BOOK REVIEW: THE E-MYTH

I am astonished when discussing business books with people and they have never heard of the E-Myth by Michael Gerber. In my opinion, it is the finest book on entrepreneurship written.

If you are anything like me, you probably assumed the E stood for E-commerce. You couldn't be further from the truth. The E stands for Entrepreneurship and Mr. Gerber did an outstanding job at forcing would-be entrepreneurs to view business in a different way.

The book is very informative and presents much of the subject matter someone with an MBA would discuss in an easy to read, motivating, and insightful format. Mr. Gerber tells a story. This story of Sarah and her shop, All About Pies, widely relates to people because it could be any entrepreneur or small business owner in just about any industry, any phase of the business, and producing any widget.

The nuts and bolts lessons of the E-Myth have everything to do with systematizing your business to create predictable, profitable results with minimum involvement for you, the owner.

He aptly touches the heart of the American entrepreneurs by illustrating how most entrepreneurs go into business as a result of what he terms the Entrepreneurial Seizure.

Then, one day, for no apparent reason, something happened. It might have been the weather, a birthday, or your child's graduation from high school. It might have been the paycheck you received on a Friday afternoon, or a sideways glance from the boss that just didn't sit right. It might have been a feeling that your boss didn't really appreciate your contribution to the success of his business.

It could have been anything; it doesn't matter what. But one day, for apparently no reason, you were suddenly stricken with an Entrepreneurial Seizure. And from that day on your life was never to be the same. Quote from the E-Myth by Michael Gerber

Gerber ascertains most entrepreneurs are technicians that cannot stand the employed life for one reason or another. This leads to the Entrepreneurial Seizure and the start of a business owner doing the technical work they currently do for someone else.

The myth is that entrepreneurs are brave, noble men and women valiantly taking on the world to build their business. From his years of study, research, and consultations with entrepreneurs, Gerber says the truth behind this faulty image of the daring is actually withered, beaten down technicians working at a job they own.

Mr. Gerber is the founder and Chairman of E-Myth Worldwide, where he originated his own unique form of small business re-engineering processes on behalf of his more than 25,000 small business clients. The E-Myth is Gerber's life line to the entrepreneurial community.

Inside, he gives a powerful business development process to construct a business that works! Chapters cover topics, such as your Primary Aim, Strategic Objective, Organizational Strategy, Management Strategy, People Strategy, Marketing Strategy, and System Strategy.

The best part is the book is not written in typical business jargon, but in plain everyday language that is easy to comprehend and most importantly, implement. Mr. Gerber brings the dream back to the entrepreneur!

SUCCESS: Is All About Choosing What You Want In Life!

By Johnny Campbell

You can choose success. Do you believe this? If you do not, then you have chosen (yes, chosen) a different route and success will not be a prominent feature! Success is about choosing what you want in life and taking the necessary steps to achieve that goal. Success is not stopping until you get there!
Read the last two sentences again. Easy to say but how do you get there? What are the choices made by the successful? What are they doing differently from everyone else?

Choose to remove whatever is holding you back. Has something happened in the past to affect your self esteem? Do you immediately have negative thoughts as soon as money and success come to mind? If you are not choosing success then it is likely that something is blocking your ability to change and follow a new path. To remove the block you must have focus. To have focus you must first have an all consuming dream of where you want to be. Only when you have defined that dream can you start to focus on it. Focus so intently that everything you do is done with your dream in mind. Only then can you move toward that dream.

Choose to live your success. Live your life as if you were successful, as if you had already achieved the goal that you are focusing on. When you are at work, visualize what your workplace will be like when you have reached your goal, and place yourself there. Sit at your desk as if you were running the multimillion dollar business that you are focusing on. When you get into your car, visualize what your dream car will be like and see yourself sitting in it. Visualize yourself driving away from your dream house. When you are in your home - look around it and see your new surroundings. Get inside the feeling - really be there.

The more you do this, the more your subconscious will think that you are successful and move you towards these things. Live your success expecting to realize it. Living it now is a practice run for when it comes to you. After all, you want to be prepared, don't you?

