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Four Foreclosure Investor Precautions

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By Tod Snodgrass

The number of NOD pre-foreclosures notices are on the rise. Fortune magazine reports they are up triple digits in 2022 compared to 2021. There are several factors causing the uptick: COVID mortgage forbearance overhang, the current recession, rapidly rising interest rates this year, etc. The increase in the number of homeowners and landlords in trouble is causing a lot of (both note and property) investors to start taking a hard look at how they can profit from these changes in the market. Precautions include:

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1. Depreciating prices. For those who came into the investor market after the last downturn, you may not be aware that residential property prices in many markets dropped by 40%, from peak (2008) to trough (2012). Some areas/types of real estate dropped by even more. The cautionary tale is to be sure to build in enough equity in foreclosure properties you seek to acquire. In an up market, where prices are appreciating double digits every year, how much equity you initially acquire is usually not the first box you check as an investor. However, as the old saying goes: That was then, and this is now. Assuming the recession worsens, you need to build in more of an “equity buffer” into each deal to protect yourself from making no profit (or actually losing money) when you go to sell the property or note.

2. Judicial vs. non-judicial states. The number of virtual wholesale note and property deals are increasing nationwide; wholesalers need to be knowledge about what laws apply in the state in which the investment is being made. About half the states in the nation are what is referred to as non-judicial. That means they typically employ what are known as trust deeds and trust deed notes. The foreclosure is undertaken without using lawyers and judges. Judicial states usually require you to go through the court system to adjudicate your claim. Non-judicial states usually cost less and take less time to foreclose.

See https://retipster.com/judicial-non-judicial-foreclosure-states-list-map/ for a map, as well as details on the specifics for each state.

3. Beware of Land Contracts (LCs). An LC is an agreement in which the owner/seller of a property agrees to act as the bank and personally finance the sale for the buyer instead of going through a 3rd party, such as a bank or credit union. The buyer makes monthly payments to the owner, but does NOT receive actual title to the property until the last payment is made; and the last one is often a “balloon” payment, i.e. for a very large amount (that the buyer perhaps cannot afford to make).

As an investor (of a property or a note secured by a property) who is about to step into this breach, you must give careful consideration to the LC contract that the owner has/had with the LC buyer. What you want to avoid is getting subsequently sued by the buyer after you bought out the interest of the seller.

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For example, does the seller own the property outright, or is he still making payments to a lending institution? If the owner himself did not make regular payments for any reason, the property can be foreclosed upon, leaving the buyer with a worthless contract and no home. Land contracts also leave the new owner (you) tied to the property. If the buyer stops making their payments, you become responsible for the land—which means you could lose the property altogether if the buyer fails to insure it properly or pay their property taxes. 

All of these tricky issues must be taken into account when you are considering an acquisition that includes a land contract. You need to have a very clear understanding of everyone’s rights and responsibilities beforehand. To play it safe, retain legal counsel to look everything over first.

4. Watch out for Super Liens in 20 states. There are approximately 370,000 homeowner associations (HOAs) in the United States. Collectively, this represents more than 40 million households (or about 53% of the owner-occupied households in America). Statistically, about 26% of all Americans live in HOA communities. Typical HOA/association dues & fees run from $200-$300 per month—many charge more, some charge a LOT more.

In most states, when a lender forecloses on a property in a HOA, and the property owner has also defaulted on their association fees, odds are the condo association won’t get paid for those debts. That is because a successful foreclosure action by the holder of the first position mortgage typically wipes out all junior notes and many liens. However, in about 20 states (see the list below), “super lien” laws have been passed that protect the association from being wiped out completely.

A foreclosure by a bank or credit union can take many months. During that time the HOA is not receiving the monthly payments due to them. When the bank finally forecloses and sells the property, and surplus funds are left over, the HOA (in a Super Lien state) can typically petition the court to channel that money to the association, assuming the association has properly recorded a lien.

So, if you are a note or property investor, be sure to check carefully if the state in which you are investing (and where you could potentially foreclose on a property) is a super lien state. If so, you need to take that information into account, and build those costs into your bid price for the note or property.

To reiterate, about 20 states allow for some form of super lien. Each of the states has differing laws when it comes to how an HOA lien becomes a super lien. You can learn more about super lien states and their individual laws regarding super liens by looking up your state statutes which can usually be found online. The following states allow for super liens, or some version of priority liens for community associations: Alabama, Alaska, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, Pennsylvania, Rhode Island, Vermont, Washington, West Virginia.

