Fire Sale! When More Come In, Than go out.

Great News! For those of use who have been waiting for the banks to live in the real world, it's starting to happen. As I have been predicting for the last year in my foreclosure seminars and newsletters- when more foreclosed properties come in than go out (sold in foreclosure auctions) - Prices will fall dramatically. "Foreclosures, Falling Prices Sprur Pr. William Home Sales," headlined the front page Washington Post article, Friday Oct. 17. It was the second article in a month highlighting what the newspaper referred to as the "greatest home buying spree the region has ever seen." This is the fire sale phenomena we had discussed in my foreclosure seminars. One of the buyers quoted in the article must have been reading my mail. He said, "Bargain-hunting investors are the best hope for stabilizing foreclosure-ravaged neighborhoods."

Sales in September had increased by 253 percent over September '07 - mainly because lenders dropped the price on the REO stock by an average of $130,000. Banks in northern Virginia choking on a glut of empty foreclosed properties dropped prices and sold 1116 single family detached houses - 118 homes were sold for less than $100,000. One Price Williams agent said to the newspaper reporter, "It's ridiculously busy. People are looking for amazing deals, and i'm writing offers as fast as I can." At this point, the impact is mostly Prince William, but the article did make reference that Fairfax County is starting to move in the same direction. Detached single family house sales in Fairfax County were up 71 percent after the median price dropped 24 percent. This is just a harbinger of things to come. In sourthern California, September year to year house sales were the best in 20 years according to the Investor's Business Daily. Quoting the financial newspaper, "More than half (69%) were bank repossessed homes...priced 33 percent lower.

Watch the next 6 to 8 months and get ready for a new real estate heyday in REO's. With marked activity on both coasts it soon will become nationwide. Keep an eye on the Maryland suburban counties, especially Prince George's and Montgomery (less zip codes for Bethesda-Chevy Chase and Potomac). They have the highest number of foreclosures in the state. Were it not for Maryland legislating an extended foreclosure event time frame (from 15 to 135 days), I believe Prince George's County would have set the first fire sale environment. Licensing, Labor and Regulation, Secretary Perez, warned that foreclsoures are expected to rise in the near future as this was only a "de facto moratorium." Mortgage resets for Prince George's County were expected to average around a 1000 per month from August to December.

Why has the fire sale scenario taken so long when the government's Resolution Trust Corporation (RTC) successfully cleared the real estate shelved of excess stock during the Savings and Loan Crisis and brought the market back to equilibrium? I believe there was extensive lobbying against it by the financial services industry. Lenders overvalued property and underestimated losses, and then complicated the issue further by clicing and dicing mortgage into complication derivatives. No one really seems to know how much money is tied up in toxic financial paper. Although, the federal government seems to be getting a "tip of the iceberg" idea as AIG, the insurance giant that insured many of the default swaps based on mortgage-back securities, has already used up much of its $123 Billion rescue package and is looking for more money from the government's lifeline, while the FDIC says a bigger mortgage fix is necessary for the banks. My guess is that wiser heads in some of the banks are starting to see that even the U.S. Treasury has limited patience. If I were a betting man, I'd say fire sales will fill the void.

Now ask yourself, are you ready to handle buyer representation? Yes, there is a fifference. Since I am not one to turn down accolades, let me shre with you the feedback from some of my former Virginia students. Considering, I've only been teaching mainly in Maryland and the District, the Virginia students in my continuing education and "Principles" classes have been limited - maybe a dozen or so after several years. Eleven of my former students contacted me to thank me for focusing them in the right direction on successful REO negotiations in the Prince William County housing frezy. Their claim to fame - they picked the right clients and prepared properly, beating out other agents who were not versed in distressed properties. Particularly, their investors beat out first-time home buyers; their home buyers - with some hammer and nail savvy - stole properties that needed some fix-up and TLC at bargain basement prices; and were able to compute true market value, including interested party contributions, and calculate market rents plus the required surplus - for the PITI on the rental accommodations. If you're interest in brushing up for the next round of cut-rate REOs, stay tuned to my schedule of 6 hour, hands-on mentoring classes on buying and selling foreclosures and buyer representation from PDI.

Mizzer Foreclosure Newsletter

One more step closer to a 2008 Resolution Trust Corporation (S&L bailout) with Fannie and Freddie in conservatorship, the FDIC dipping deep in their pockets because of troubled banks while another Bear Stearns is on the horizon with Lehman Brothers Barely treading water. Interesting! But wasn't it just several weeks ago when financial industry forecasters were saying the crisis was leveling off? It seems it's always calm before the storm. Lehman's CEO was on CNBC claiming, "No Problem" while David Einhorn, a hedge fund manager, was being quoted in the financial newspapers saying, "They just raised $6 billion of capital they didn't need, to replace losses they said they didn't have." Okay. Here's the skinny!