Choose to believe in your success. What your conscious mind believes, your subconscious strives to achieve. Look around at your friends and acquaintances and ask yourself how many of them have unshakable belief in where they are going. Are they successful? Possibly not. They may be in a good job and have a nice life but they do not have the success factor. Perhaps you do know of someone with unshakable belief. They may not be successful now but they are moving in the right direction.
Belief is the catalyst which takes the dream and turns the focus into a plan to get there. Never underestimate the power of belief.

Choose to be emotional about your success. Belief plus emotion are unstoppable. If you have utter belief then you will develop emotion. If you want something badly enough it is emotional. Maybe it is to get out of debt. If you have suffered the hardships of this situation you will feel everything to do with debt and money is charged with emotion. This is the reason behind so many 'rags to riches' stories. Sometimes only the most devastating of emotional circumstances is the catalyst for change and a move toward success instead of away from it.
You can choose success. Or you can choose to stay safe and do what you do now. Guess what - you will still be doing the same in ten years time. The question is - do you want to?

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For more information on success and wealth building strategies, Go to www.transitionman.com, Johnny@transitionman.com or call
1-888-255-8626

How to Take Advantage of the Sub Prime Meltdown!

William Bronchick provides an overview of the Sub Prime market, how it worked, and how it creates opportunities for real estate investors. Bill provides some insightful ideas. Take a look and see what you think?

Any comments, share them below!

10 Tips For Starting A New Business

By Sean L. Robertson

1. Prepare written contracts for customers to sign. Any contract over $500 must be in writing. The contract should explain your company’s duties and your client’s responsibilities.


2. Choose the correct business structure. Make sure your structure is good for tax purposes and limits your personal liability. Generally, accountants like S corporations and attorneys like Limited Liability Companies (LLCs). To find out which is the best entity for you, please consult a business lawyer with a tax expertise.


3. Do not commingle your personal and business finances. Operate your business like a business. Do not commingle your personal and business finances. Otherwise, the personal liability protection provided by a corporation and/or LLC or relevant business entity will be jeopardized.




4. Have written agreement between you and your partners. You and your business partner or partners should have a written agreement that outlines your management responsibilities, your capital contributions, the procedure for admitting new partners or shareholders and whether additional cash or property contributions are required. You should consult a business attorney to help you draft a well-written partnership or business agreement.


5. Prepare for the possibility of death, disability and the likelihood that one partner or shareholder wants to be bought out. A buy/sell agreement should be drafted to address the possibility of death, disability and/or one person wanting their interest to be bought out. As a business owner, you do not want to enter business with your partner’s family members. Upon any of the above contingencies, your business must have a written contract explaining the process for buying out your partner’s interest. This ensures a smooth business transition period.


6. Watch out for oral contracts. As a small business owner, you or your partners can create an oral contract without realizing it. If another party believes there is a contract, there may be a valid contract. Follow the advice in #1.


7. Be careful when you hire independent contractors versus employees. Small business owners do not want to pay payroll taxes and hire independent contractors to avoid this responsibility. In contrast, IRS and State of Illinois may treat your independent contractor as an employee. Therefore, IRS & Department of Revenue (for your specific state) will assess interest and penalties for back owed taxes. Speak with an attorney or CPA before hiring independent contractors or employees.


8. Be careful about choosing to break contracts. Small business owners will enter contracts and choose to break them. A lot of times small business owners do not obtain the level of service and expertise that vendors promise them. Consequently, small business owners stop paying their vendors. Small business owners must maintain records and specific examples and correspondence with their vendors before breaching the contract. Evidence strengthens an attorney’s negotiating power when defending your company for breach of contract. The power of a written word is more powerful than oral communication.

9. Hiring and firing employees should be carefully done. Many small business owners do not provide their employees with handbooks. An employee handbook should be carefully drafted by an HR consultant or an attorney to ensure that costly litigation does not force your small business out of business. Small business owners should be careful to document why an employee was fired. Fired employees sue their former employers.

