In the second quarter of 2008 national foreclosure rates jumped to an all time high of 6.41 percent of all mortgage loans. That number also includes mortgages which are only delinquent and have not yet entered formal foreclosure proceedings. Of the total mortgages 2.75 percent are actually being foreclosed, which is three times the numbers reported in 2005.

All of you have seen the ever expanding number of websites and newspaper ads telling about how people can search and go to foreclosure auctions in their area. Everyone likes to think they can actually get those homes for pennies on the dollar, as advertised. Don’t be fooled though. Ninety-nine percent of those homes and properties are still owned by someone other than the bank which floated the original loan which was foreclosed.

There are many things which happen at these so-called ‘foreclosure sales’ and it’s all designed to fool regular people. Fore example: You see a home in the listing which states bidding will start at a thousand dollars. In most of those cases the house/property is either about to be condemned, or it is still owned by an individual who has set a reserve price on it. In the first case it will cost you more to fix the house than it is worth, or cost you tens of thousands to have the building demolished and hauled away leaving you with an almost worthless lot. In the second case, the actual owner of the property will have an agent at the auction who will bid on the property until it is above the reserve price. The buyer will wind up with an overpriced home which they’ll owe more than it’s worth.

Banks also have agents on the property to bid the prices up. Unless the bank is within a few days of bankruptcy, there is no way they are going to let the property go for less than the amount left on the original mortgage. Even then, they’re still not going to let it go for that advertised ‘pennies on the dollar’ amount you came to the auction believing. If no one bids on the property, or their agent wins the bid, the property will go back on the market in the next ‘foreclosure auction’.

Another thing not said in the advertisements is how much you’ll have to take to the auction. Most property auctions require those attending to have a certified check for at least five thousand dollars to even be allowed into the event. This serves a two fold reason. It weeds out the people they consider undesirable (regular people looking for a home), and it makes sure those attending have a down payment.

Most auctions also require those bidding, if they win, to pay twenty percent of the winning bid before they leave. That means if you are crazy enough to bid three-hundred thousand on that house which was valued at two-hundred and eighty thousand six months ago, you’ll have to come up with sixty thousand dollars. You’ll also have to secure financing for the rest before you leave.

Sometimes lenders will be on site. Most auction listings will say which properties will have financing available. While not always the case, you will have to carefully read the fine print. Realtors, banks and other land owning institutional already understand the rules before they come. They’re praying someone who doesn’t will come along.

If you bid on a house, make sure you’ve had it independently appraised at current market value. Then deduct at least another twenty percent. Home values are going to continue to drop because the market is trying to stabilize itself. 

And lastly, make sure to visit the property. The pictures in those online listings or in the paper are very rarely an accurate representation of the property. If the picture has three foot high grass and a tree obscuring the house, it’s probably not worth your time. Go into the house, walk around it, and make sure to note anything which might cost you thousands to replace or fix. If you have any doubts either get an inspector or don’t bid. Don’t forget to have the property independently appraised. The owners, banks and lending institutions want top dollars for these properties, and they want last year’s inflated prices. Don’t be fooled. They don’t mind getting thousands of dollars from you, and then getting the opportunity to auction it off again in a year or two. The only one who will lose is you.

The key highlights of Harvard University housing market report are the following:

1. The current fall in house values and rise in mortgage defaults was last seen 30 years ago. In 2007 1.3 million homes were in foreclosure. This is bad news that 1 million people lost their homes and millions more are living with fear.
2. Builders over-built, lenders over-lent and borrowers over-borrowed. This is the reason for the dismal situation in the housing market.
3. However, over the next 10 years, there will be demand for 14.5 million new homes. This is good news. It confirms that demand for land and housing will always increase because of population growth and limited land space.
4. 
   The housing market will eventually recover but it will take longer than other recessionary periods. This is good news.

Let us explain from an economics point of view. The banks lent out too much money, too easily. Many people who could not afford to pay for mortgages they applied for got approved and hopped into the bandwagon. Then the law of supply and demand took over.

