The Real Estate Sage at The Real Estate Investment Institute - REII

I write about and teach real estate investing in distressed properties, opportunity properties, yet I keep hearing about people who knew someone in trouble that didn't act to help. All to often they did nothing because they didn't believe the property had any equity to save. Worst of all are the would be "Bird Dogs" who say I thought I had an opportunity for you but the owners had no equity! I want to scream!

Maybe it's the TV infomercial gurus showing all those big checks, implying that people are anxious to give you huge equities just for asking. They didn't recognize the opportunity! They think opportunity is money lying in the street.

They think that opportunity is finding underpriced houses! If that were the case, your local realtor could make you rich, they can't! (More about your realtor in my books, "One House At A Time / Finding And Buying Single Family Rentals" in a chapter called "Why Your realtor Can't Make You Rich" and in "A Baker Dozen / A Real Estate Anthology" in an article called "For The Same Reason A Plumber Pipes Leak.") If you're looking for houses get a good realtor. Houses themselves are not opportunities! People are opportunities, troubled people!

The difference between real bird dogs and hunters is the dog sees a Cock in the field and the hunter sees "Pheasant Under Glass!" Yes, poorly trained, dogs will try to eat the bird, but it's not the same meal the hunter and his family enjoy Sunday afternoon. It's exactly the same with "Bird Dogs" and Investors. Too many would be "Bird Dogs" and would be Investors, only see the Cock. A skinny Cock may not look like much of a meal but when the right cook does their thing it's wonderful. It's the same with opportunity real estate!

Maybe I'm being too hard on people because the second hardest thing in investment/opportunity real estate, is recognizing opportunity! Most people will see a shinny bird where some of us see Sunday dinner. Let me put it simply. The hunter's dog's job is to point out the Cocks not look for dinner. The Investor's "Bird Dog's" job is to point out troubled real estate owners, not to judge the value of the deal!

In "One House..." I write about one deal where the people had no equity, and only about 40 days left before they would lose the property to their first lender. The people holding the second on this property were ideal candidates for a short sale, so we settled with them for about 60% of their principal investment and none of their accrued interest. The first lender not only waived most of their NOD charges, but allowed the buyer to assume the loan. We did this by using a "Net Offer" option, adding the buyer to title and refinancing the second. The results: $10,000.00 cash to the sellers, $10,000.00 cash out plus a $2,000.00 television to the buyer, and real equity. That's about $30,000.00 in real equity that didn't exist 30 days earlier. The story is in the book, what isn't in the book is the effect of time. When we created the equity we did nothing to the value of the property, today about five years later that a $140,000.00 house purchased for about $135,000.00 is now worth more than $350,000.00!

A short term "Flip" for the same client (also in "One House...") had a Father and Daughter owning a home in foreclosure, with the Daughter in bankruptcy. Having tried for more than two years to sell the house through a series of realtors with no luck they had abandoned the house and were waiting for the lender to take it. When my client's "Bird Dog" told her about it the seller's had no equity and had given up any hope. The lender had an FHA loan so there was no potential for a "short sale" but we did negociate away a lot of NOD fees, we paid the Daughter's attorney to petition the court and got rid of all the other liens, now we had equity. Then we refused to list the property, but we did co-operate (paid the selling realtor half a commission), the results my client and I made money (her check is in the book), the seller's attorney got paid $2,000.00 ($1,000.00 on his existing bill and $1,000.00 on work for us) and the sellers got $5,000.00 cash! We created equity with a few phone calls. Not a big deal, but we created $30,000.00 from nothing in about 45 days. The only thing we did to the house was to turn the power on and clean it.

You might believe these deals took some secret knowledge to do. I saw a new TV guru this week end offering to sell you the "SECRET" well here it is. Find someone with a problem and make sure they are better off for having met you! Lenders only agree to short sales when it's beneficial to them. Sellers only accept offers they see are for their good. The courts and even the IRS will deal when it's in their best interest. Remember it's rare that only one person has a problem, the people doing the foreclosure also have a problem.