10. Do not infringe another company’s trademark. Small business owners, especially high tech companies, should be careful that they do not violate another company’s trademark. A trademark is a logo/symbol that represents another company’s goodwill, such as logo, name and/or symbol. For more thorough analysis, you should consult an intellectual property attorney.

11. BONUS – Follow Federal & State Securities Laws when you raise money from investors. Small business owners must comply with Securities Act of 1933 & 1934 and state securities law. A private placement memorandum (PPM) is required. A PPM is similar to a business plan. A PPM should address relevant legal issues and make full disclosures to investors. A PPM is necessary to enable an investor to evaluate the soundness of a business investment. When raising money from family and friends, make sure you comply with Federal and State Securities Regulations.

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Sean L. Robertson is the principal partner with Sean L. Robertson (SLR). SLR is a tax planning boutique law practice that concentrates in business and corporate planning, tax planning, and estate planning for business owners and real estate investors. Visit him on the web at www.SLRTaxPlanning.com. This article and other practical and useful information for real estate investors can be found at www.InvestWithPassion.com.
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Permission is granted to reprint and republish this article, unedited and in its entirety, along with the resource box above, on both online and offline mediums without prior permission.

FINANCING FORECLOSURES

Over the last decade mortgage options evolved, having dual effects: providing opportunities for more real estate buyers and an increased risk of mortgage defaults. In the immediate past, just about anyone seeking a mortgage could successfully find a program to accommodate a variety of situations and/or circumstances. From low FICO scores to no money down programs, the possibilities were endless. The subprime market was booming and the number of buyers increased exponentially. As the demand for properties escalated, so did prices/property values. According to the Case/Shiller Home Price Index, the property values (national average) rose from $109.638 in 1997 to $202.819 in 2006. Those figures represent an 85% continual increase compared to the highest increase of 16% during the 1987-1996 time period. However, issues began to rise when the interest rates increased on the adjustable rate mortgages (ARMs) that a large percentage of buyers obtained. These rate increases resulted in mortgage payments that were 25-100% higher that these buyers were accustomed to paying and/or could afford to pay. Most of them were depending on property values continuing to increase and interest rates to remain relatively low.   

Yet as a result, we are seeing what is being labeled the “mortgage meltdown”. Many people have lost their properties, many are currently in jeopardy of losing their properties and it is being projected that many more will lose their properties in the coming months. In addition, many of the lending institutions have gone under and those that are still operating have drastically altered their lending guidelines. The no money down, no income/asset verification programs are a thing of the past. The market has been saturated with a surplus of properties and the number of qualified buyers has decreased, leaving sellers to adjust prices – with a majority of properties being sold for pennies on the dollar. This is definitely not the best situation for the real estate market and economy overall, but it is music to both homeowners’ and investors’ ears.
 
So let’s begin with some general variables for dealing with foreclosed properties. There is a major variable, “bailouts”, that financial institutions consider a major negative. A bailout involves a transaction where the current property owner is behind on the mortgage payments and the foreclosure process has begun. In an attempt to savage the property, the owner finds a fictitious buyer to bail them out of their current situation by purchasing the property. Usually in a bailout situation, the property owner that was in foreclosure continues to reside in the property and make monthly payments to the buyer until they are able to repurchase the property. The buyer may negotiate an up-front fee and/or rental income that yield a monthly cash flow. Now I know you are thinking, how will the financial institutions know if it’s a bailout situation? Good question, the only way the financial institutions will know about a bailout situation is if there isn’t an “arm’s length” transaction. An arm’s length transaction is one where the seller and buyer are related or associated in some form or fashion. This is usually determined if the parties have the same last name or if a similar relationship can be proven. If not, and the new buyer qualifies for the loan program, the transaction is a go. Savvy investors have been very creative in these circumstances to lower risk, while creating a win-win situation for all parties. On the same hand, many homeowners have been victimized by unscrupulous investors and have had their properties/equity stolen from under them.
 