The huge supply of money created a big demand for houses. The big demand pushed the prices through the roof. Developers too thought demand for new houses would last and they borrowed money to build more houses. But the economy could not sustain the large credit supply and high interest rates as a result of under-qualified borrowers and over-inflated house values. The bubble had to burst. In 2007 it did.

What we are seeing today is the market trying to recover as it seeks a new economic equilibrium of supply and demand. But who is to blame for the mess and the misery.

Banks

The worst culprit in the subprime mortgage lending process was the stated income loan application. This allowed homeowners to state their income without showing any evidence of the stated income. The stated income process allowed mortgage brokers and borrowers to stretch the truth too far on the loan application forms. For example, it was noted that applicants earning $2,000 per month were able to purchase homes requiring $4,500 payment per month.

Why did the banks allow this to happen? Is it because they were able to inflate interest rates for sub-prime borrowers? Did they become greedy?

Brokers

Mortgage brokers are paid commissions based on the amount of loan the borrower gets. They pushed borrowers to buy houses they could not afford and manipulated the application forms and sourced lenders who could provide the highest and most expensive loans. They inflated their fees. Did they become greedy?

Borrowers

When easy credit became available, borrowers borrowed more than they could repay hoping to refinance within a year and cash out home equity. Borrowers were counting on home values rising year after year. Did they become greedy?

Government

Federal and state governments assumed the banks knew what they were doing and chose to bury their heads in the sand. The government expected banks to make excessive profits, which would in turn result in massive tax payments to the government. Did government become greedy when it abdicated its supervisory role over banks?

Where are we today?

The government has taken the reins and it is now exercising its supervisory role by creating guidelines for banks and mortgage brokers to avoid predatory lending. It has also approved $300 billion so that FHA, Fannie Mae and Freddie Mac can refinance home loans and reduce mortgage payments for borrowers.

The banks are scrapping those 100% financing, no down payment, no closing cost, stated income, type of loans. Brokers will be required to pass exams and be licensed to ensure they follow a code of professional ethics.

Borrowers are now understanding that a home is a place to live in and not a get rich quick scheme.

What are your options?

If you do not own a house and you are contemplating on buying one, watch this space. We will write an article on the most cost effective way to buy your first house. You can also request free guidelines by email.

If you own a house and you are able to pay your mortgage and you can refinance to a low interest fixed mortgage within the next 2 years, your concerns are not critical. You can afford to wait for the market upturn in the next 5 years.

If you are among those unfortunate to realize that their house value is now lower than the loan and you cannot afford the increase in mortgage payments, we have some suggestions for you.

1. Short sale. Lender allows you to sell the house for an amount less than the loan and they write-off the rest of the loan. Your credit will not show a foreclosure.
2. Loan modification. Negotiating with your bank to change your loan payment terms to make it affordable. You may have to prove financial difficulty and provide a hardship
   

   letter explaining the cause of difficulty. Forbearance. Negotiating with your lender on how to structure repayment of past due amounts within 18 months. This assumes you only have a short-term difficulty. FHA/VA one-time payment. If you got your loan through FHA/VA, they can loan you an interest-free one-month payment if you are able to resume normal payments. Bankruptcy. If you get a go

   od lawyer you can avoid foreclosure, slow foreclosure or avoid eviction by filing for bankruptcy. Companies and wealthy people commonly use this method.
3. Deed in lieu of foreclosure. This means giving your house to the lender and avoiding foreclosure process.

You may need a lawyer and credit counselor to help you with any of the above options. It is also important to beware of scams and bogus companies targeting your money or house yet claiming to help you in the process.

Our advice is that you should start pursuing these options as soon as you realize you are in difficulty of making payments on time. You will then have time to try as many options as possible.

Also understand that the bank does not need your house. Their business is to sell loans not to sell houses. As long as you are making some payment as you negotiate, the bank will be willing to work something out with you.

