According to the Minneapolis Association of Realtors

“Foreclosures and short sales are showing early signs of slowing. During the fourth quarter of 2008, there were 4.3 percent fewer new lender-mediated listings than in the third quarter. That's the first quarter-to-quarter decrease since 2003.”

The association has released a new interactive data tool that allows you to sort neighborhoods and cities within the Minneapolis/Saint Paul region. You can find it here: www.mplsrealtor.com/downloads/market/Lender-Mediated/Main.htm

While the signs look like positive, don’t think we are out of the water just yet, many analyst are still saying that the next wave of foreclosures is coming between 2009-2011 with all the Conventional Option ARM loans that are set to start adjusting in right now.

If you are in the Short Sale Business, then you will be busy for a very long time and buyers will be getting some very good deals over the next few years. I was just thinking that when this next wave of foreclosures hits, the lenders will be more prepared to negotiate and accept short sales then they were when the first way of Subprime loans start to default because market values have already dropped considerably. Whereas when the Subprime mortgages started to go into default, the markets were just starting to slow down.

If you are prepared to work Short Sales, then I think you will do very well over the next couple of years and I do believe this market will be the one most investors will be focusing on. If you are in the short sale business, then one resource you will want to know about is HSA. HSA (Home Seller Assist) is an organization that provides funding and proof of funds for Short Sales. For more information about HSA, go to my website at: www.BestCashInfo.com

Just a couple of weeks ago, I did a class on Land Trusts. This is one of those subjects that everyone wants to learn about, but most people never get around to using. There are all kinds of excuses as to why they haven’t done a Land Trust yet, but I think the biggest reason is that most people just think that it is too much trouble and that nothing will happen to them. That is until something actually does happen to them.

For example, just the other day, one of those students called and need some help. He needed to put his multi-family rental property into a land trust. He was a little frantic and had a sense of urgency about it. When we asked him what was going on, he proceeded to tell us a story that I have heard many times before.

Just a couple of days after the Land Trust Class, a tenant fell on the sidewalk. Now she wasn’t hurt at the time, but over the last week, she has been calling the landlord and complaining about her neck, she thinks she has whiplash. Having that feeling in the bottom of his gut, he decided to call his insurance agent and report the incident, just in case the tenant got worse and decided to make a claim. That is when the insurance agent kindly informed the landlord that he did not have an active insurance policy on the property. The policy lapsed over the holidays and the landlord had not realized this at the time. Money was not the issue, the holidays where. He had the cancellation notice sitting in a stack of mail that he just handed gotten around to opening yet because of all the hustle and bustle of the holidays. He didn’t think much of it because he didn’t think the insurance policy was due for a few more months.

He immediately re-instated the insurance policy, but the insurance agent informed him that the incident that had just happened would not be covered. You can imagine what the landlord thought about that. That’s right, all he could think about was getting his property into a Land Trust so that if the tenant called a lawyer, that they would not be able to find out who ones the property. That is why he called me ASAP with such urgency. I then had to explain to him that putting the property into a Land Trust right now would probably not help him in his current situation. That is not the purpose of Land Trusts. Land Trusts are not a tool to quickly hide assets. Land Trusts are a tool to create a long term level of privacy and frivolous law suit protection.

If he had the property in a land trust long before this, he could have been positioned correctly. The tenant would not have known that he was the landlord because he would have been acting solely as the property manager. Then had this situation happened and the tenant got a lawyer, the lawyer would have had to first do a property address search to find out who the owner was, which the lawyer would have found out that the owner was a Land Trust. But in the current situation, the tenant already knows who the owner is and even if he does get the property transferred to a Land Trust right now, it will still take several months for the county records to be updated.

After the lawyer found the Land Trust, he would then do an asset search for that Land Trust and the only thing he would be able to find is that one multi-family property which is the one that the tenant fell and allegedly got whiplash from. This is where most frivolous law suits stop, because the lawyer is not certain of assets. If the lawyer could find assets, then the lawyer would probably pursue the case on a contingent fee basis.

In the current situation, the landlord has a couple of other rental properties and his personal residence in his own name. If the tenant brings a case on, all the lawyer would have to do is find all hi assets before the landlord can transfer everything into a Land Trust. If the lawyer is successful, he could bring a case to a judge to have all those transfers reversed and put a free on all his assets until the law suit was over.

Had the landlord had all his properties in individual Land Trusts and this case happened as described above, then the only thing the landlord would have at risk would be that one property. This is the reason why everyone should start using Land Trusts ASAP, because of what we think could never happen to us.

Since real estate values have plummeted, Subject-To deals have been harder to do because most of the time, the mortgage balance from the seller is higher than the property values creating a situation that if we took over the sellers property and started making payments on their existing mortgages, then we would end up with a property that we could not make cash flow or even resell without having to pay down the mortgages ourselves.

While some lenders were accepting short sales, most lenders were waiting for their bail out from the government. Since that never happened, some lenders have been more susceptible to short sales. While short sales have been our only way to deal with over leveraged properties, we were forced to resell the properties to pay off the short sale. Which meant that Sub2 deals were not taking place which is why according to the National Association of Realtors®, about 50% of all transactions in the 4th Quarter of 2008 were either Foreclosures or Short Sale.

According to Bloomberg “ Citigroup Inc.’s agreement to back legislation that lets bankruptcy judges cut mortgage rates for at-risk borrowers drew criticism from bank industry lobbyists who said the compromise with Senate Democrats was flawed. Citigroup endorsed the bill after Senate Banking Committee Chairman Christopher Dodd, and Senators Charles Schumer of New York and Richard Durbin of Illinois, said they will limit the legislation to existing mortgages, rather than future loans. Durbin, the Senate’s second-ranking Democrat, brokered the deal with Citigroup and sought similar agreements with other lenders.”