What We Do: Provide 100% Joint Venture Funding, nationwide, to real estate note and property wholesalers. Contact info: Tod Snodgrass, [email protected], 310-408-7015

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

You’re Invited to the 3rd Annual Los Angeles Real Estate Grand Expo

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3rd Annual Los Angeles Real Estate Grand Expo

We are very excited to announce our 3rd Annual Los Angeles Real Estate Grand Expo. The Grand Expo returns on Saturday, October 22, 2022, 9:00 am to 6:00 pm. We’re taking over the entire Iman Cultural Center for the day – it’s all ours! The North Hall (vendor hall), the South Hall (workshops), and the middle parking lot (loaded with tents and food trucks). The theme of this year’s Grand Expo will be “How to Invest in a Pre-Recession Market.”

Last year, the Grand Expo was the largest real estate event in Southern California! We had over 600 investors, 64 vendors, and 10 national speakers! This year will be even BIGGER! An entire day celebrating real estate investing and you can be involved. Best of all, the Grand Expo will be FREE to attend. This Expo is going to be big, really BIG!

SPEAKERS. There will be national guest speakers (in three breakout rooms). Here is a partial list of speakers:

1. Brent Kessler

2. Rusty Tweed

3. Shawn Tiberio

4. David Tedder

5. Merrill Chandler

6. Cliff Gager

7. Joe Arias

8. Tony Watson

9. Abbas Mohammed

10. Rick Sharga (Keynote)

INVESTMENT EDUCATION. Just think of it! An all-day in-depth educational extravaganza celebrating real estate investing. More importantly, this will NOT be a sales pitch. Each of the speakers have contractually agreed to educate and teach us successful real estate investing strategies. So regardless of whether you are a new investor, already own properties, or are very experienced, our Grand Expo is for you!

COMPLIMENTARY PRIVATE CONSULTATIONS. As a special unique feature of our Grand Expo, you can sign-up for private half-hour consultations with your favorite guest speakers. Registration will occur Saturday morning, starting promptly at 8:00 am. First come – first serve. So come early and schedule your private consultations. A once in a lifetime opportunity to get free advice from national real estate experts!

VENDOR EXPO: Don’t miss our “Vendor Expo,” which will occur throughout the day in the North Hall. We’ll have 70+ vendors where you can “meet and greet” real estate professionals with services and products that you’ll want to utilize in your real estate investing. (If you have a product or service that would be valuable to real estate investors and would like to be a vendor, please contact us directly.)

DATE: Saturday, October 22, 2022

TIME: 9:00 am to 6:00 pm.

LOCATION: Iman Cultural Center, 3376 Motor Avenue (between Palms and National), Los Angeles, 90034.

FREE PARKING: There will be plenty of street parking (metered and free) on side streets around the Iman. Plus valet parking ($15) will also be available.

FREE ADMISSION: Admission to our Grand Expo will be COMPLIMENTARY (free!), but reservations are recommended.

RSVP: Make your reservations now! (Last year, we sold out and people were turned away at the Skirball!) So don’t wait! RSVP at our special website: www.LAGrandExpo.com.

PRODUCERS. The Grand Expo is joint presentation of the Los Angeles County Real Estate Investors Association, Sam’s Real Estate Club, Ventura Real Estate Investors Association, and Realty411.com.

The Reality of SB-1079 Foreclosures

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By Edward Brown

Attempting to curtail foreclosed houses being turned into rentals, California passed SB-1079 in 2021. This law effectively, for 45 days, suspended any activity after the foreclosure. Prior to this law, houses that were foreclosed on could be purchased at the foreclosure sale by investors and immediately turned into rental property. When this happened, houses were taken off the inventory for home ownership.

California was desiring to promote homeownership, and reduced inventory pushed prices higher as well as increased renters vs homeowners. The theory behind SB-1079 was that it would discourage investors from bidding at the foreclosure because, for the next 45 days, an “eligible bidder” could match the winning bid. The effect of this would be that the investor would tie up his money for 45 days and not know if he would end up with the property. Thus, investors would most likely not show up and bid at the foreclosure and wait out the 45 days to see if any eligible bidders came forward. If nobody outbid the lender at the foreclosure sale, the investor
could approach the lender to purchase the property. With SB-1079 in place, there is no incentive for an investor to outbid at the auction.

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One of the main problems with this law is that the party being foreclosed on has almost no chance of any over-bidding at the foreclosure. Prior to SB-1079, it was possible for the borrower who was being foreclosed on to potentially recoup some equity in the property if the house was bid up. For example, if the 1st mortgage was owed $100,000 and was the foreclosing party, and the house was worth $300,000, the lender would most likely credit bid their entire $100,000 loan. If another party bid $140,000, the lender would get paid their $100,000 and the owner of the house who was getting foreclosed on would walk away with $40,000. SB-1079 effectively shuts the door on that scenario, as the chances of someone outbidding the lender at the foreclosure are slim due to the uncertainty of the bidder acquiring the property at the sale. For the following 45 days, an “eligible bidder” has the opportunity to bid the same $100,000 as the lender and end up with the property. Although there are eight definitions of an eligible bidder, the primary ones include an occupant of the property as his primary residence [not the borrower or a family member of the borrower, however], effectively, a rental, a prospective owner-occupant, and a California nonprofit whose primary activity is the development of affordable housing. If the house is owner occupied, that eliminates the potential tenant purchase option.