Sometimes all it takes is a sympathetic ear and some empathy. Yes some people will just hand you their equity. The same client and I did a deal in Pahrump, NV when one of her tenants told her she was going to walk away from her home just to get rid of it, she even offered to pay someone to take it. We paid her. My client made $25,000.00 in profit in 60 days. We painted the master bedroom in that property only because we told the buyer we were going, to before she saw it. (We sold this house four years ago for $96,000.00, the buyer had it appraised to refinance this month, 2-06, it is now valued at $226,000.00.)

So far we've seen "Short Sales," "negotiations," and "a Sympathetic Ear" and "Time" used to create equity.

My last deal with this client was a more typical "Flip" it took six months and a lot of up front cash but the client made a $65,000.00 profit, not bad.

Recognizing opportunity is the subject of my latest book "Flipping For Fun And Profit"

Bill

William J Archambault Jr

The Real Estate Investment Institute

First National Montage Sources

©REII

I normally write for real estate investors and would be home owners, so I hesitate to post a lot of my ramblings here. I have been posting some things because they're relevant to other postings. I decided to post this in response to Ken Cooks excellent post titled: "So it's a $1,000.00 Seminar, So?" Ken couldn't be more right, for most consumers.

November will make 37 years since I started in lending and real estate. I've been going to these things and real classes most of that time, not to mention 3 days a month with the old Farm and Land Institute and another 2 days with the Michigan CCIMs (I'm not a CCIM) in marketing sessions for over a decade. For the last ten years I've been going to the TV guru sessions. The point is, I don't believe I've ever been to any of these where I didn't make money!

The problem is with expectations! If you're so foolish to believe you can go from broke to a millionaire in 30 days or less because they said you could, then I suggest you look up what P T Barnum said about fools! It only takes one (1) idea or contact to make money! If you go looking for that One (1) idea or contact, you'll profit every time.

Personally, I think anyone who pays over $100.00 for a book ( mine run from $13.00 to $45.00) or more than $100.00 to $300.00 a day for a seminar is insane! But, in my market you could take the whole cash flow series (probably spending over $40,000.00) and easily make a profit on your first deal. I can tell you Ron LaGrand gave me his $595.00 short sale book, and the three ring binder alone was worth everything I paid for it.

Mortgage people should understand that one good investor client can beworth $30,000.00 or so a year every year.

Real Estate Education Should You Spend Your Money?

Five years ago I would have started talking about the late night TV Real Estate Gurus, but today anyone with cable TV, a satellite dish, or in a large city can learn the virtues of having money 24 hours a day. The infomercials or rather the programs they promote are all most people think of if you mention real estate education. But, there are really three distinct types of real estate education and hundreds of sub-categories. The three types are: real estate investment (as popularized by Carlton Sheets,) pre-licensing (mandated by most states,) and real-real estate education (traditional education at the college/professional level, it should be mandatory in High Schools.)

Everyone should have some real estate investment education, especially the poor among us. We all live and work in or on real estate, even pilots land. Almost all fortunes great and small included real estate, yet we don't teach it to our kids.

Pre-licensing education is only needed for those who want a real estate license.

The most difficult is real-real estate education. No matter what any guru says you'll need real-real estate education, the good news is you can hire it. One note of caution, don't assume your local real estate agent has anything but pre-licensing education! In real estate the three most important words are location, location, location. If you're hiring or taking any form of real estate education the two most important words are caveat emptor!

Lets start with Pre-licensing, it's the simplest form of education memorization!. In the preface to my book "One House At A Time / Finding And Buying Single Family Rentals" I write:

To pass the real estate exam, take the required pre-licensing class and memorize the answers!

What the pre licensing instructors know is that the real estate exams are not written by real estate people! Licensing exams are written by professional educators who are assigned a chapter of the law or even just a paragraph and told to write questions about it without reference to how the question might be affected by the entire law, case law, other laws, or common and local practice.

I stand by that advice, I can think of no better way to put it! If you want to get your real estate license, get it first before taking any real estate investment classes or any real-real estate education.

I've been in lending and real estate since 1969, teaching real estate, real estate investment, real estate sales, mortgage lending, mortgage sales, 1031 exchanging, and real estate development. In every class I judged my results by the students understanding. I've never taught pre-licensing because understanding real estate is irreverent to passing the exam.

