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7 Insider Tips You Must Know Before Buying or Selling a Note in Today's Real Estate Market

Did you take back a 2nd mortgage when you sold your property? Perhaps you are collecting payments as part of a structured settlement. Or maybe you're considering buying a cash flow note or taking back a mortgage.

There are certain things that you simply must know if you currently collect payments, or are considering taking on payments in the near future.

1. First and foremost, you must know the value of the Note that you own or are considering buying. What is the present value of the note today? You can guess what it's worth. But would you "guess" at how much your home is worth? Of course not. Find out exactly what the note is worth by having it appraised by a Certified Mortgage Appraiser. A note appraisal determines the current worth of a mortgage using the present value approach, taking into consideration the degree of safety, interest rate, liquidity and the collateral for the note.

2. Where do you find buyers and sellers of mortgages and notes?

Many individuals buy and sell cash flow notes, including the author of this article. Buyers and sellers of notes will often place classified ads in your local newspaper. Or you can run an ad to buy or sell a note. Anyone interested in getting a good return on their investment dollar is a candidate to buy your note.

3. Who is responsible for making the property taxes and insurance payments? Are the payments current? What do you do if they are not current?

The person responsible for making the tax and insurance payments can vary depending on the terms of the mortgage. Before buying or selling a mortgage note, be sure to examine the terms for paying the taxes and insurance. Also verify that the policy is issued for an amount that represents at least the full value of the amount still owed on the note, and that you, as the lender, are listed as the mortgagee on the policy.

4. What should you do if the borrower fails to make a payment on time?

Do not let the borrower get into the habit of making payments later than the due date or grace period. Be polite, but insist on promptness. Be sure to collect late fees if the payment is not received on time or within the grace period. Establish a no tolerance policy for late payments. If late payments persist, notify the borrower in writing of the exact nature of the default and proceed with legal action.

5. What if the borrower files Bankruptcy or has a judgment against them recorded on the property?

If the borrower files bankruptcy and lists you as a creditor you will be notified by the bankruptcy court. In this case, you must stop all collection efforts. Consider hiring an attorney to advice you in this area to avoid legal problems.

6. How do I initiate foreclosure proceedings if legal action is required? Should I hire an attorney or do it myself?

If legal action is required, the Noteholder has the right to initiate foreclosure proceedings. Find an attorney in your area with experience in the area of real estate foreclosure. Declaring a loan to be in default and starting the foreclosure process is a serious matter and should be handled by an attorney familiar with the laws in your state.

7. Should I periodically inspect the property that secures my mortgage note? What if the property is not being maintained properly?

It is the borrower's duty to protect and maintain the value of the property until it is paid in full. However, as the lender you should drive by the property on a regular basis to insure that the property is being properly maintained. If the property is in another state, have someone you know do this for you. Deferred maintenance on a property can seriously diminish the value of you loan.

Steve Groom, CRI, CMA, http://www.HomeBuyersMD.com is a full time real estate Investor in Maryland. In addition to buying & selling real estate and cash flow notes, he is also a Certified Mortgage Appraiser. For a limited time only, he is offering readers a FREE copy of the ?Note Owner?s Manual?, the essential tool for all note owners or note buyers by calling the 24-hour message line toll-free at 1-800-761-3424, ext. 6 to request it, or get it now at the website above.

Risks of Real Estate Auctions

There are various ways to purchase a property. But if you are aiming to buy a house with a price lower than conventional market rates, real estate auctions is one venue swarmed with quality yet relatively inexpensive homes. Then again, you need to be guided about the risks of selecting a property placed in an auction.

Essentially, a property put under auction is a foreclosed property. Once a homeowner receives a Notice of Default, it nears foreclosure and then it would undergo several stages to be put on sale. One of which is the auction. Properties within this set up are those that did not sell through multiple listing services at a given period of time. These homes are usually intended for big investors or buyers backed up with a lump sum of money. This is because the process requires full cash out upon approval of the bid. Buying this property type is not advised for a novice home buyer. Most properties sold through auctions require prospective buyers to disburse 5 percent buyer premium. One needs to have perceptive skills to offer an enticing bid that could overthrow other competitive bidders. The difficulty is enhanced when even the lender bids.

