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As Some Doors Close, Other Doors Open

The tightening credit picture isn’t affecting all people equally. Odd as it may seem, there are millions of people who long ago cut up their Credit Cards and started living within their means. Many of these are retirees who have been around long enough to realize that increasing personal debt to pay for lifestyle doesn’t bode well for a time when Social Security and Medicare could be broke. Others are from the old school that mistrusts debt of any kind. Still others are not consumers. They don’t buy the latest audio equipment, computers or cars.

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A major opportunity is emerging out of the opposite demographic segment; which will be the most affected by tightening credit. Think of all those people who patronized the Sharper Image. Those who prized “looking good” over being home owners; who placed their houses in jeopardy by using Home Equity Loans to buy Gucci sandals, Rolex watches, Hummers, RVs, boats, and other depreciating assets. When houses were appreciating, they refinanced their homes with every increase of value, thereby transferring appreciating equity into over priced toys. Now, they are desperately trying to stay abreast of their payments; but falling further behind schl├╝sseldienst in Hannover.

Consumers who mortgaged their futures to maintain their presents offer a mixed opportunity. They fall into two camps. Foreclosure or Short Sale candidates mortgaged their homes to the point that they have negative equities. The only way they can escape their own folly is to sell out and start over. Buying their homes as pre-foreclosures isn’t a good idea. It would leave you with over-financed houses, negative cash flow houses with no equity. That’s where Short Sales shine.

A paradigm shift has taken place among over-stressed lenders: They have started accepting ridiculous Short Sale bids that require them to discount all secondary liens and to pay real estate commissions. But Short Sale contracts must be packaged and presented to the investor/decision-maker that is actually holding the loan; FNMA or other secondary mortgage investors. To accomplish this, seek out a pro Broker or Escrow Company that specializes in Short Sales and knows whom to contact and how to present a Short Sale offer. Because nobody really knows how much further prices may fall, it pays to make low offers; about 30% of the defaulted loan balances. Most of these will be turned down, but when one is accepted, it makes up for all the others. If you don’t have enough money to buy Short Sale houses, re-read page 2. Before making your offer, find an investor, or a new owner occupant, to buy the house and either pay you a fee, or share in the profit.

Another market opportunity is to offer “payment assistance” to distressed owners who still have significant home equity and who have managed to keep their indexed mortgage payments current. With tightening Credit Card limits and bank refinancing drying up, they can no longer borrow their lifestyle. They either don’t want to, or can’t, sell their homes or their toys. Today, they can’t afford rising gas prices, taxes, and insurance, so are being forced to cut back their lifestyles. Their financial body language is that they would prefer to sacrifice equity in their homes than to give up their toys or lifestyle. The stage is set for you.

Suppose a family were living in an upscale house with $100,000 equity even at today’s much lower house values. They can’t make their $3000 per month payments. Your Roth IRA offers to pay $1000 per month for 3 years to buy a 5-year Option that will share their equity 50/50 at the end of five years. You’ll secure your Option with a recorded Wrap-Around Mortgage or All Inclusive Trust Deed and arrange with a local bank or escrow company to combine your money and their money to make the house payment. This will protect your interests against any future refinancing or liens.

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