Real-real estate education comes from two sources, colleges/ universities and the various divisions of the National Association of REALTORS®. Real estate schools teach pre-licensing, gurus teach real estate investment. Real-real estate education covers every area of real estate, advanced classes have required prerequisites, and their instructors have either advanced degrees or demonstrate experience.

Real estate investment education is mostly "motivational!" Instructors known as "GURUS" (mostly quacks) preach you don't need real estate education, only their expensive "advanced" classes. They promise to teach "secrets." They promote themselves by telling you the value of having money! They tell you how easy and quick it to make money is using their "system." They give you canned speeches rather than educate you so that you can use your own words. They present lots of anonymous testimony to their teachings none of which you can verify. They provided huge amounts of paper and recordings to justify their outrageous prices.

There are good Gurus! Read "One House At A Time / Finding And Buying Single Family Rentals." I"m a Guru, I use to teach real-real estate but now teach real estate investment. There are others, I would trust anything written by John T Reed. The very best free class I ever saw was by the late Barney Zick (his is best stage present I've seen in real estate investment education) his prices are outrageous, but I liked everything he said.

The question was "Real Estate Education Should You Spend Your Money?" To answer that first we ask how much are we talking about? My book sells for $44.95, Reed's books start near $30.00, the TV Gurus start at several hundred dollars and to get their whole program can cost as much as $35,000.00! Don't be fooled by $9.95 trials! "Should You Spend Your Money?" Yes! You get very little extra with the higher prices unless you judge education by the weight of the books, but one reasonable deal can recover the cost of even the most expensive program! So do something!

The only advantage to the high priced programs is the motivation you'll get from your spouse, when she finds out what you spent!

Bill

William J Archambault Jr

The Real Estate Investment Institute

©REII

Standing Before The Bar / Why I Hate Applying For A Loan

I was 21 and out of the service just ten days when I went to work for a small loan company, a week later I was making loan decisions affecting peoples lives. Just two weeks more and I was in the field making collection decisions that could literally destroy peoples lives. 14 months later, and not yet 23, I was now a bank loan officer with millions in authority! I sat in a large dark red leather chair, behind a dark cherry desk in an office paneled in rich cherry, with an impressively large 4 inches thick solid door!

Two large heavily padded leather side chairs sat across form my desk. Those chairs or rather how people reacted sitting them are what this is all about. When friends or colleagues stopped to talk they were comfortable and relaxed. I loved those chairs, switch the desk for an ottoman ad a good book and I'd have been in heaven! When the chairman of the board brought people down and said "they need $23,000.00 would you please write it up" these people were relaxed. But, when our receptionist brought people in and they had to say "we need $5,000.00" you would have thought they were sitting on a bed of very sharp nails! At first I couldn't believe it, these people were acting like my small loan clients had when sitting in those little plastic chairs, talking about their desperation to a kid in an open room full of people. It didn't take long in this new setting to figure it out. I was a judge. These people felt like criminal defendants standing before the bar. That beautiful huge desk and the large chair behind it were as intimidating as the large raised "Bar" at the county court house. If the intimidating setting weren't enough, there sat a banker! Bankers have some common traits that are even more upsetting that the bank itself.

Bankers start young, out of collage in most professions, you are aged before having the huge authority bankers used to have. Except for medicine no one gets as much of your personal information as a banker. Bankers have settled for a mediocre income with lots of security, they do not personally take chances. Instead of money bankers have their egos stroked, often causing a false sense of personal importance! Worst yet, I started under the "Old System," if we didn't like you, you didn't get the money!

It's now three decades later, the "Old System" died in 1972, banks haven't dominated the mortgage market since 1974 and have lost most other markets. "Loan Officers" no longer exist, "Loan Officers" use to make decisions, we decided wether or not you get the money, almost no one has that authority anymore. And yet, people still feel their being judged!

The idea of judgement exists because so many incompetent loan originators make their clients feel guilty. You, the client, don't understand you are no longer judged, you haven't been for the last thirty years. Today thanks to civile rights laws, you're not judged, you're weighted! Your credit history is put on the scale, it's nothing personal, you're assigned a number and treated accordingly. Just like your doctor's scale tells your weight.

