosure is simply the act of a bank, mortgage company, or anyone else who loaned you money for your house saying, “We loaned you money and you aren’t paying us back in the way that we agreed. As a result, the loan is cancelled. Pay us now.” Most people cannot repay the loan immediately so the house is claimed as collateral. This process can take several different forms.

The first is judicial foreclosure. Judicial foreclosure involves the court system. This is the most common type of foreclosure, and in many areas it is the only legal option of foreclosure available. The court system will oversee the sale of the foreclosed property and the money made from the sale will go to pay back the bank or mortgage company. If there is any money left over, it will be used to pay off any liens that may be held against the property. Liens are claims that other creditors may place against your property. The lien is a legal agreement that says. “Party A owes me money, so if they decide to sell their house then they don’t get any of the money until the debt to me has been paid in full.” After all the creditors and lien holders are paid, the original homeowner will get whatever is left.

The second type of foreclosure is non judicial foreclosure. Also known as “foreclosure by power of sale,” this is the preferred method by most creditors because the process tends to move much faster than court supervised foreclosure. This method is not legal in every state. The distribution of funds follows the same schedule as the court supervised foreclosures, with the original homeowner finally getting whatever proceeds of the sale are left at the end.

If you are an investor seeking to take a 2nd mortgage and buy foreclosed real estate, then you will quickly become familiar with the term, lis pendens. This is a Latin phrase meaning “pending lawsuit.” In the world of mortgages and foreclosures, it is a publicly recorded list of properties that are about to foreclose. Once the process has begun for judicial foreclosure, the municipal clerk in your county or town will publish the list of suits that have been filed. This is a great place to look for real estate investors who may be able to buy homes directly from people who are about to go through foreclosure. It is a chance to pick up property for a good price and for them to avoid going through the foreclosure process.

Before a suit is filed, the creditor is required to issue a Notice of Default. This is a legal notice that informs you, the borrower, that your original loan is in default status and that the original agreement that was established for payment is no longer binding. Most lenders will place a mortgage into default status when the payment reaches the point of being 90 days late. By day 95, the Notice of Default will have been presented to you. If you have a default loan you may still be able to salvage your home, but you will need to act quickly.

As a real estate investor, there are two different ways to buy distressed properties. The first is to purchase pre-foreclosure properties. It is pre-foreclosure because the property still belongs to the original homeowner. Though proceedings for the foreclosure may be underway, the homeowner may be willing to sell the property for just enough to satisfy the amount of the loan. This leaves the investor with a great deal on a piece of property and the homeowner avoids the traumatic experience of foreclosure. Foreclosure property sales that are not “pre” have already reached the point where the property is back in the banks name and they are selling it just to see how much they can recover. Again, this is a great opportunity to buy, as the banks often don’t push for higher prices at auction. They simply want to recover the outstanding portion of the loan.

The increase in sheer volume of foreclosure is evidence that many people simply do not understand what they are getting into when they buy their first home. Having identified this as a problem, there are many government back institutions and even some private ones, who offer assistance to home buyers. While they can help you secure funding, organizations like VA/HUD, Freddie Mac, and Fannie Mae are also excellent sources of information.

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Category Real Estate | Tags: Tags: Collateral, Emil, Foreclosures, Investing In Real Estate,

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Dave Dinkel asked:


The impact of foreclosure on your credit score is the most frequently asked question we get. The method of calculating a credit score (FICO Score) is proprietary information. What complicates the issue even further is that all credit information is calculated into the individual’s credit score as it is entered by creditors and is only updated whenever there is an inquiry.

The second most asked question is “How soon does the foreclosure go on my credit report?” This depends on the lender but in the vast majority of cases, as soon as the homeowner is 90 days late (30 days in some states), the foreclosure info is filed with the credit reporting agencies. It will not be “reversed” by a short sale or a deed in lieu of foreclosure unless negotiated by the homeowner, and often that doesn’t work.

So with the foreclosure question, the homeowner’s credit score is first decreased by his late payments. Usually, he is also late on other bills because of his financial crisis and has additional late payments, collections, or even judgments that all lower his credit score. So if he had his credit score of 680 on a specific date before he started his personal financial decline, after he has been served with his foreclosure notice or even after the foreclosure is completed; his new score could be 420 or lower.

He is usually shocked and dismayed, but the real problem is how much more interest the lenders want because of his low credit score. For example, an auto loan could cost a “D” credit customer as much as $13,000 more for the same car as the “A” credit buyer! The “D” credit person is penalized for his credit situation since the collateral is the same.

The foreclosure’s actual point impact on an individual’s credit report has recently gotten somewhat higher and is estimated to be from 125 to 175 points. The bigger impact is from the late payments on other bills which continue to mount up further reducing his credit score.. The net effect is generally considered to be about a 240 – 260 point decline counting his late mortgage payments. Ironically, the lower your credit score to start, the less the impact of additional late payments, and if you get into the 400’s, it’s really hard to get much lower without almost trying to hurt yourself. Many of the items on any credit report can be removed over time. It requires persistence and it’s estimated that 30% of all items on credit reports are incorrect and can be removed just by an inquiry or showing a paid invoice. Also the credit score reduction for the foreclosure is reduced as time goes on, until it settles at a minimal deduction (50 to 75 points) after a few years.

It is absolutely untrue that once you have had a foreclosure you can never buy a home again, as we see people buying a new home within a year of losing theirs to foreclosure. There are even homeowners who legally buy homes within 30 days of their foreclosure using legal techniques with no cash and no credit.

Foreclosure victims, who want to do conventional financing in the future, will have to pay a higher interest rate (approximately 1 and a half to 2%) unless their down payment could be 10% to 20% of the purchase price. This sizable down payment can often be obtained from friends or family members and carried as a second mortgage or second deed of trust on the property.

I am often asked if doing a “Deed in Lieu of Foreclosure” or a “Short Sale” with the lender reports the same as a foreclosure. Unfortunately, depending on how the lender reports your foreclosure, it could stay on your report even if the lender accepts your deed to resolve the foreclosure. The foreclosure action does not have to be filed in the courts to be considered a “foreclosure” by the lender. If your lender accepts a “Deed in Lieu Of Foreclosure” or a “Short Sale”, always them ask for a letter explaining they have accepted your deed in exchange for your home, and that they will retract or not put a foreclosure notification in your credit record. If they tell you they have to, it’s not true, ask for a Supervisor until you get your letter.

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Category Credit | Tags: Tags: Collateral, Credit Report, Deed In Lieu Of Foreclosure, Proprietary Information,

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Category Real Estate | Tags: Tags: Banks, Collateral, Lawyer, Loan Borrower, Logic, Real Estate Properties,

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