On the other hand, buying a foreclosed property through online auctions brings about other unique risks. Unlike with actual auctions, you are not enabled to easily inspect the property. Be ready to have a property as it is. Say, the furnace is malfunctioning, you cannot just go back and ask the owner to fix it. Conversely, the previous owner can reclaim a property within a redemption period. This happens when the owner recovers his finances, pays his loan and then saves his property from foreclosure. The property cannot be fully owned until the said period expires. Most states have this mechanism. The duration of the period and regulations as to who is eligible for redemption vary per state and/or county. New Jersey allows 10 days and Tennessee has up to 700 days for the redemption period. Note that this system usually occurs in agricultural areas where farmers wait for the payment of their crops, which would then be allocated for repaying their loan. You may also ask the homeowner if you can buy his right of redemption. It usually takes $500 to $1,000.

Be careful in what you are buying. Some auctions are masking the sale of mortgages and liens under the property itself. It would be unfortunate if you unintentionally bought the second mortgage on a home. So it is best that you make sure of the auction rules and property specifications before putting your money down. But despite these risks, it is really a lot more convenient to participate in online auctions. Also it is one factor that may have contributed to increasing the clamor for and exposure of more foreclosed properties at auctions. A lot of buyers are more inclined to online auction as it is less intimidating. There is also the perk to not reserve a slot to be a qualified bidder. For example, you can bid $250,000 at an online auction, put down only 10 percent, and borrow 90 percent. Other courthouse auctions require more collateral. Then again, if you won the bid, you have to come up with the cash in a timely manner.

If you are a veteran real estate investor, then you can enjoy the advantages of having this property. Firstly, you can have massive savings. Immediate ownership is guaranteed as you are required to put down all cash upfront. There are numerous properties in auction that cost way below its original value. For one in Ohio, a two-story home transformed into a multi-family duplex apartment was sold at no-reserve auction for only $3,200, whereas its value was $35,000. This 1,900 square feet property has 11 rooms. Although this particular home needed some repairs and cleanup, there is a remarkable savings from its price.

The Real estate market can be an enjoyable, satisfying and lucrative experience for you. Whether you are a homeowner, a buyer, a landlord or simply a real estate enthusiast, get to know more about the latest in the real estate market now. Read more about it here: Maricopa Real Estate and Maricopa Adult Community Housing.

Using Subject 2 Contracts to Buy Real Estate With Less Than Perfect Credit

Subject 2 is a way to buy real estate without applying for a home mortgage loan. This financing option requires buyers to assume mortgage debt from the property owner. Real estate investors often use Sub2 contracts when selling houses to buyers with less than perfect credit.

Subject 2 is a great option for buyers unable to qualify for a conventional home loan. The property owner transfers the real estate deed to the buyer who becomes responsible for paying remaining loan installments. Loan documents remain in the original mortgagor's name and the new buyer piggyback's off their good credit.  

Instead of entering into a high interest bad credit loan, buyers can take advantage of assuming low interest payments. Buyers should engage in credit repair strategies so they can obtain financing within a year or two.

The primary purpose of entering into a Subject To contract is to let buyers buy a house without a down payment or credit check with the intention of refinancing the loan into their own name as soon as their credit allows them to obtain financing through traditional means.

Entering into Sub2 contracts requires both parties to engage in due diligence. Sellers should obtain financial records to ensure the buyer is financially capable of paying home loan installments. When buyers default on the note, the note holder is responsible for missed payments or runs the risk of losing the property to foreclosure.

Most Subject 2 contracts require buyers to submit loan payments to the servicing lender. However, some sellers require buyers to submit payments directly to them and they will submit payments to the loan provider. In this scenario, buyers run the risk of losing vested funds should the seller default on the mortgage loan.