The bad news is that credit scores are arbitrary. It's true that most people with credit problems have low credit scores, but it's not true that most people with low credit scores have credit problems. Life is arbitrary, my doctor's scale is set so that each pound contains 16 ounces I think 24 oz. would be just about right. The good news is that like my weight we can do something about bad numbers.

There's more good news, like clothes for the pleasingly plump, there's a loan program available for almost everyone. I pay slightly more for my close at the large and tall stores, than the skinny guys pay at Walmart. If you have low credit scores or other high risk factors, you'll pay a little more for the money from a non-conforming lender.

Is it fair? Yes! Under the "old system" the important thing was "who you knew." Under the current system the important thing is "who you are." I can change who I am, I like the system!

There are some things you can do to avoided that awkward feeling of being judged. First you can make sure your credit is as good as possible, you can determine who you are. Second, always start with a mortgage broker, brokers are paid on commission they get paid to get you the money not to judge you. Third, answer all questions, fully and honestly, but don't over embellish. Many a person has talked themselves out of the money. Fourth, understand there is a difference between discussing facts and condemnation "You didn't make two payments?" is acceptable. "You didn't make two payments! Is not! Don't let your originator condemn you, his job is to get you the money you qualify for. Lastly, you're the judge, is the originator worthy of your business?

Bill

William J Archambault Jr

The Real Estate Investment Institute

©REII

This is the first of two articles on purchasing and selling single family homes with lease-options. We're going to examine buying on a lease-option, selling on a lease-option, and in article # 2 how to successfully buy and sell on a lease option.

Lease-options have spurred the imagination of would be buyers lacking the cash, and/or credit and more importantly lacking the knowledge that almost everyone can own their own home and/or investment properties. Also, promoted to those would be investors who lack the people skills or time necessary to be a landlord, but still want most of the benefits of real estate ownership without the responicabiltys!

Lease-options are real estate tools used by the good and the evil among us. Most lease-options are an agreement between good and evil people. We all know far to many real estate people who believe you only get rich by taking the suckers money, most people who attempt to buy on lease options are simply donating money to these sellers.

In my book "One House At A Time /Finding And Buying Single Family Rentals" I spend a lot of time on the option scam as presented to real estate investors. I say scam because in my experience these lease-options seldom result in a new home owner. But, I've only been in lending and real estate for 35 years, may be when I get more experience I'll change my mind. Even when good people try to help each other lease-options seldom turn out that way. They can work but they must be done right from the beginning, I included instructions in the book.

Before I offend you any more I need to define my terms.

"Guru," a Hindu spiritual leader or any unusual teacher. There are "Gurus" in all fields of life, but thanks to TV infomercials most of us think of real estate investment instructors. Not all "Gurus" are bad, thanks to my classes and writing I'm a real estate Guru.

"Option," the purchased right to purchase property. A type of sales agreement that obligates the seller to the buyer, but not the buyer to the seller. When use properly a great and powerful real estate tool. In the book I strongly advocate the use of short term option's in lieu of sales agreements whenever possible.

"Lease," a rental agreement for any property real or personnel. Most often used with reference to rental agreements for more than one interval, i.e.,: a one year lease calling for 12 monthly payments. The most common real estate contract.

"Lease-Option," a combination of the right to purchase, with a rental agreement. Like a mule it can be a powerful tool. Like a mule it's flawed lacking the sleek beauty and speed of a horse or the friendly cuteness of a surefooted donkey. All to often lease-options involve getting screwed by a jack ass.

"Scam," anything that purports to do one thing while obviously doing something else. Scams are normally immoral, but often not illegal. Scammers can often provide antidotal evidence that their program works, leaving out that it probably won't work as presented for you.

"Sucker," those dreamers who think they're going to get something for nothing. Those people who buy the programs about buying on lease-options. The victims of those people who bought the programs on selling on "lease-options."

Traditionally lease-options were offered by sellers who needed to entice a tenant to rent their property at a premium price, with or without an up-front payment to the seller. More recently lease-options are used by sellers who have to wait out a prepayment penalty. Sellers believe that a tenant with an option to purchase will take better care of a property they may someday own.

To protect yourself from being a scammer or being scammed you need to determine what's in the deal for the other guy, and what you hope to gain.

Landlords/sellers:

1. A better tenantis a good reason to offer a lease-option. When the lease is what, we call "triple net," where the tenet takes care of the property and pays for everything you're almost out of the landlord business.