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The main problem is that the homeowner will almost certainly lose 100% of any potential equity due to nobody outbidding at the foreclosure auction. At this writing, there are not many non-profits who are set up for development of affordable housing; thus, the only realistic way for the lender to be taken out after 45 days [after the foreclosure] will be those houses that were rented out to tenants or those who desire to own and occupy the house as their primary residence. This last potential is slim, as most buyers want to make offers on houses they can inspect and not wait 45 days to find out whether or not they will be allowed to buy the house.

Due to these new foreclosure laws in California, lenders will have to factor into their underwriting the potential added costs of holding a [potential] foreclosed property at the time they make their loan to the borrower, as the lender is precluded from selling or renting out the property for 45 days after the foreclosure. The lender may have additional costs during this period, such as securing the property against vandalism, vagrants, weed abatement, and the like.

It is still too early to tell if the statistics show if tenants come up with the needed funding options in order to secure the house for their own benefit, as the program is still in its infancy. Only time will tell if this experiment works out for potential would-be homeowners or if it was just a sure-fire way to make sure foreclosed homeowners recoup nothing.

ABOUT EDWARD BROWN

Edward Brown currently hosts two radio shows, The Best of Investing and Sports Econ 101. He is also in the Investor Relations department for Pacific Private Money, a private real estate lending company.

Additionally, Edward has published many articles in various financial magazines as well as been an expert on CNN, in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns.

Edward Brown, Host
The Best of Investing on KTRB 860AM
The Answer on Saturdays at 8pm
and Sports Econ 101 on Saturdays
at 1pm on SiriusXM channel 217
21 Pepper Way
San Rafael, CA 94901
[email protected]

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.

Insider Knowledge from Leading Experts

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Top Educators Share Insight
at Our Online Investor Summit

Get ready for Realty411’s informational two-day online Investor Summit. Regardless of your level of expertise as a real estate investor, be sure to join us for incredible insight at this event.

Guests will not only learn in real time, but they will be able to engage directly with educators via chat. This is the place to ask your most difficult real estate and business questions.

Be sure to pencil in this life-changing virtual seminar designed to bring you up close and personal with leading experts. Make connections with top industry leaders and gain insider knowledge to skyrocket your net worth.

For this two-day online webinar guests will learn information about the following topics:

* Cities Where Top Investors are Buying In
* How to Profit with Long-Distance Rehabbing
* How Private Capital Can Help Investors Leverage
* Steps to Creating a Game Plan to Win as an Investor
* Developing Relationships with Leaders of Influence
* The Latest News on Finance and Mortgage Lending
* How Your Mindset Determines Your Investment ROI
* Identity Theft Protection Safety Education
* Information about Business Lines of Credit
* How to Structure & Profit from Short-Term Rentals
* Learn How Technology Can 100X Your Business
* Discover How to Own a RAL (Residential Assisted Living) Home
* And so much more – top experts – great insight!

Realty411’s virtual Investor Summit is sponsored by MAG Capital Partners

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What is a Trust?

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By Randy Hughes, Mr. Land Trust

Has anyone asked you yet, “What is a Trust?” I am asked many times each month what a trust is and why someone should use a trust to hold title to their real estate investments. Oftentimes the person asking me these questions is a real estate investor or an attorney. Most attorneys are not familiar with Land Trusts, also known as title holding trusts, because most law professors do not teach about them in school. The result is that they typically do not recommend them to their clients. Many attorneys opt to suggest the use of an LLC to hold the title.

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You May Be in the Same Situation

If I am frequently encountering these questions, you may be too. Your current attorney may ask, “Why are you messing with all that unnecessary Land Trust stuff?” Or you could be interviewing a new attorney to work with, and they want to know why you are interested in trusts.

Perhaps a fellow member of the real estate investment club or association of which you are a member, or a real estate friend of yours asks, “Why bother with Land Trusts?” (By the way, if you are not a member of a real estate investment club, I encourage you to find one that suits your style and join. The benefits to you and your business are numerous.)

Let’s face it, the answers to these questions may not flow off your tongue. Since I’ve had more practice than you responding to these inquiries, I’ll share with you some of the points I make.

You know by now that there are many ways to hold title to real estate, whether it is a personal residence or an investment property. The title can be held in an individual’s name, joint tenancy, corporation, limited liability company, joint venture, partnership, limited partnership, association, or trust.