Subject 2 contracts should be drafted by a real estate attorney to minimize risks for both parties. Sub2 contracts are used in place of bad credit lender loan mortgages to give buyers time to restore their credit rating. Buyers should refinance into a conventional home loan to purchase property rights as quickly as possible.  

In order to be legally binding, Sub2 contracts must be recorded through the court. Subject 2 records the transfer of property rights to the buyer. However, property rights are "subject to" the buyer adhering to contract obligations. If buyers default on their agreement, ownership rights revert back to the seller and the buyer loses all funds invested into the property purchase.

Sellers determine the duration of Subject 2 contracts which typically extend for 2 to 5 years. At the end of the contract, buyers must apply for a home loan or obtain financing through another source such as hard money lender loans.

Hard money loans consist of high-interest loans provided by private real estate investors or investment groups. This is a risky and expensive option for borrowers with bad credit. Therefore, buyers who enter into Subject To contracts should carefully strategize the ability to obtain financing in the future. If buyers cannot obtain financing at the end of the Subject 2 contract they could end up being in default and run the risk of having property rights transferred back to the seller.

When mortgage notes are refinanced the buyer is responsible for costs typically associated with entering into a home loan. Common costs include loan points, home inspections, property appraisals, mortgage insurance, homeowner's insurance, realtor commissions, legal fees, and closing costs.

Real estate investor, Simon Volkov shares information and resources to help sellers and buyers understand the benefits of entering into Subject 2 contracts. His website offers a dedicated article library covering creative financing strategies and alternative home buying solutions at www.SimonVolkov.com.

Real Estate Short Sale - What You Need to Know About Real Estate Short Sales

When a home owner finds themselves in a position of failing to meet mortgage payments, there is an option that does not include foreclosing on the home. A short sale is a home sale where the lender is willing to accept less than the amount owed on the home. While some lenders do not offer short sales for the loans they have secured, and other lenders may choose a foreclosure as being more financially beneficial for the loaning party, others will allow a homeowner to enter into a short sale if all paperwork is filed properly and on time.

The paperwork involved in setting a short sale in motion is the not so short part of the sale. For obtaining permission to begin the short sale process from a lender the homeowner will need the following documents.

o Letter of Authorization. The letter of authorization will need to include the property address, the loan reference number provided by the lender, the name of the home owner or the person holding the loan, the date of the request, and the agents name and address. The agent may be a real estate agent or a lawyer dealing with the financial matters in the case. The letter of authorization will give the lender permission to speak to any outside parties listed in regards to the homes loan and the home loan status.

o Preliminary net sheet. The preliminary net sheet is a financial document proving the amount of money you expect to receive from the sale of the home. The amount of the total sale, any fees, late charges, and real estate charges. The real estate firm handling the short sale will be able to address the preliminary net sheet. To ensure the approval of the short sale, the bottom line of the net sheet should show zero profits going to the seller of the home.

o Letter of hardship. This is one of the most important documents the homeowner will provide to the lender. This letter should read as real and honest as possible. If there are extenuating circumstances surrounding the sale of the home or the loss of income leading up to the late mortgage payments, the lender will need to know these facts in detail.

o Financial documentation. The lender will also need copies of all financial statements and proof of all income and debt. These statements will include assets, income, bank statements, credit card statements and any monetary statements available at the time of the short sale request. Financial statements that prove the homeowner is not in debt will cause the lender to instantly deny the short sale.

o Purchase agreement. The lender will want the listing agreement and purchase agreement agreed upon by the seller of the home and the buyer of the home. The lender has the right to refuse any and all payments in association with the sale of the home that are not required by law. These may include inspections of the home and home protection plans, depending upon the laws of the state.

A short sale will be highly followed by the lending institution. While this sale will certainly remove the burden of an over expensive mortgage from the homeowner, it will leave that homeowner in the hands of the lender. At any time during the short sale proceedings, the lender can choose to remove the authorization and simply foreclose on the home.