Giving up your home should be the last resort. END

Baron Rothschild said “buy when there is blood in the streets.” With all of the bad news around home prices, there certainly is sufficient blood in the streets to consider investing in the homebuilders. Much of the blood in the streets is red ink spilling out of the homebuilders' financial statements - they are losing a lot of money on their inventory of homes already built, and are selling vacant land that they purchased at higher prices for home construction. WCI Communities, a publicly-traded home and condominium builder declared bankruptcy recently, as did privately-owned Levitt & Sons. Homebuilders Tousa, Kara, and Neumann Homes also sought bankruptcy protection within the last year. However, despite the awful market conditions, not many publicly-traded homebuilders have gone bankrupt. Granted there are some that are weak, and the industry is clearly suffering the worst homebuilding environment in decades - maybe even generations, but the current bad news is already price into the stocks for these companies.

It is interesting to note though that with much less building housing starts on an annualized basis have declined to below 1,000,000, historically recessionary levels from which housing turnarounds have begun. Furthermore, single-family housing starts have declined to the point where there are fewer homes being started than are being purchased so that the inventory of new homes is starting to decline. Granted there is a large inventory of used homes (called existing homes) for sale, and with foreclosures rising there could be more.

This writer believes that Toll Brothers (symbol TOL), a luxury homebuilder, and an S&P homebuilding exchange-traded fund (symbol XHB) are reasonable purchases in today's risky homebuilding environment. There is a lot of risk in the homebuilding companies today, but there are also conditions being established for a turnaround. There will be further volatility in the sector, but with so much bad news already priced into the stocks of these companies, the downside risk seems bearable; whereas any good news in the sector could signal the end of a trying couple of years in a battered industry and reward patient investors with returns above that of the general market. By the time the headlines tout the positive trends for homebuilding companies, much of the stock price gains from the turnaround will have occurred.

I don't profess to be a financial wizard and I can't begin to understand the complexities of the mortgage system but I do know this. Foreclosing on 2.5 million mortgages means there are 2.5 million vacant homes. These homes will require monitoring and maintenance in order to keep them in decent shape and the threat of vandalism has probably increased by at least 50%. Who is footing the bill to look after these properties?

Would it not make more sense to figure out what the mortgagee can afford to pay and add the difference to the end of the mortgage? Some small payment is better than having no revenue and a vacant property. I imagine that given time, many of the people who have lost their homes would be able to start making the proper payments again. The costs to foreclose must be prohibitive. How can lenders justify this to their shareholders? A reduced but steady income, no cost incurred maintaining vacant properties, no legal fees for foreclosure.........sounds like a win, win situation to me.

The effect that foreclosures have on the economy must be astronomical. If you consider that each foreclosure most likely directly affects two people then you are talking 5 million people who are now without shelter. People living without shelter are certainly not going to be buying the luxuries in life. They are simply trying to survive. Businesses that depend on disposable income will be noticing a huge loss of revenue. The people who own these businesses also have bills to pay. Perhaps, they too will lose their homes as they no longer have the income to pay their mortgages. Where does it end?

How can this situation ever improve unless financial institutions and the government realize that these are not simply financial dealings but the lives of human beings? It was the responsibility of the financial institutions to give mortgages responsibly and the duty of the government to monitor these transactions to make sure that they were ethical and responsible. Since the lenders and the government have failed to do their part, it behooves them to assist those who have either lost their homes or are in the process of doing so.

People signed for loans that they could afford today, but did not take into consideration, or did not care to, the fact that the interest only loans will go up in premiums in a few years. Now, no one can afford the loans, foreclosures are at an all time high, banks are losing billions.

It would do no good for anyone to blame and point fingers at this point in time. It won't make the problem go away, a solution needs to be found so that this does not occur again. A fact finding body needs to be implemented to find the true cause for the debacle, come up with recommendations and submit it to Congress. I do not think Congress can do this. People do not trust Congress to find any thing factual. However, they do draw up the laws. And it may not need to be a law, just financial guidelines to prohibit this fiasco from happening again.

Where was the Federal Reserve during this time? Do they not have some say in this? Instead of supplying more money to bail the banks out, which will inevitably drive up inflation, why did they not step in and handle things before the nightmare got started? Not under governmental control, The Fed should have gotten together with the major banks and put in methods of control early. The fact they did not is an indication they may be the ones who benefit the most from this series of events.