Additionally, another variable that lenders caution involves properties that are located in “declining markets”. Today declining markets exist in most communities, therefore lenders place a lot emphasis on evaluating the appraisal. According to Fannie Mae, each appraisal should be carefully reviewed to ensure the appraiser has appropriately analyzed property value trends and overall market condition to arrive at the value provided. More detailed requirements stress that the loan be processed in an Automated Underwriting System (AUS) that defines the risk in the area where the property is located and a suggested value. If there have been multiple foreclosures in a given area, the property will most likely have a declining value. If the value defined by the system is lower than the appraised value, the lender may require a third party Broker Price Opinion (BPO). The BPO report is usually done by a local realtor or specialist who has a vast knowledge of the area where the property is located. The financial institution will compare the findings from all three reports to comprise a value that will be used to determine the loan amount.
 
There are several variables involved in the loan application process. The emphasis here is on conventional/FHA financing, since non-conventional programs are rapidly dwindling. Let’s look at the requirements for properties that are in move in condition and/or may need minor repairs. If the property is owner occupied (property the buyer will live in), the lender will require a minimum of 3-5% down. Generally, we are looking for a 620+ credit score, a documented/verifiable income source with a total monthly obligation expenses to income ratio at or below 36%. Debt to income ratios can be higher if approved by an AUS factoring in other variables. The seller can contribute up to 3% toward closing costs and 2-6 months PITI (principal, interest, taxes & insurance) payment reserves or funds left over after closing.
 
As far as government financing, FHA is KING for the purchase and refinance of owner occupied 1-4 unit properties. It is the best program available today. FHA requires a 3% down payment (the funds can be a gift from family members or a down payment assistance program). FHA is not credit score driven, however there are very few lenders that will approve applications with credit scores below 580. All court ordered judgments must be paid off, but collections accounts do not. If the buyer has collections or judgments, a letter of explanation (LOX) must be included in the file. The buyer must have a documented/verifiable income source with a general total monthly obligation expenses to income ratio at or below 33%. As with the conventional financing, the ratio can be higher if approved by an AUS factoring in other variables. The seller can contribute up to 6% toward closing costs and cash reserves may vary depending on the overall loan package.
 
Conventional financing options for investors require a minimum down payment of 10% for 1-2 unit properties and 25% down for 3-4 units. Generally minimum credit score requirements can be as low as 620 and as high as 700, depending of the logistics of the deal. The borrower must have financial reserves equal to at least 6 months PITI mortgage payments. When multiple mortgages are made to the same borrower, there is a ten mortgage limit and the borrower’s total liquid assets must be sufficient to satisfy the reserve requirement for ALL of the mortgages. (We will discuss FHA financing for investors shortly and YES investors can utilize FHA financing!)
 
Now as you are probably aware, sometimes foreclosed properties have been trashed by previous owners or experienced major deterioration due to neglect. In these instances, the properties don’t meet the financial institution’s program requirements and in some cases larger down payments are required. However there are financial institutions that offer programs that advance funds to cover the purchase and renovation of the properties. These are called renovation loans and they can be used for owner occupied and investment properties. HUD offers the FHA 203(k) renovation program that can be used for owner occupied 1-4 units.  In addition, there are conventional renovation programs resemble the FHA 203k program. We will discuss renovation programs in detail next month.
 
REO Properties
During your quest to secure foreclosed properties, another option may be to look into Real Estate Owned (REO) properties. REOs are foreclosed properties that were not sold before or at the foreclosure auction and are still owned by the financial institutions that held the previous mortgages. Because financial institutions are in the money business and not the buying and selling of real estate business; in the instance they acquire real estate, the ultimate goal is to get rid of the property and recoup their financial losses on the defaulted mortgage. They normally hire a real estate broker to assist with the sale of the REO properties. Some financial institutions even post their REO properties on their websites.  Buyers interested in purchasing these properties should first attempt to obtain financing from the financial institution that holds the property. This information can be obtained from the listing agent or public records. If the buyer qualifies, a considerable amount of money on closing cost can be saved and/or financing at a slightly lower interest rate may be obtainable.
 