If you've been listening to the optimists, the bad news is the 2nd quarter report has new construction starts down by 1/3, building permits off 40 percent, and foreclosures up 50 percent. The conservative prognostication, by independent financial analysts is that there might be some light at the end of the tunnel by late 2009 to 2010. But speculation is based on prices falling lower. With the exception of isolated pockets, housing prices are still about 55percent above 1999 price levels, and sales numbers are up mostly because housing price numbers are down. What do I mean by isolated pockets? In Montgomery County, some zip codes are up by $300,000 in price, while some zip codes are priced down by $300,000. This not the norm.

The good news is that lenders are selling more REOs. At this point, however, most of the activity is in quality and lender to lender. But prices being quoted in the financials are 25 cents on the dollar, so when they finally are forced to give it up to us common folk, there still will be a lot of wiggle room- especially if the federal government gets into the act. And the smart money is betting it will. Bill Seidman, former head of the RTC, in a TV interview expressed as much. With housing inventories in the second quarter at 4.6 million, coupled with an 11.2 month back up, and the federal government projecting hundreds of billions of taxpayer dollars to pay off corporate risk, it only seems plausible in an election year that one of our candidates will figure out it's time to become more transparent and fess up on non-producing loans, securitized or not. A member of the Japanese cabinet, in recent discussions with U.S. Treasury officials, blamed a lack of transparency for prolonging their housing crisis.

Now here's a gem for agents licensed in Maryland. Thomas Perez, secretary of labor, licensing, and regulation claims foreclosure events down 20 percent. But he also warned the number was a result of the state's recent moratorium that extended the foreclosure process to 150 days. This isn't a by; it's a hold on a minute. With this in mind, let's crunch some numbers and make some money. The highest number of foreclosures in state still comes from Prince George's County. The highest number of subprime resets in 2008 were projected for Prince George's County in August, September, October and November. Come January, the Hybrid loans (the most toxic with resets and negative amortization) are scheduled to reset. They have all been given an extension under the new law. So you have time to get into the driver's seat.

What else is happening? Since Fannie and Freddie have been forced into conservatorship, the 30 year fixed rate loans have dropped from 6.4 to 5.7 percent. There are other impending events as well. FHA Jumbo loan amounts are coming down in numbers after 2008, and down payments are rising. The $7,500 new tax credit for first-time home buyers closes out by the spring of 2009. There are some doors that will not be open. If you wait. You have been given an extension with the government foreclosure moratorium and a reason to close now as the federal government programs are set to expire. Pre-foreclosure sales should increase, a certain number of buyers should be ready to buy now and take advantage of the government goodies about to expire. How do you sell/buy now?

The kids are back in school. Vacations are over. The fall buyer's season is here. Inventories remain swollen and prices are coming down. Sellers are paying closing costs and throwing in other incentives. And the northern part of the county is offering one of the best lucrative fringe areas in the region. the combination of the Fort Meade base consolidation promising 29,000+ new jobs, and the $3 billion Konterra project along I-95 Laurel sporting 2200 acres of residential and business park, sounds like a buyer's agent dream. Check out our 6 hour hands-on, mentoring foreclosure seminar. We focus on buyer representation, determining true market in a marketplace of overvalued appraisals, how to find foreclsoures ahead of the pack, negotiating 50 cents on the dollar REOs and outreaching investment groups.

Housing Relief Bill and what it means to you as an agent

Buyer agents take heart. Your time is just around the corner. Now that the Housing Relief Bill (initially known as the "Credit Suisse Plan") has been passed by congress, certain lenders - who had their lobbyists working overtime on the bill - should be ready to negotiate. Some Prince William County lenders already dropped their REO prices by $130,000 to the median sales price and got rid of almost 25% of their housing inventory stock. The bill authorizes a 3 year program that permits the FHA to insure up to $300 billion in new mortgages for distressed property owners. Only primary residences are eligible and lenders must voluntarily agree to forgive a portion of their outstanding debt so that the new load equals no more than 90 percent of the property's current market value established by a certified appraiser. (After years of pressured overvalued home loan valuations and interested party contributions, I wonder what that value will be) Better get your estimates of market value down pat if you intend to negotiate successfully.

