Just recently, I was consulting a former Real Estate Investor that was in a serious situation that would scare anyone. This investor has twenty-eight properties that he’s personally purchased using bank financing over the last 4 years.
Here’s the typical deal this investor would purchase: The house would have an appraised value of $50,000 and he was able to purchase the property for $30,000.
The bank would then loan him 80% of appraisal regardless what he paid for the property allowing him to cash money out at closing when buying.
OK, follow me so far? So, in this example, he’d pocket $10,000 when he bought the property.
So, you’re thinking – that’s not scary.
Not yet anyway…
Back to the story, he calls to see if I can help by buying the properties from him. I told him I would gladly take a look to see if there was something I could do, but I assured him I couldn’t make any promises.
After, I talk with him a little more, I discover he’s 3 months behind on payments on ALL 28 properties. With all 28 properties, one would need to come up with close to $20K just to reinstate these loans.
But, that’s not the scary part. We still have to see if there’s any equity. And unfortunately, there’s not, therefore I tell him I can’t do anything for him. He’s gonna see 28 houses go to the foreclosure block. Not only will the bank foreclose, they’ll drag his name through the paper causing humiliation, disgrace with his family and his church. The bank doesn’t just foreclose, then go away. They’re gonna stay after him till they get paid. If the bank takes a loss on these properties, which they will, the bank will pursue the following options:
1. Deficiency Judgment:
This will attach to anything this homeowner owns (real estate, cars, boats, motorcycles, etc.) till the debt is paid. Judgments are usually good for a set amount of time. In Alabama, the company has 10 years they can pursue the homeowner to get paid on the judgment. Plus, you should be aware that these judgments then can be renewed after they’ve lapsed.
It’s pretty terrifying to say the least to have some attorney harassing you to collect on a debt.
2. Garnish Wages
After a judgment has been attained, the creditor can and will garnish any wages from the borrower’s pay.
3. Forgive The Debt
Maybe, you think the borrower would love for the bank to just forgive the debt. Even though they forgive the debt, they don’t forget. Because at the end of year they’ll send the borrower a 1099 for unearned income from the loss of the sale of the property they’d loan money on.
Finally, the obvious factor of having a foreclosure is the fact it shows on your credit rating, thus ruining your credit.
Why did I just tell you this information about this particular owner?
I want you to be able to make sellers aware that are in similar situations of exactly what they can expect. See, most investors expect a homeowner to make some logical decision during a totally emotional time like a foreclosure proceeding. Most owners react out of fear, thus making the wrong choice, which is doing nothing but watching the sheriff show up to finalize the eviction after the house has been foreclosed.
Derek Pierce is a full time real estate investor and business owner. He got his start investing in real estate when he bought his first property in September of 2000. After this first deal, Derek literally became obsessed with Real Estate Investing. After being faced with the possibility of being downsized in 2001, he quit his job to be full time in the business and hasn’t looked back since. Now, he reveals the no down payment real estate techniques he swears by in his Free Real Estate Investing “E Coaching Program.” To sign up for the Free E-coaching program, go to http://www.thereisecrets.com