Foreclosed properties that are held by the Department of Housing and Urban Development (HUD) and have mortgages that were insured by the Federal Housing Administration (FHA) is another option. As with REO properties, substantial savings on closing costs are available if the buyer qualifies for an FHA loan. This is a viable option for both owner occupied buyers and investors. The requirements are the same as discussed earlier for owner occupied buyers. However for investors, the requirements are slightly different. HUD requires investors to bring a 25% down payment for single family units and a 15% down payment for 2-4 units. Please note, this only applicable to investors that purchase HUD owned properties.
 
If you are looking to finance foreclosed properties, contact a qualified banker or loan officer. The requirements and criteria will vary depending on the financial institution and the program.

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Anita Clinton is an Illinois licensed loan originator.  Visit her website at www.OwnSomethingToday.com or call her 888-842-9732.  This article and other practical and useful information for real estate investors can be found at www.InvestWithPassion.com. 


Permission is granted to reprint and republish this article, unedited and in its entirety, along with the resource box above, on both online and offline mediums without prior permission.

How to Finance the Purchase of Foreclosures

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Invest With Passion!

Rehabber's Corner: REHABBING IN CHALLENGING TIMES

by Scott Rubin

The Perfect Storm - when the housing market and the lending market crash at the same time. I've always considered myself somewhat of a philosopher. Even my projects are less about nails and studs and more about how you feel when you walk into that room where those nails and studs might be.

Recently, I came back from a Frank McKinney Palm Beach Experience trip. For those of you who aren't familiar with Frank, he builds multi-million dollar estates on the oceanfront in Florida. I flew down with my mentor and seven other investors from Chicago. The purpose of the event was to raise money for Frank’s Caring House Project Foundation which, among other things, raises money to build homes in Haiti.
Like Frank, I consider myself a developer. Just like adults have an inner child, I believe that developers have an inner rehabber. We saw Frank's first $50,000 rehab and the site of his $135,000,000 development. Frank once sat with one of his homes for 19 months before it sold. One of my projects was built in 1899. I call it the Jewel of Edgewater. It was under construction for six months and has been on the market for 15 long months.

The history of the Edgewater area is amazing! Motion Pictures started next door in the Uptown area. Charlie Chaplain was signed with the first ever movie studio, Essanay Studios. They would put the stars up at the Edgewater Beach Motel. The Lone Ranger, Clayton Moore, grew up right around the corner from the Jewel of Edgewater. And the stagecoach used to stop right next door to the Jewel.
What I learned from Frank is that being a developer requires a tremendous amount of organization and focus. Though I am saying this in one sentence, it deserves many books of explanation and study. It is the most important line in this article. Frank has two books that are a great start and the proceeds, of course, go to his Caring House Project Foundation.

So what does all this mean? I'm sure when Frank started out, he also called himself a rehabber. It is the beginning stage. We grow into developers. You could say that rehabbers grow up and become developers. Some wise person once said, “there are no accidents, only inattention.” Just like a parent who is holding their inattentive childs hand as they walk them across the street, it is in this beginning stage I call rehabbing that it is the most important for you to surround yourself with people who can take your hand and guide you until you learn how to pay attention.
When I started out, I was like a kid in a candy store. I was having so much fun rehabbing and creating, that I wasn't paying attention. I forgot that there was this thing called a business that had to be run. There is no auto pilot switch in your business. You need to pay attention every day. You need to find good people that will pay attention for you and then you have to pay attention to them and what it is you are paying them to pay attention to.

One night at Frank's Palm Beach Experience, we were dining outside at the hotel. I decided to go back up to my room before the Coffin exercise that Frank was going to perform. I was walking briskly and ran into a full-length plate glass window. No one saw me, but a bunch of people heard the sound of me going nose first into the glass. Embarrassed, dazed and confused, I said I was fine and found the door as I headed up to the elevator. I rubbed my nose and realized blood was pouring out into my hand. I thought it might be broken considering that it was now located on my cheek. Two girls saw me in the elevator bleeding and asked if I needed a paramedic. No, I said, I'll be ok.