The program also offers $15 billion in tax breaks - up to $7500 per family - for first-time home buyers (or at least a buyer who has not owned a home in the last 3 years). Sorry, no investors need apply. The money must be repaid with interest to the government within 15 years. The FHA maximum loan limit for a single family house has been raised from $362,790 to $417,000. And Fannie and Freddie's limits have been raised to $625,000 - in high prices areas to $729,750. Both Government Services Enterprises (GSEs) will be able to borrow from the Federal Reserve or sell stock to the Central Bank, and they have doubled the fees they pay lenders for negotiating with delinquent borrowers. It permits states to issue an additional $11 billion in tax-exempt bonds to refinance risky high-cost mortgages to first-time home buyers; and finance the construction of affordable housing, it raises the federal debt limit from $9.8 trillion to $10.6 trillion, and creates a new affordable Housing Trust Fund.

Critics claim the billl does more for lenders than borrowers giving lenders a chance to cherry-pick the best loans for themselves while turning the worst over to the FHA. The current Secretary of HUD admits that taxpayer's could easily end up absorbing "preventable and foreseeable" costs unless insurance premiums are raised to cover riskier costs and more safeguards are put into place. However, the bill did cover a FHA pet peeve. The agency had claimed statistics following the practice of sellers donating housing down payments to non-profits, who in turn gave them to the seller's designated buyers for a fee, demonstrated a higher number of delinquencies than when buyers put up their own deposits and pushed to have the practice outlawed in the new bill. But just as soon as a seller funded down payment assistance appeared to be on its way out, new legislation has been introduced to bring it back.

Other critics claim it is wishful thinking with the government making promises in the taxpayer's name, but does nothing to force lenders to stip using accounting gimmicks to keep non-producing loans off their balance sheets. Chief economist for MoodysEconomics.com notes, "It may staunch some of the downturn, but it is going to have a modest positive effect." Still others claim that it will add more junk fees to mortgage costs. My own feeling is that something is better than nothing. With foreclosures hitting 8500 a day in July and many economists claiming that we're still in the 2nd or 3rd inning in a housing comeback anything that motivates lenders to loosen the REO stalemate is progress.

One of my former students, who made the trip from his home in Florida to take my foreclosure class, called me yesterday and said that he found 500 homes in north Miami sitting vacant - all REOs. In my next class, we will cover not only how to estimate true market value, but also how to price a cosmetic rehab and several unique ways to utilize the new housing relief bnill to benefit the first-time home buyer. Many licensees have complained that a weekday 6 hour foreclosure mentoring class presents some time scheduling challenges, so we are moving to a Saturday class. The next mentoring seminar will be held on August 23rd, 2008 from 9:00am-3:00pm at 11501 Georgia Avenue, Suite 312, Wheaton, Maryland 20902. To enroll contact PDI at 301-949-1771 or visit our website.

Mizzer Foreclosure Newsletter

For those agents who were not licensed during the Savings & Loan crisis of the late 1980s, welcome to a Buyer's Market - too many houses and not enough qualified buyers willing to pay yesterday's price in today's declining market. Indeed, it is a very confusing place to try and make a living selling real estate. Market value can be a fleeting concept when held hostage to falling prices and a glutted marketplace where the bottom-line is ultimately determined by incentives and Interested Party Contributions (IPCs).

Still, it presents wide opportunities to create wealth buying real estate. The "Mortgage Meltdown" closely resembles the Savings and Loan Crisis - a weak economy, cheap and easy insider undervalued loans, overvalued properties, and defaulting financial institutions. As Yoggi Berra, MVP philosopher for the Champion 1950s New York Yankees once said, "It's Deja Vu all over again. "

Let me read a few lines from Profiting from the Bank and Savings & Loan Crisis. "It's the fire sale of the century! As banks and savings and loans have failed, our government has been left with over $400 Billion (later turned out to be over $500 Billion) assets that it now has to sell. Fast! And with more banks teetering on failure, there's more to come. Cut rate prices have been characterized as more in the realm of a steal than a good buy and a blowout of the bottom of the market.

You want to know why lender's aren't receptive to "short sales" or auction "minimum bids." There seem to be a number of reasons, but more and more smart money analysts are coming to the conclusion the major issue is that lenders believed the government will bail them out. And after the Bear Stearns bailout, the blank check for the Fannie & Freddie overload, and the IndyMac takeover by the Federal Deposit Insurance Company (FDIC), I'm inclined to agree. There are too many harbingers of change, to totally rule it out. The Washington Post editorial page recently referred to Federal Reserve Chairman, Ben Bernanke as "Bail Out Ben." Yet, I don't necessarily believe this is a bad idea for the real estate business. In negotiating with the government's selling arm for the savings and loans fiasco - the Resolution Trust Corporation, both as an agent and investor, I made deals as low as 50 cents-on-the-dollar.