2. Sub-prime and/or adjustable rate mortgages often have "prepayment penalties," a lease-option with a good buyer, having made a sufficient up front payment can be a good way to wait out the penalty. See #1.

3. You need money now and are willing to trade equity for the cash. You need more monthly income than the market rent will provide.

4. The down side:

a; You're committed to sell the house at a fixed price.

b; During the term of the option you'll not normally be able to refinance or sell the property.

Tenants/buyers:

1. You'd like to buy the house, but for some reason you can't commit at this time. IE: You haven't sold your old house yet, your new job is tentative, in the near future you'll qualify for a much better loan.

2. You want to tie up the house you're renting, so you can buy it later for whatever reason.

3. You're going to, with the owners permission, substantially improve a house ( like, repairing an older home, landscaping a new home) and you want to protect your investment.

5. The down side:

a; If the option requires a substantial up front payment, or monthly premium you're likely to lose it.

b; If you don't qualify for a mortgage today you're not likely to a year, or two, or three from now, either!

c; Your lender may not recognize your equity. Don't mistake this with losing your equity, but the lender may not use the current market value of the house or your credits toward equity, when determining the loan to value.

d; You're committed to this house at a set price. If for any reason you don't buy this house, you lose your money!

e; If you're ever late with a payment you will probably lose all your money!

Many, if not most, Gurus who advocate selling on lease options teach Landlords/sellers:

1. Take a large up-front option payment, and a large monthly premium.

2. Included a provision canceling the lease-option if the payment is received in as little as ten days late!

3. Demand payments in person.

4. Make yourself hard to find!

5. Evict!

6. Resell!

7. In a good year you can sell the property twice with substantial non refundable up front payments! In a great year three times!

I've tried to sum up several chapters in one short article lease-options are a tool, akin to a handgun! At one time lease-options can be a great benefit, fun, even sexy. Lease-options can be great protection, for a tenet. Finally lease-options in the wrong hands can do great evil!

Three final notes for would be tenants/buyers:

1. Never turn down a free or low cost option.

2. Never, never, never let an option expire without getting the property appraised. What you have thought was outrageously expensive might be a real bargain near the end of the option.

3. If you do want to use a lease-option watch for "A Consumers Guide to Buying And Selling With a Lease-Options # 2." There are things you must do at the start of a lease-option if the lender is to recognize your equity an the time of purchase.

Bill

William J Archambault Jr

The Real Estate Investment Institute

©REII

A Consumers Guide To Mortgage Brokers And The Evil Yield Spread Premium

Kick backs, hidden cost, back points, HUD (Housing and Urban Development) calls it "Yield Spread Premium" (YSP), money paid by the a lender to mortgage brokers outside of closing. Money paid by the lender to the broker because you got a higher mortgage interest rate. Mortgage brokers are suppose to show this on line 801 of their "Good Faith Estimate" and escrow will show it on the estimated and final closing statements (HUD- I) when closing a loan for a mortgage broker. You'll never see these "points" on a loan from a bank, mortgage banker. Savings and loan, thrift, or credit union! Several Congressman and Senators have expressed concern over YSP's in recent years citing undo enrichment of mortgage brokers and their agents. The news media often mentions "kick backs" to mortgage brokers, and yet this practice continues!