Could that be why no fact finding body as been convened? Is there something sinister hatching in Washington? Is there a plot by the financial powers to be to turn the housing market upside down? There are a lot of questions being asked, and no answers coming forth. Foreclosures are at an all time high, billions of dollars are being lost by major institutions, people's lives are being ruined, and the impact is not fully known even now.

Hence Banks and other lenders wind up with a huge portfolio of unsellable properties. The properties are costing the lender a great deal of money to simply manage. Hence that property which would have sold for perhaps one hundred and fifty has cost and is costing the lender sums so that to 'break even' it would have to sell for six hundred thousand dollars. This is the root cause of the melt down in the housing market; fantasy financing. It happens periodically. It is predicable.

It happens when people can purchase a home, and seeing values increase decide to speculate, purchase other properties using their home as security. Those who get in early

and get out, make money. Those who get in late, lose everything. Wise advisors will always say something to the nature; "Whatever you are going to purchase, have twice as much money as the purchase price."

Always buy less than you can afford. In this way, you are sure to own what you buy.

Never take a loan with a "variable" interest rate. Always know exactly how much you will be paying for the length of the loan. If not, don't borrow, or don't borrow under that scheme. If you have X dollars in the bank you can use as security for a loan, and wish to use that loan to purchase a home, all you stand to lose is the money in the bank, not the home.

Never mortgage the house you live in to buy another premises. The house the Bank took, which is valued, on paper, at five hundred thousand dollars, will eventually sell for one hundred thousand dollars in a "fire sale".

The purchaser will get a "super bargain". As property begins to appreciate, the owners might sell it for three hundred thousand dollars.

And then another "boom" will begin.

Why are there so many foreclosures? Why are so many people losing their homes? Why are so many people walking away from the homes? Why is this problem all over the United States? The answer is the Mortgages that were sold to the general public. The answer is also the lost of jobs, divorce rate going up and major medical bills that are not covered by the health industry. All of these factors equal recession. Outsourcing of jobs to get cheap labor has crippled our economy. Now we have recalls because of lead in many products manufactured in other countries for cheaper labor but now the cost is tremendous to correct this problem.

The housing industry is a forecaster of the economic climate and our economy is crashing because of bad loans. Bad loans are the cause of so many foreclosures. The Mortgage Industry had no governing regulatory guidelines for the Mortgage professionals. Loan Officers were unleashed on an unsuspecting community that trusted a professional without training or compassion for their future. Greed was the motivating factor behind most of the loan that were made over the last decade. Some financial institution came up with the bright idea that if you give people that barely qualified for a loan a 2 to 5 year period to get their credit together than increase their interest rate the Loan Officer would be guarantee to get repeat business; thus more money. The concept took off like wildfire. The financial institutions were offering adjustable rates 2% less than fixed rates. The Loan Officers were like dope pushers. They left professionalism behind and was fueled by the thrill of making lots of money. Unethical Loan Officers had a field day. The untrained Loan Officers just did not know any better. The incentive of more money thrusted some Loan Officer that had the proper training into a money - money - money frenzy. The Hay Day let many first time homebuyer get a house that was not quite ready.

All this activity was filed under the term Creative Financing. The term sub-prime lending was also created and First Time Homebuyers were the jargon coined for the last decade. The terms have now changed to Foreclosure, Housing Slum, worst housing market in years, housing bail-out, freezing adjustable rates and Help are in the head line all across America. In the 1980 the housing jargon was assuming loans because the interest rate was as high as 20%. There are trends in the housing industry every decade or so; but this present market is upside down.

In closing I would like to say all Loan Officer were not bad but the bad one put us in this mess.

For the ill-informed, however, buying a foreclosed property at a sheriff's sale can be confusing at best, and at worst it can be financially disastrous.

Become Familiar With The Foreclosure Process In Your State

The foreclosure process in each state is dictated by statute and case law, and the procedure differs greatly from state to state. In some states, such as Texas, the entire process can take less than three months. In other states, such as Wisconsin, the process can easily take nine months to a full year, or even longer if the homeowners file for bankruptcy protection or otherwise work to delay the process.

Each state has its own methods and procedures, and the first step to success is understanding the foreclosure process for your state in its entirety. If you plan on making foreclosure investment a serious venture, you may even wish to enlist the assistance of an attorney who can advise you on the foreclosure process and help you better understand the full procedure for your state.