Interestingly, the problem with what we now call the "Morgage Meltdown" has roots in the Savings and Loan Crisis. After the "cirisis property" sale, a financial innovation was created to insulate lenders from sharp interest rate spikes by spreading the risk amoung many investors. Wall Street called it securitization. So to a large degree, the current housing market problems are a product of a change brought about to avoid the problems of the late 1980s savings and loan debacle. These securitized vehicles mixed the good, the bad, and the ugly mortgages and were sold as a low risk product. But by the 4th quarter of 2006 , the so-called "chickens came home to roost" and foreclosure signs started to grow like weeds in a garden. Recently on CNBC, Robert Shiller, co-author of the Case-Shiller housing report, projected a housing downside into 2009-10. The Harvard economist professor who predicted the high tech bubble claimed the worst was far from over in housing. Further, a June report by the Metropolitan Counsel of Governments claimed the Washington region foreclosure rate grew six-fold surpassing most urban areas in the nation. And Mortgage Banker's Association claimed defaults broke all existing records.

The role of Federal Reserve in this crisis is still evolving. The "Fed" regulates the flow of money and interest rates in the marketplace. It determines the discount rate for it's member banks, the federal funds rate the banks charge each other, and the prime rate which is used as a base for consumer borrowers. But there is another power the "Fed" wields in the marketplace which should be of particular attention to anyone interested in "steals and deals" from distressed properties. The Federal Reserve requires that each member bank keep a certain amount of assets on hand as reserve funds. In effect, it limits the amount of money that a member bank can use to make loans. This requirement protects customers and allows the "Fed" to control the flow of cash in the marketplace by defining liquidity.

The current question before the "Fed" is how long a period of time must pass before a securitized, non-producing loan goes from asset to liability and is charged against the reserve requirements? The current question before you is are you ready to move on a "fire sale" market when the government steps in? Do you understand the foreclosure process? Have you analyzed areas and neighborhoods? Is your money in place? Have ytou upgraded your credit scores? Do you have investors waiting in the wings? Can you do your own appraisals? Do you know the secrets of an experienced buyer's agent? Can you determine "True Market Value" in an overpriced marketplace? Do you know how to avoid the most costly mistakes? Can you do a title search? These questions and more are answered in the foreclosure mentoring seminar.

Author: Tony Mizzer has 40 years real estate experience as broker, educator, investor, regulator, writer and foreclosure and real estate investment specialist. he also teaches several investment, foreclosure, tax free exchange courses and others at PDI.

10 Costliest Landlord Mistakes

By: Manuel Enrique Lopez

Classic business philosophy teaches that a great part of survival and subsequent success lies in an operation's ability to reduce mistakes. The cost or repairing the mistakes is inversely proportional to the amount of profit potential of the operation. In other words..."Mistakes Kill the Profit Margin!!!!!"

As landlord's, we don't want to do damage to the precious profit margin we fought so hard to nurture. A landlord's profit margin struggles every day to survive, grow and flourish in a sea of predators, competitors and government regulators. Below are the top 10 threats to your thriving profit margin.

1-Poor Screening

The costliest mistake is accepting a new tenant without properly screening. An undesirable tenant will often have poor rental and financial histories. Landlords should review previous landlord relations, credit reports, courthouse records and income. It is probable that if they have not met their obligations with previous landlords, then chances are that they will repeat their behavior with new landlords. Many landlords have faced horrific situations where tenants have stopped paying rent while employing legal maneuvering to avoid eviction. Others have faced tenants who moved in and initiated criminal activity, which adversely affected other tenants and neighbors. Either of these scenarios translates into expensive ordeals where the measures of rectifying the situation can threaten the financial stability of the landlord.

A thorough screening also involves verifying that the person who is applying is the same person that submits credit/criminal info for screening. A picture I.D. should be cross-referenced with the application. Landlords must make sure that there are no omissions, inaccuracies or inconsistency in the actual application. Due diligence will certainly save landlords much money and stress.

2-Lease Preparation

Having a poorly prepared lease is very costly because it is the document that legally binds the landlord to the tenant. It is the rules of the relationship that dictate conflict resolution, financial responsibility and terms of execution. With out a professionally prepared lease the landlord stands to forfeit many of the rights afforded to the owners of the property. Landlords need to employ leases that are designed to protect them and their property and not the other way around. Many generic leases do not take into account the values of the landlord. Therefore, a custom lease would assure the landlord that their interests are protected.
Many times landlords receive requests for agreements after the lease has been signed. Landlords will use their best judgment when deciding to agree to a proposal but must never neglect to put the agreement on paper. A verbal agreement is always vulnerable to a false interpretation by the tenant.