Fifteen minutes later, I was in the ballroom watching the Coffin exercise. Though several others and I contend that the plate glass window was an accident waiting to happen, it might not have happened if I was paying attention.
These are challenging times - particularly for rehabbers. Surround yourself with knowledgeable people, a mentor, and a mastermind group. If you get knocked down during a tough market or run into a plate glass window, pick yourself up, rearrange your nose and call your mastermind group or mentor. Two or more heads are always better than one.

Something else I share with Frank is my desire to give back. According to my parents, when I was very little, I was “curious”. That is the word two of the kindest people I know use to describe my taking apart and breaking everything! When I was about 9 years old, my Dad gave an old alarm clock that he was going to toss out. It didn't work. I took it apart and fixed it! From that moment on, I was fixing everything! I even fixed things I broke years before. My parents would have lists of things for me to fix when I would come home from college. I guess it was payback time!

That passion to fix things even spilled over into my relationships. One of my old girlfriends said stop trying to fix me…I just want you to listen. It is in my nature to fix things and I want to help people. I feel I am doing that in my Allergen Reduced Homes. I plan to start 5 Star Properties Charitable Foundation shortly.

I am not sure that I can rightly call myself a developer like Frank McKinney. In many ways, thinking about the organization and focus required to build a $135,000,000 single family home makes me see myself as a rehabber again. Even though I am in the process of restoring a $1,000,000 home in Lincoln Square, I believe that it will be me developing the organizational skills in my business and the focus that will ultimately make me feel like I've grown up into the developer that I truly want to be.

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Scott Rubin is an active investor and founder of 5 Star Property Solutions, Inc. and 5 Star Reconstruction, Inc. For more information, he can be reached at 847-579-4830 or visit him on the web at www.a5starProperty.com.

What is a Short Sale?

By Marki Lemons

The turbulence felt in the real estate market is worse than any trip aboard a Boeing 747. Numerous real estate practitioners love the industry and will find a way to stay in real estate. In order to make money in real estate today you must deal with foreclosures in some capacity. There was a time not long ago when foreclosures only affected the economically challenged. Today everyone is affected: the poor, the middle class, and the affluent.

Since the real estate market has taken a down turn, a lot of area homeowners have found themselves in a position where they owe more than their home is worth. As long as you don’t need to sell your home and as long as you can afford the payments, your best bet is to hold on and do nothing. Eventually the market will rise and your home value will recoup.

But what if your client has to sell? What if they are faced with a job loss or relocation, divorce, illness, rising taxes, unheard of assessments or financial hardship? What happens if they can no longer make their mortgage payments? Is foreclosure their only option?

Many homeowners are approaching their mortgage holder and requesting that they accept less than what is owed. This is generally called a short sale.

What is a Short Sale?
A short sale occurs when a lender is willing to accept less than the full mortgage pay off. The lender agrees to an amount that is less than the outstanding mortgage (by reducing the payoff letter) and allows the borrower’s debt to be forgiven.
A property is a candidate for a short sale when all liens, plus costs of sale, exceed the market value. Liens include mortgage liens, mechanics liens, tax liens, unpaid judgments, and unpaid HOA fees.

A short sale is a form of pre-foreclosure sale in which the mortgagee agrees to accept less than the loan amount to avoid foreclosure. The good news is that the lender pays the closing cost, commissions, title fees, and repair costs. The seller gets the home sold, the loan satisfied, avoids foreclosure and spares them some points on their credit.

What are the Borrower’s Options When They Cannot Pay Their Mortgage?
If your client finds themselves in this unfortunate situation they have twelve options.

Contact their lender: Homeowners facing financial difficulties often make the mistake of avoiding their lender, which is exactly the wrong thing to do. If they are unable to make their mortgage payments, contact their lender as soon as possible and explain their situation. They need to find out what options are available through their lender.