Each of these forms of holding the title carries benefits, detriments, tax, and asset protection implications. There is not space enough in this issue of my Land Trust University newsletter to compare and contrast all these consequences. We can concentrate on the Land Trust and its many advantages to the everyday real estate investor.

Start with the Basics

Let us start at the beginning. What is a trust? It is merely a few pieces of paper whereby one person or entity (the Trustee) holds the title for someone else (the Beneficiary). The Trust Agreement is a contract between the parties involved and as such, dictates the actions of all parties involved. There are many types of trusts available to use. As members of the Land Trust University, we typically deal with a Grantor Revocable Trust (GRT) to hold title to our real estate investments.

Technically, the IRS says that a GRT is NOT an entity but a “contractual arrangement.” The IRS does not require that a GRT has a tax ID number, and they don’t demand that a tax return be filed on behalf of the trust. All tax results from the property held inside the trust flow through to the Beneficiary who files a return. (See Revenue Ruling 92-105 and IRS Code Section 677.)

When combined with Corporations, LLCs, or other trusts, the Land Trust can be a formidable opponent to those who would like to inflict financial pain on the owner.

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Land Trusts were not designed to be asset protection tools on their own. Some practitioners perceive them as great estate planning tools that prevent the Beneficiaries (and Successor Beneficiaries) from experiencing probate.

However, I have found that the mere fact that a real estate investor does not own property in their personal name is a great benefit. And if the investor makes the Beneficiary of the Land Trust an LLC or Corporation, it yields the best of both worlds. Primarily, you receive the privacy of ownership afforded by the Land Trust (there is no “registry” for Land Trusts) and the asset protection benefits of the LLC/Corp as the Beneficiary.

Privacy Makes a Difference

Why is privacy of ownership important? I receive calls every month from people across the nation that think I am the trustee of a trust they are trying to investigate. (They find my phone number when they search the Internet for Land Trusts.) Typically, these inquiries are about a problem the caller is having with a tenant next door or across the street from them. They want to register a complaint or find out who to sue over their dissatisfaction with the adjacent property owner.

If your attorney or your real estate friend have not yet heard a war story from someone who was sued just because their name was on the deed, they will. You can also encourage them to read the testimonials and blog posts on my website. People whose lives were turned upside down because they were the defendant in a lawsuit contact me frequently.

These calls and the challenges people have lived through represent the top reason real estate investors use trusts. It is to stay out of the public purview. Trusts can help avoid frivolous problems. We have a highly litigious society in America today. If you make it easy for someone to sue you, they probably will. If it is difficult to sue you, or they can’t discover who you are, they probably will not . . . they will take someone else to court who is an easy target.

Many advanced Land Trust strategies can be employed in conjunction with other entities that can create dy-no-mite asset protection for the everyday real estate investor.

To learn more visit Randy’s FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for his free booklet, Reasons to Use a Land Trust. Readers can also reach Randy the old-fashioned way by calling me at 217-355-1281. (He actually answers his own phone, unlike most other businesses in America today!)

I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Using Your Marketing Analytics to the Fullest

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By Vista Capital Solutions

Marketing your business is a lot easier than it used to be. Thanks to the power of the internet, it is possible to unearth a ton of useful information about how your ads and promotions are performing. It all begins with your marketing analytics. Though you probably have a general idea of how to analyze the data connected to your marketing processes, there are probably a few pointers that could help you maximize your results. Look over these tips and discover how you can start to make the most of your data analysis.

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Start With Current Performance

Data is powerful because it can show you almost anything you want to see or understand about your company and its various resources. However, it is easy to get carried away with how much potential an analysis can have. This means you want to slow down and start your journey with a few simple tasks. Above all else, you want to start with your current marketing performance. How are your current campaigns resonating with customers? Are you seeing conversions at the rate you’d hoped? Knowing where you’re at is necessary for knowing where to go.

Aim for the Future

After you’ve given yourself a chance to analyze where your marketing efforts are at, it is time to use data to create a map for the direction you would like to head. What are the long-term goals you have for your business? Analytics can help you take a general objective for your company and transform it into an actual possibility. As you begin to analyze various performance metrics, you’ll see what is and isn’t working. By using this information to your best abilities, you can craft marketing campaigns that exceed all previous attempts.

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Remember To Keep Checking Back

An easy mistake to make after discovering something useful from a session of data analysis is assuming you’ve found a concrete solution. In truth, data is always changing. Whatever you learn along the way is usually only going to be applicable to this specific moment in time. You must constantly go back to the drawing board to interpret new data and weigh it against previous sets. The more you get used to the processes, the easier it will be to make data analysis a routine part of your marketing team’s tasks.

Getting the most out of your marketing analytics is all about understanding a few simple facts. Learn the basics, keep your ear to the ground for new trends, and take your understanding of your business to the next level.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411Expo.com or our Eventbrite landing page, CLICK HERE.