3-Rent Collections

Landlords must always enforce the terms of rent payment as it is written in the lease including late payments and fees. If not enforced, the landlord runs the risk of creating a dangerous precedent that will certainly cost the landlord dearly. If a tenant fails to pay rent for two weeks, then legal notices and actions must be initiated as soon as the law allows. Landlords should not accept partial payments. The courts interpret receiving partial payments from tenants as an acceptance of terms by the landlord. The eviction process is subsequently terminated for that rental period while landlord's costs increase.
If a tenant has had a poor history of paying rent on time, a landlord should consider not renewing the lease. Being late consistently is a sign of financial trouble and future uncertainty for the landlord. Poor payment habits can be a precursor to bankruptcy or evictions.

4-Law and Regulation Ignorance

Many landlords get into rental business with out learning the rules of the game. To get a perspective of the folly of not knowing the rule, Imagine trying to play basketball with out knowledge of the rules. You would become paralyzed from the constant rule infractions. It would be impossible to win. Translated to the rental business: Knowledge of the Laws and regulations can make the difference between a profitable venture and a loser.
Landlords must familiarize themselves with the states' Landlord/Tenant Act. Every state has different laws, therefore due diligence must be taken by landlords to educate themselves. Landlords must also take the initiative to draw upon with the experiences of other landlords. Many landlord advocacy groups exist in most communities and the Internet.
Finally, it encouraged for landlords to develop a relationship with a real estate attorney that specializes in the rental industry. Having a knowledgeable supporter on your side can relieve a lot of uncertainty. A landlord must never wait to the last minute to develop a relationship with an attorney because the requirement of immediate response will prove to be costly.

5-Poor Response to Service Requests-

The number one reason that tenants do not renew their leases is poor response and execution for service requests from the landlord. Tenants expect a constant inspection, repair, and preservation of the general conditions of their rental home. This also includes a timely repair or replacement of parts for appliances. Everything has to be in working order and problems must be addressed quickly and courteously. Everything has to be in working order and problems must be addressed quickly and courteously. To facilitate an efficient delivery of maintenance requests, the property manager's best method of receiving these requests is actually answering the telephone. When the manager is too busy to actually answer the phone or the request comes at an odd hour, many properties utilize apartment call centers. This resource allows properties to always have a human responding to the needs of their tenants. The apartment call centers are industry specific and have a direct, open communication with the maintenance and property management. Maintenance requests should be supported by a shared calendar that documents the request cycle: creation, delivery, execution, completion and follow-up. Maintenance requests, if implemented properly, should be a team effort that will lessen and distribute workload through the property staff.

6-Not Employing Good Customer Service

Running a rental business is just like any other business in the sense with respect to employing good customer service. Many landlords forget that they would not be in business if it weren't for the customer. Practicing good customer service not only reduces tenant turnover, it also is one of the primary forms of marketing. Word of mouth advertising is the time tested, most effective way to promote any business. In the long run, a positive approach to communicating with your tenants will reflect in the profitability and value of a property. On the other hand, poor customer service will take a toll on the general conditions of the property. Tenants will not respect the property by not cleaning up after themselves or not following the property's rules and regulations. Therefore, poor customer service may result in high turnover, high vacancies, higher operational costs and lower profits.

7-Not paying taxes

Many landlords do not have their rental income as their primary source of income and neglect to report their income to the government. Others fail to pay property taxes because they don't reside in the property. Failing to declare income and ignoring property taxes can cause very expensive recovery efforts. The government will assess taxes, add fees, add penalties and assign interest. Other costs will come from attorney fees, added accountant charges and personal time. In extreme cases, landlords may get their property confiscated.

8-Not waiting for the funds to clear

In a rush to fill the occupancy, many landlords make the mistake of allowing the tenants to move in before the funds are cleared. The scenario of tenants moving into a property too soon has caused numerous headaches for landlords having to initiate eviction procedures without ever collecting any rent or deposit. Always ask for money orders and certified checks or simply wait for the funds to clear the bank.

9-Not conducting a detailed premove-in inspection

Neglecting to have the tenants complete a premove-in inspection can result in damages to a property that cannot be documented by the landlord. Payment for rent must not be accepted until this inspection is completed.

10-Not keeping a professional landlord/tenant relationship

Landlords must always uphold a professional relationship with tenants to avoid the pitfalls of not employing the codes of conduct that are based on the stipulations outlined in the lease. The professional relationship is based on the landlord realizing profits from the rental business. Changing the nature of the business relationship threatens the ability for the landlord to collect rent.

Article Source: http://www.articlerampage.com

For more profit generating tips for rental property go to www.landlordprofits.com For Tenant Screening go to landlord-tenantscreening.com