First we need to understand mortgage pricing. The traditional bank offered one mortgage interest rate that fluctuated occasionally, after WW 11 loans often included an "Origination" fee (normally 1 point, 1% of the loan amount) more recently we have seen many additional bank and third party fees. Until about 1973 mortgage banks and mortgage brokers as we know them dealt mostly in "government" loans (FHA and VA) the rates were set by the FHA and VA respectively if these rates were below the current market these lenders added "discount points" to increase the "Yield" sufficiently to make money available. We soon saw wide spread use of these "discount points" to buy-down interest rates on all types of mortgage loans. After 1974 when mortgage brokers began their dominance of the mortgage origination market (current estimates have mortgage brokers originating 75 to 90+% of all mortgage loans) your bank normally had I rate and it included I origination point, mortgage bankers normally have "the rate" and one "buy down" rate. Strangely, mortgage brokers have many rates in 1/8% increments of rate, spanning 2 or more % interest. This is strange because most money offered by mortgage brokers comes from mortgage bankers, the same banks that offer only, the afore mentioned, two, higher cost, rates to their retail clients. About half the rates available to mortgage brokers were the traditional "Buy-down" rates costing up to 2 points more than the so called "par rate" (no discount cost to the broker) the other half were "buy-up" rates paying the broker up to 4The payments, kick backs, hidden cost, back points, etc... were finally named "yield spread premium" by HUD about a decade ago. It's not uncommon for a mortgage broker to have available a 6 point spread (4 points YSP to 2 discount points) available on any given loan program. That 6 points on a $300,000 loan means up to $18,000 difference in closing cost, regardless of all the other closing cost. Yet, all that extra cost only means about 2% difference in the interest rate. Most consumers don't have the luxury of choice, they seldom have an extra $18,000.00. Unless they need the lower rate to qualify for the loan the lowest rates seldom make sense.

A quick glance at the rates and discount points might make you think that you'd always save money after 3 years ( 6 discount points divided by 2% interest reduction) but that's not true. The idiosyncrasies of loan amortization mean that the break-even point is normally closer to 5 years, not counting the time value of money. In today's society it's rare in deed that a mortgage loan actually exists for five years, either the house is sold or it's refinanced long before the break-even point.

Yet HUD and certain congressman keep holding hearings about the evil YSP and the abuses by mortgage brokers of this "hidden" cost. Selected witnesses offer tales of over charges and hidden cost they are bone chilling. Claims of over charging abound. The problem is they can't explain why mortgage brokers originate almost all residential mortgage loans, and why it's almost always less expensive and more successful to finance with a mortgage broker.

There have been abuses, many of them, you're more likely to be abused by a broker and or his agent than other lenders, because: there are more of them, remember up-to 9 out of 10 mortgages come from brokers.. These abuses and promises of reform make great head lines. "Reformed" is always an interesting term, it implies you're better than the un-reformed. The argument is that only mortgage brokers charge YSP, but is it a charge? Yield is the return on investment or the product of an investment. Spread is the difference between cost and return, or gross profit. Premium is something extra above the cost.

In it's simplest form, if a $100,000.00 loan is at 6.000% it will yield $6,000.00. If the cost of funds is 2.000% then the spread is 4.000% or $4,000.00. If administrate and overhead cost the lender 0.5% then the premium is $3,500.00. YSP is a relatively new term coined by HUD. When most of us went to school if you subtracted cost from yield you determined The payments, kick backs, hidden cost, back points, etc... were finally named "yield spread premium" by HUD about a decade ago. It's not uncommon for a mortgage broker to have available a 6 point spread (4 points YSP to 2 discount points) available on any given loan program. That 6 points on a $300,000 loan means up to $18,000 difference in closing cost, regardless of all the other closing cost. Yet, all that extra cost only means about 2% difference in the interest rate. Most consumers don't have the luxury of choice, they seldom have an extra $18,000.00. Unless they need the lower rate to qualify for the loan the lowest rates seldom make sense.

In it's simplest form, if a $100,000.00 loan is at 6.000% it will yield $6,000.00. If the cost of funds is 2.000% then the spread is 4.000% or $4,000.00. If administrate and overhead cost the lender 0.5% then the premium is $3,500.00. YSP is a relatively new term coined by HUD. When most of us went to school if you subtracted cost from yield you determined profit!

Why don't banks and mortgage bankers have to report their profits and why do we call it YSP? We don't require any business to report their profits to anyone except to stockholders and the IRS. We have to further define YSP, it is that portion of the anticipated profits the lender shares with the mortgage broker. In that 10% or so of mortgage loans originated by lenders they pay commissions and overhead to their own in-house sales department it is considered cost. It is only when the loan originates with an outside mortgage broker that the commission is called YSP.

Shouldn't the consumer go to direct lenders to save money? It sounds good but it doesn't work that way mortgage brokers do most mortgage loans for two very good reasons. Loans from mortgage brokers are almost always less expensive, because of competition! Thanks to mortgage brokers the mortgage origination business is possibly the most competitive business in the country! Secondly, success! Mortgage brokers are able to close more loans because they have more than one source for a loan. When the consumer doesn't qualify for a banks program he's turned down, that's the end of the application. The turned down consumer will never know that several other lenders would take his loan, mortgage brokers will get the loan approved.

