| First lets recapitulate
last months short sale article. Short sales
are a great way to obtain discounted property.
Short sales happen when banks allow home
owners to sell their properties for less
than what they are owed. Short sales are
one of the main techniques of pre-foreclosure
investment.
We all know that
foreclosures are caused by the default on
the payment of a mortgage loan monthly installment.
Default of monthly installment is primarily
caused by debt-over burden. Debt over-burden
in turn is caused by a homeowners over commitment
to financial responsibilities. In other
words, the home owner cant keep up with
expenses, develops unsustainable debt and
cant pay the mortgage. Understanding the
underlying conditions that cause default
is a key to effectively negotiate with home
owners and initiate short sale transactions.
Underlying Causes
of Foreclosure
Financial
Slippage: This
is the condition in which most responsible,
smart and hard working individuals in foreclosure
find themselves. We live in a capitalist
system society. The system creates more
opportunities but it is also less forgiving.
Long term un-employment is devastating to
the middle class. So is the astronomical
cost of health care. People in this category
often resort to tapping equity in order
to make ends meet. If matters do not get
quickly resolved, the house becomes over
mortgaged; they default and end up in bankruptcy.
Foreclosure comes next.
Over-Indulgent
Lifestyles: It
is often that people live at or beyond their
means. For these people, as soon as there
is an income disruption, extra expense or
similar event, mortgage payments become
impossible to pay.
Interpersonal
Problems: Usually
divorce. No one wants to take responsibility
for payments or one single income is insufficient
to make the payments. Therefore they default.
Death or
Incarceration: People
in this category stop paying sooner or later.
Even if payments are up to date and performing,
title problems appear. Eventually someone
decides that the banks should not be getting
paid. Default soon follows.
Over-Optimistic
Lending Practices: Often,
in their quest to get commissions, mortgage
brokers encourage home buyers to commit
to the maximum mortgage payment level that
they can possibly sustain. Usually the reasoning
is that the property will go up in value
and the home-owner will be able to refinance.
It is not hard to find 100% financed houses
in which dual income homeowners pay up to
50% of their combined income in mortgage
payments. Needless to say, for these people
just about any financial challenge will
result in default and possibly foreclosure.
Mortgage
Lending Fraud: This
is often the result of mortgage brokers
specialized in sub-prime lending. These
brokers embellish the financial capacity
of unqualified home buyers. The home buyers
end up with high interest loans and usually
higher payments than expected. The result
of this is that the new homeowner defaults
soon after buying the house.
Irresponsible
Homeowners: These
are people that are irresponsible with their
personal finances and / or take advantage
of the system. They do things such as abandoning
the property as soon as they feel like it,
or refinance the house in order get cash
and let the property foreclose.
These are the primary
underlying reasons for foreclosure. Often
home owners in foreclosure fit into combinations
and permutations of two or more categories
at the same time. The underlying reason
for foreclosure is greatly helps in understanding
where the home owner is at.
It is essential to
understand the underlying reasons for foreclosure.
This, in combination with listening to the
particular situation of each homeowner,
allows the investor to effectively negotiate
short sale purchases.
######
Please contact Oscar
Mornate for Permission to post this
article on your site. Credit for the article
must be give to Oscar Morante, Best
Short Sales (C) 2006 Advanced Real Estate
Concepts, LLC., Portland OR. All rights
reserved.
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