Contact family members and friends: Ask for help from your family and friends. Don’t let pride stand in the way. If you were in a position to assist a family member or friend who was facing a similar situation, how would you feel if they didn’t ask you for help?

Reinstate the mortgage: If homeowners expect their financial situation to improve they may ask the lender to work with them through this temporary set back. If the homeowner can come up with enough cash to bring their mortgage payments up to date, the lender will probably agree to hold off on foreclosure proceedings. This is commonly called a “work out agreement”.

Negotiate forbearance: Forbearance allows payments to stop temporarily or be reduced for a specific length of time. The lender may grant forbearance of principal, interest or both. The borrower will be responsible for repayment of accrued interest charges. Sometimes the borrower can make interest-only payments, or the interest will be added on to the principal. The key is to contact your lender right away. Even if the homeowner thinks it is too late, it’s never too late to ask!

Refinance the loan and consolidate the debt: With a good credit history, one may be able to consolidate their debt with a loan that requires a total monthly payment of less than what the homeowner is paying on all their loans put together. Be careful with this approach because it may only be making matters worse.

Sell the house: If there is equity in the house, consider selling the home and finding more affordable accommodations for the homeowner. Selling the home is what 90 percent of those who are facing financial adversity really need to do, but unless they act quickly, they may run out of time.

Negotiate a short sale: Lenders typically want to avoid foreclosing, because of the costs associated with it. Most lenders are open to negotiating a short-pay on the loan. This isn’t something homeowners should attempt alone. They need to talk with a knowledgeable Realtor.

Consider a sale and leaseback: This is when the homeowner sells the home and then rents it back from the new owner. A real estate investor might be interested in such a creative solution. It can be a win/win. The investor gets a nice property with a tenant already in place; and the homeowner reduces their payments. Be careful of scams from tricky investors that could make matters worse.

Give the deed in lieu of foreclosure: Homeowners may be able to offer the lender the deed in exchange for them not foreclosing on them. Homeowners lose their house and their equity, but retain their credit rating. In a market with declining values it is unlikely that the lender will accept a deed in lieu of foreclosure.

File for bankruptcy: Bankruptcy is rarely the best choice. In most cases, it simply buys some time, but it does not stop foreclosure. Bankruptcy is catastrophic to ones credit and is costly.

Foreclosure: This is, by far, the worst option for most people because of its wide ranging effects emotionally, financially, and credit wise. With foreclosure the home is lost, and any equity they may have built up. The homeowner will probably not be able to buy another home for years to come and their credit will be ruined for years. There is even the chance of a deficiency judgment. This is when the homeowner stills owe what the lender lost.

Do nothing: Many borrowers do nothing and end up in foreclosure or bankruptcy. Most people stay in denial far too long and lose the opportunity to salvage their financial situation. Doing nothing is not an option. Homeowners shouldn’t wait until it’s too late to get helped.

Is a Short Sale the Best Option?
If your client’s financial situation is unlikely to improve in six to twelve months, a short sale may be the best option.
None of the above should be considered legal or tax advice. Always, consult with the appropriate professionals.

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Marki Lemons, CRB, CRS, ABR, ABRM, CRMS, MBA is a Certified Residential Broker, Loan Originator, and Instructor. For more information, visit here website at www.ShortSaleResultsNow.com to view and purchase here Short Sale Results Now course. Education is the key and you should learn from the best.

Cramer Has Passion!

Enjoy or hate the man known as Cramer, but you must admire his passion!

What are your thoughts on Cramer? Is he the man? Do you hate him? Let use know by leaving a comment below to express you thoughts on the man, the myth, the legend, Cramer.

ANATOMY OF A FORECLOSURE

Foreclosures are occurring daily at alarming rates across the country. With so many homeowners experiencing an increase in monthly mortgage payments due to interest rate adjustments on their adjustable rate mortgages (ARM), the foreclosure epidemic continues to spread. This unfortunate situation has resulted in an influx of below market value properties. We now see properties being sod for pennies on the dollar and real estate investors are clamoring at the opportunities. For those seeking to understand the foreclosure process, here we will explore and dissect the elements.