While I don’t like it when private companies broker deals with the government, this does give investors and homeowners alike a little bit of hope. This means that Citigroup has seen the light and realize that they need to start lowering mortgage balances and possible even adjust interest rates to current market rates to enable homeowners to keep their existing mortgages in place. While this will help a lot of homeowners, it will also help investors.

This could possible mean that investors can now work with homeowners who want to sell us their properties. All we have to do is take title to the seller’s property Subject-To their existing mortgage and rather than having to attempt a short sale, we can try negotiating a modification that would restructure not only the interest rate, but also the principle balance. There by allowing us to start making those mortgage payments and still being able to resell the properties on a Lease Option with a positive cash flow and a little bit of equity.

This seems to be the toughest subject for investors to understand, especially new investors.

What is 'Subject To'? Here is a section from the Purchase Agreement I use that talks about encumbrances and marketable title:

When you buy a property and take over the existing mortgages and start making the payments directly to the bank, you have bought the house 'Subject To' the existing mortgage.

Example:

Maplewood, MN 4 BR / 2 BA The seller had a job transfer and needed to move in a relatively short time frame. I bought the house from the seller, and he was able to make the transfer on time, and with out worries of having 2 mortgage payments. $60,599.34 - 1st Mortgage $15,386.71 - 2nd Mortgage I got the deed, and started making the payments on both the first and second mortgage. After putting about $25,000 in rehab work, I sold the property for $170,000 on a Contract for Deed. I have about a $400 per month positive cash flow from the difference between what the Buyer is paying me, and what I am paying the 1st & 2nd Mortgages.

The mortgages in the above example are still in the seller's name, but I make the payments directly to the bank.

Why would the Sellers, sell me the property and leave the mortgages in his name? The Seller was motivated, and I offered him the best solution he had available to him at the time.

How can you buy a house 'Subject To' with the due on sale clause in the mortgages? Simple, the due on sale clause says that the lender may call the loan due; it does not say they will.

The due on sale clause came about in the late 1970's and 1980's when the interest rates were rising. Interest rates had gotten so high, that many people started assuming mortgages with lower interest rates then what they could get from the banks. The banking industry figured out that their toughest competitors were their own, lower interest rate loans. So they came up with the due on sale clause. However, they had enough foresight to figure out that if interest rates were lower in the future, then they would be better off letting the old, higher interest rate loans in place.

Every once in a great while, a bank will try to enforce the due on sale clause when the title has transferred, but I have never heard of one going all the way through foreclosure. I have never had it happen to me, and I have never talked to anyone that has had it happen to them. As long as you keep making the mortgage payments on time, why would the banks want to call them due, just because title was transferred? They wouldn't.

In fact, most of the time, when I am talking to the banks about the loans that are in someone else names, they tell me, they are glad I got involved with this property, because this is the first time since they wrote the mortgage, that the payments are actually being paid on time, every month.

The other benefit to the sellers is that I actually increase their credit scores.

One of my favorite reasons for buying houses 'Subject To' is that my name is not on the mortgages. Heck, my name is not even on the deed. I put every house in a land trust. We will discuss Land Trusts in one of the next few articles. As far as the rest of the world is concerned, I don't own anything, but I do control a lot.

'Subject To' seems to be a complicated subject, but it is not as complicated as most people make it out to be.

With the melt down of the economy and the stock market crashing, buyers are sitting on the fence waiting to see what will happen next before they pull the trigger and buy a house. This is causing problems for anyone who needs to sell and it is creating huge potential for buyers. We are in one of the greatest buyers markets on the last 30 years and maybe even since the Great Depression.

According to the National Association of Realtors ® , housing sales have dropped 8.6% in November nationally, -12.0% in the Northeast, -7.4% in the Midwest, -10.9% in the South and -4.3%in the West. The national median home sales price for November was $181,300. That’s a decline of 13.2% from the previous year.

Actions by the government to stimulate the economy will be a big factor in stabilizing housing prices. Mortgage Interest rates are still very low and credit is starting to free up again. Yes there has been a large scale price adjustment across the country and that is reflected in the housing prices. With these low prices and low interest rates, investors will be able to start buying again and once investors start buying, the general home buyers will follow. That is the way it has always worked in a recession, even during the great depression. The great depression created some of the wealthiest people in America today and most of them came from real estate. While our current financial crisis is no were near the level of the great depression, there will be millionaires made through real estate over the next decade.

It’s that time of year again, when we sit down and reflect on the previous year and look forward to the year ahead of us. This past year has been filled with extreme swings in the economy and our emotions. For some people 2008 was a great year and for others it was a nightmare. I have been caught right in the middle of both, so I guess for me, everything evened out and it was a year that makes me look back and ask, what the heck happened. I had some winners and some losers. The losers of course came in the last quarter of the year and I did pretty well during the first 3 quarters of the year. Some might look back with discouragement and frustration. I however am looking ahead with a clear determination to make 2009 the best year ever.

With the shake up in the credit markets and the stock markets, I see huge potential for 2009 in real estate. I believe we have hit the bottom, for the most part. A new president and administration will take office on January 20, 2009 and they have made it clear that they are focused on stimulating the economy. Again, for some this will be good and for others it will be bad. For real estate investors, this will be very good. Just like when the real estate market was hot, the economy seemed unstoppable and real estate prices climbed to artificially high prices, the collapse of the credit and financial markets has artificially lowered real estate prices below the point of where they normally would have settled at. More...