Mortgage brokers have all those fees! Yes there are a lot of cost in closing a mortgage loan. Ads are always telling you, you can be finance for only $395 to $995, that's true. But they are not talking about third party cost! Direct lenders advertising these low closing cost are simply using some of the spread to absorb those costs, mortgage brokers do this all the time using the YSP to off set the consumers cost. Normally the direct lender can avoid showing you the real cost, where the broker will have to show all the cost and issue a credit, he'll also show the YSP adding to the consumer's confusion. When a consumer sees a long list of costs he may never notice the total at the bottom of the page may be less than the direct lenders short list. All other terms being equal, the only way to compare loans is to check the amount out of pocket and the monthly payment.

Lenders who paint them selves in to a corner advertising fixed fees (like $395) limit their ability to provide the best loan for the individual. Mortgage brokers have a lot more flexibility to aid the consumer and normally will have a lower rate for any given cost, or a lower cost for any given rate. You have to compare apples to apples!

If Congress and HUD are investigating the evils of YSP, won't we be better off? A few years ago the same people investigated "predatory lending" a couple of large direct lenders had preyed on a southern state. To cure the problem we now have new law "Section 32." The new law did nothing to help the people suffering form the "predatory" lenders. What the new law did was to drive more morally cognizant lenders out of the business of helping troubled lenders! If the lender now makes one of these high risk loans they must have the client sign a new form in escrow 3 days before closing that says if you don't make your payments you could lose your house! I've only been in lending since 1969 but I've never seen a mortgage or deed of trust, that didn't very clearly say if you don't make the payments you could lose the house. The only thing the new law accomplished was to reduce competition in this already expensive field driving up prices, and cause a few people to lose their home or worst because their loan was delayed.

The horror stories are true and all the same. The predatory victim explains: I agreed to pay $1,0001 month, I spent the money, I can't make the payment, they foreclosed on me! There's enough sin to go around, who's more immoral? The lady who spent the loan proceeds knowing she couldn't make the payments or the lender who should have known she'd never make the payments? The evil YSP story goes like this: I agreed to pay 6.5%, he told me I only had to pay I point origination, I found out this YSP thing was the lender paying him 2 points! Where's the problem, the bank would have given her the same loan for 6.5% at I point origination, it's what she agreed to pay. Consumers never ask the bank what there making The evils of YSP are imaginary but they make great sound bites! We can only hope HUD and/or Congress doesn't solve a non-existent problem.

Bill

William J Archambault Jr

The Real Estate Investment Institute

©REII

Traditional brokers real estate and/or mortgage may find this interesting, true buyers brokers (working for and being paid by the buyer) need to ad it to their tool box!

Beat The Sharks

Everyone who has ever dealt in the shark infested waters of foreclosure and pre-foreclosure investing knows this is not no money down real estate. The "Big Profit" "Big Trouble" world of foreclosure real estate is dominated by the "Big Sharks," actuality, most often they're would be Sharks, people with no social conscience, who are willing to deceive the trouble home owner, saying anything and delivering little or nothing, to steal all the home owners' remaining equity. The other Sharks, yes you're a Shark, more likely a would be Shark, are second only to finding opportunities as the biggest obstacles to small real estate investments.

There are only three ways to beat these predators. First get to the troubled home owner/seller first. Second always start with a win-win offer, always put enough in your offer for the poor seller to start over, make it oblivious how he wins. Personally I prefer "Net Offers" because they show the seller exactly what he'll leave the closing table with. (I advocate "Net Offers" in three of my books, "One House At A Time / Finding And Buying Single Family Rentals," "Flipping For Fun And Profit," and I explain them detail in "A Bakers Dozen / A Real Estate Anthology.") The third way of dealing with the Sharks is to simply know more real estate and lending than they do!

Before I go on, I'd like to remind you of some ancient wisdom from two strange sources, an old "Star Trek" episode and a very old joke.