Notice of Default.
As a result of the borrower falling 90 days late on the mortgage payments, the lender files a notice of default (NOD). The NOD puts the borrower on notice that a default has occurred and legal action may be taken if it is not corrected. Once filed, the foreclosure process has officially begun. NOD’s are sometimes referred to as lis pendens, meaning “lawsuit pending”, because the foreclosure process is a legal lawsuit initiated by the lender due to the borrower not fulfilling the terms of the mortgage. NOD’s are a matter of public record and they are sometimes published in the local papers. In Chicago, many NOD’s are published in the Law Bulletin, found at the periodical stand in the lobby of Chicago City Hall, 121 N. LaSalle St. Chicago, IL.

Pre-Foreclosure.
Pre-foreclosure is the period of time between the beginning and end of the foreclosure process. Depending on the mortgage law for the state where the property is located, this period can vary from 30 days (Texas) to well over a year (New York). (See the Title/Lien Theory Map for states)  Mortgage law is based on whether the given state is a title theory or lien theory state.

In title theory states, the lender holds legal title to property and the borrower retains equitable title. Equitable title allows the borrower to retain the right to live in the property, improve it, rent it and enjoy it. Legal title transferred once the mortgage has been satisfied. The lender holds the property for security purposes and the borrower has right of possession. Title is transferred to the borrower once the loan has been satisfied. In the event the borrower defaults on the loan, the lender has immediate right to possession and any rents or income from the property. (See the Title/Lien Theory Map for states)  

In lien theory states, the borrower holds legal and equitable title to the property and the mortgage becomes a lien on the property. The lien is released once the mortgage has been paid in full. In the event the borrower defaults, the lender must go through the formal foreclosure process to obtain legal title. In some states, the process includes a statutory redemption period in which the borrower can redeem the property. The foreclosure process can be very lengthy and costly for lenders. (See the Title/Lien Theory Map for states)

Some states have adopted the intermediary theory, which is a hybrid of the lien and title theory. In intermediary theory states, the borrower retains legal and equitable title and the mortgage is a lien like the lien theory states. However in the event of default, the lender is allowed to take possession of the property like the title theory states (utilizing the foreclosure process governed by the state). For example, Illinois is a intermediary theory state and the foreclosure process takes about 12 months. In addition during the foreclosure process, the borrower has a redemption period which allows them to reclaim the property by satisfying the delinquent payments.

The pre-foreclosure process creates opportunities for investors to work a deal with the homeowner to satisfy the delinquent mortgage in exchange for deed to the property. There are a wide variety of ways to structure these deals that include (“subject to approval”) existing loan staying in place, cash payments, and short sales. (These strategies will be discussed in later posts.) Bottom line: Buying before the close of the foreclosure process presents opportunities for investors to profit.

Sheriff Sale.
If the borrower fails to pay during the redemption period, the property is sold at a sheriff sale. This is commonly known as the auction. The county sheriff executes the sale of the property during an oral auction. Mostly investors are in attendance, because full payment is due 24 to 48 hours following the auction. There are no sixty-day closings.

Real Estate Owned (REO).
Properties not sold at the auction or sheriff sale are collected by the lender. In most instances these properties are listed to be sold. Often times, banks have particular real estate brokers that sale their properties. On the multiple listing service (MLS), you will notice these properties labeled as bank owned or real estate owned properties. That wording signifies the property is a foreclosure that did not sale during the auction. These properties also create investment opportunities.

Homeowners
For homeowners, foreclosures can be a nightmare. There are many legitimate organizations that assist homeowners that are facing foreclosure. If you are a homeowner facing foreclosure, visit http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm to locate HUD approved counseling agencies in your area.  

Investors
For investors, foreclosures can be opportunity. It is no secret that investing in real estate is a viable mean for creating wealth. Tour our website at InvestWithPassion.com for practical and useful real investment information.


(See the Title/Lien Theory Map for states)