Do A Thorough Title Search

In many states, properties are sold at foreclosure sales subject to any liens and encumbrances already on the property. This can include judgment liens, tax liens, prior mortgages, real estate taxes or any number of other financial or title issues which the purchaser at the foreclosure sale can inherit. An unwary purchaser may buy a property that seems like a great bargain only to find out that it was sold subject to tens of thousands of dollars worth of other liens, or worse.

Do not rely on the statements of other potential purchasers, the attorneys for the foreclosing bank, or even those of the homeowner when it comes to the status of the title to the property. Either enlist the assistance of a title company or become familiar with searching the judgment rolls, tax records and real estate records. It is absolutely essential to exercise due diligence and research the status of title for each property before even considering placing a bid at a foreclosure sale.

Be Skeptical About The Property's Condition

Unlike a traditional real property transaction, there is rarely an opportunity to view the interior of the foreclosure property prior to purchase. Further, the properties are purchased as-is with absolutely no warranties as to their condition. Some interested buyers do contact the homeowners and ask to view the interior of the property, but not all owners are willing to show their houses and in many cases the property has been abandoned or the owners are difficult to locate. As your only evaluation of the property's condition is likely to be from the exterior, it is essential to think critically about the interior's condition.

When residential properties go into foreclosure it almost always related to the owner's financial difficulties. This means that there may be maintenance issues with the property that were ignored due to their expense, or serious repairs that should have been done but were neglected due to the cost. As a purchaser of a foreclosure property, you must be willing to take on whatever problems the interior or structure of the property may have.

There Will Always Be More Properties

Foreclosures are showing no sign of slowing down. If you have serious reservations or unanswered about a property it may simply be best to hold off and wait for the next one. If you cannot go into a foreclosure sale armed with complete knowledge of the property you want to bid on - knowledge of the status of title, the interior and exterior condition, and any other issues that might be of concern to you - you may be better off waiting for the another property.

What is a Tax Lien?

A tax lien is the name of the claim that a taxing authority, such as the local or federal government, makes when an individual has not paid taxes for a lengthy amount of time. Tax Liens are most often applied to homes. Essentially, the government ceases control of the property, pending payment on taxes.

The taxing authority, will then sell a certificate for an asset, such as a piece of real estate or boat, if the owner of the property has been negligent in paying his or her taxes. Anyone can purchase a certificate by attending a tax lien sale auction in the county in which the unpaid taxes are owed.

How can I make money from my tax lien certificate?

If you purchase a tax lien certificate, you can earn interest on the unpaid taxes from the owner of the property, which will be owed directly to you instead of the government. Essentially, you are acting like a bank and gaining interest even though you never made the loan because you owe the certificate. Once all of the interest and taxes are paid, then the property owner can reclaim the property by gaining control of the tax lien certificate from you.

However, if the owner never claims the property or pays the taxes, then you will gain ownership of the property deed. Either way, you'll be in a position to make money from the tax lien on the property by gaining either interest or the property itself.

Can I purchase a tax lien in a town in which I do not reside?

Yes. You can purchase a tax lien in any town, even if you are not a resident of the particular town. The only trick is that you have to actually travel to the town in order to attend the tax lien sale auction.

What is a tax lien sale auction?

A tax lien sale auction is the method by which tax lien certificates are sold. Like any auction, bidders will bid for the property or tax lien properties that they are most interested in purchasing. You can bid for as many properties at one time as you desire.

Where do I find out where the tax lien auctions are?

Information on tax lien sale auctions are matters of public record. You can contact the local government in the town in which you choose to purchase a tax lien, or you can subscribe to a service online that provides that data to you. Visit liensource.com for more information on subscriptions to information.

How often do tax lien sales occur?

That varies. There are generally 1-3 tax lien sales a month per locality. Check with the local government for more information and to obtain a tax lien sale calendar.

How much capital do I need to begin?

The amount of money you need to invest into your tax lien purchase business depends entirely on the particular properties you're interested in purchasing. Properties range from small homes to mansions.