When Kirk was fighting with another identical star ship, he had Spock searching for the control panel code of the other ship, as Spock searched Kirk explained to Bones (and the audience) that it's not necessarily the quicker or stronger that wins a fight, but rather the one who best understands how things work. That lesson was repeated in one of their movies, almost word for word.

There's an old joke that tells of a farmer standing behind a plow, wiping his mule and cursing up a blue streak at the resting animal. Not far away stands his much amused neighbor who shouts out "Have you tried asking him nicely?" After responding in words I was to young to know when I first heard this story, the farmer tells the intruder to try it himself! After carefully climbing the fence, the intruder picks up a broken fence post. As the farmer asks what the post is for the intruder hits the mule as hard as he can between the ears. He then leans in close to the animal while it stagers back to it's feet and says "please". As the farmer passed guiding the plow he's told "First you've got to get their attention!"

Keep these two lessons in mind as I go on. Know how things work and sometimes it takes drastic measures to get attention.

Every real estate "Guru," myself included, teaches about "short sales" getting a lender to take less than it's entitled to as full payment. Lenders accept "short sales" when it's in their best interest. Lenders also discount paper and sell notes all the time, large lenders sell these loans in bundles sometimes called "blocks" or "portfolios" unless Bill Gates calls me we're not going go into these. Small lenders, local banks, S & L's, credit unions, hard money lenders, and especially private lenders will often sell individual loans. Any lender that will consider a "short sale" can be approached to sell you the note.

I'm not advocating buying the first, although I have, but rather buying a subordinate note, second thru infinity. Subordinate lenders must bring superior loans current or lose everything when the superior loan forecloses. Subordinate lenders have the right to bring superior notes current and continue making the payments, and when they do so they can immediately call their loan. Subordinate lenders are therefore motivated to accept those "short sales" or even sell the note at a discount.

There are two ways to use this information. One, when you can't find or can't deal with the current owner/seller. Buy the note and they'll not only come to you, they will have to deal with you. Secondly, when you're a day late or out lied by another shark.

Unlike some troubled homeowners, lenders don't hide, their information is on record at the local county recorders office, including their successors and assigns. You don't have to have written permission from the current owner/seller to talk with a lender about buying the note.

When you buy an existing note your order of priority starts not when you buy the note but when the original mortgage securing that note was reordered. Your interest therefor is almost always superior to any current leases, sales agreements or deeds.

Buying the note takes money and must be done right. When done right this is as close to risk free investing as possible, since there is no such thing as risk free investing.

You want your purchase of the note contingent upon the superior note still being in default and redeemable. You'll insist on an escrow closing, I wouldn't close one of these without an escrow and title company and I've been doing this for thirty-six years! You must, the transfer of the note, record the assignment of the security agreement (the mortgage or deed of trust) to you and have the superior note brought current all at the same time, You'll also file your own NOD (Notice Of Default, the start of your foreclosure) all at this time. You don't own the property yet but you are now the "MAN" in control.

Now that you own the note you have to keep up the payments on the superior notes. You have to start your own foreclosure which means that the owners redemption time starts over. (Assuming that the current note holder hasn't started foreclosure, in which case you'd take over, saving time.) Time is now your enemy, depending on the state you're in it can take one to six months for you to foreclose, so you are going to again make a win-win offer to the owner/seller, provided they are not under contract to sell to someone else. It's always better to pay a known amount to the seller/owner than risk unknown thousands in payments and further damage to the property. You're going to end up owning the property for about the same money as what you would have, had you had a fair offer accepted in the first place. You would have gone after the short sale from the second.

What's the worst thing that could happen? Assuming you insured yourself, (in case of fire or other loss, don't depend upon the current owner still having insurance) the owner/seller or his buyers could pay you off! In most states any payoff would have to included all your cost plus accrued interest, and remember that's on the gross amount of the note, not your discounted purchase price.

Just a note of caution, do not be in a hurry to stop your foreclosure, trouble sellers may have other as yet unrecorded liens against the property. Don't try to stiff inferior lien holders, try to negociate short sales with them, remember they could pay you off.

Check your state laws, and next time you see a second behind a NOD consider tacking control of the of the situation. Let no Guru mislead you, you will need real, real estate education or you'll need to hire it. Now go buy a house.

Bill

William J Archambault Jr

The Real Estate Investment Institute

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