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The Mechanics of Short Sales in Real Estate

There are not many "ways out", once you are in a tight spot as a home owner, who's going through some financial problems and finding it hard to reimburse the debt amount to his/her lender or mortgagee. Most of the times, you are left with no other options but to withdraw from your home ownership, either by means of foreclosure or "short sale". A short sale occurs when you sell your home (of course with the consent of the lender) to some buyer at a price that's less than the owed amount of debt. In case of a short sale, lenders keep the money, buyers get the home and the sellers are left with ... well, nothing but at least they can save themselves from dishonor and bad credit record that comes with foreclosures or bankruptcy.

Mostly, three major stakeholders are involved in a short sale, namely seller, buyer and lender. Let's discuss the transaction one by one, from their standpoint.

Seller:

Though seller gets nothing (of a monetary value) out of "short sale", still he/she is the one who is the most concerned. As a seller, you should keep some points in mind. First, the lender will not always absolve you of the remaining debt. Second, the credit history doesn't really remain unmarked in case of short sale (though the bad impact is less than the foreclosure). As a seller, you must put forward a very strong case for the bank's loss mitigation department, an application providing valid reasons with documented proofs (especially if you have cited the "decline in property prices" as the reason for short sale).

Lender:

Lender is of the paramount importance in a short sale, buyers and sellers cannot proceed with the deal without the lender's permission (In case there are more than one lenders involved, consent from both parties will be needed). Mostly lending banks permit sellers to carry on with the short sale to save all the costs and complications attached with foreclosures, but not before going through a thorough checking and verification process.

Buyer:

Homes at short sale notices are typically low-priced (not lesser than foreclosures though). But the biggest drawback in going for a piece of "short sale property" is the amount of time it can take before the deal is finalized, mainly because it's not the seller but lender who'll approve or disapprove the offer. As a buyer, it makes sense to involve a real estate agent, who has previously dealt with short sales. Short sale homes are supposed to be in better condition than the foreclosed ones, but you must hire a home inspector to do the inspection in any case.

William King is the director of Dubai Property Real Estate Properties and Pakistan Real Estate Properties. He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements.

The Pros And Cons Of Buying A Home Through A Real Estate Auction

There are many pros and cons to buying a home at a real estate auction. Real estate auctions allow people to bid on and buy property at a publicly held sale. Sometimes sellers choose to sell their properties through a real estate auction. Often homes for sale at auction are homes that went into foreclosure. There are both advantages and disadvantages to buying a home through a real estate auction.

The Pros of Public Sales: Buying a Home at a Real Estate Auction

One of the pros of buying a home at auction is the price. Homes sold at a public auction offer deep discounts when compared to homes sold through more traditional channels. Some auctions have no set reserve price, so the homes will sell to the highest bidder no matter how much they bid. Foreclosure auctions often offer buyers enough time to have an inspection done, to learn more about the property and any potential problems. Real estate auctions can make buying a home easy -- there are no negotiations- either a bid is accepted or it is denied. Buyers also often have the opportunity to see what others are bidding at a real estate auction. Closing typically happens quickly, within 30 days of the end of auction.

The Cons of Real Estate Auctions Include Uncertainty

There are a number of cons to buying a home through a real estate auction. In some cases there isn't time for an inspection, and the property may have serious problems not visible to the naked eye. Homes are bought "as is" with no warranty and no recourse if problems are found. Tax liens on properties at foreclosure auctions may become the responsibility of the new homeowners. If the home has been vacant since foreclosure, vandalism or weather-related damages may have occurred. Some earnest money or payment in full is required to buy a home at a real estate auction, but getting pre-approved for a home loan can negate this con.

Comparing prices for homes in the area and doing an inspection before buying any property can prevent a lot of uncertainty when buying a home at a real estate or foreclosure auction.

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Lisa Nichols is a freelance writer, website content strategist and marketing and PR strategy consultant. Originally from Eugene, Oregon, Lisa is currently based in Covington, Kentucky (also known as greater Cincinnati, Ohio).