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BloggingStocks: Investors driving foreclosures

Real estate investors driving rising house foreclosures

Posted Oct 18th 2007 10:35AM by Lita Epstein
Filed under: Bad news, Housing

While news reports may have you believe that subprime loans held by the poor or people with bad credit histories are the primary reason for the recent rise in foreclosures, that is not the full story. The Mortgage Bankers Association released a study that indicates the major driver of defaults in Florida, Nevada, California and Arizona -- the leaders in the race to be the top foreclosure states [subscription] -- are owners who don't live in their properties. In other words, investors are driving the market in those locations, according to a story in the Wall Street Journal today.

The Journal tells the story of two real estate investors, one in Las Vegas, Nevada, and the other in Del Ray, Florida, who both bought multiple homes as real estate investments hoping to flip them quickly for a profit. Now that the bubble has burst, they can't flip the properties and they can't rent them for enough money to cover the mortgage payments.

The Nevada investor is a 40-year real estate agent who bought 16 homes hoping that by flipping them he could fund his retirement nest egg. Now he has a total of $45,000 in mortgage payments per month and can't afford them, so he stopped making payments on them and walked away. His credit score dropped form 730 to 400. The Florida investor hasn't walked away from his properties yet, but is planning to do so. He is a 53-year old air-conditioner contractor who bought four units in a Florida condominium with the hopes of flipping them. His monthly mortgage payments total $4,000.

Unfortunately for real estate investors, the price of walking away will be huge. They'll have difficulty getting loans for at least seven years after foreclosure because the foreclosures will remain on their credit histories for that long. If they file for bankruptcy, that will remain on their credit histories for 10 years.

Their tax hit could be high as well. Any portion of the loan that is forgiven might be taxed as current income. In addition, depending on the loan documents, the lending institution might be able to go after other assets owned by the defaulters in order to collect any shortfall.

While there are certain types of trusts that can be set up to protect other assets, these trusts must be in place before the creditors start calling. One California lawyer quoted in the story, Jay Adkisson, says he's getting 30 calls a week from real estate investors seeking to protect their assets, according to the Journal. He told the Journal, "There's just an absolute flood of people seeking asset protection, and it's all after the fact. It's like buying auto insurance after the car wreck."

While I can support federal help for low-income people who got caught up in loan scams and mortgages schemes they didn't really understand, I certainly can't support the idea of helping investors who got greedy and made a huge mistake and now must pay the consequences.

Lita Epstein is the author of more than 20 books including, "The 250 Questions You Should Ask to Avoid Foreclosure."

http://www.bloggingstocks.com/2007/10/18/real-estate-investors-major-drivers-of-rising-number-of-hou...

[Zoom-Zoom-Away]

WOW, Fed must be pouring bookoo bucks in the market with housing and dollar collapsing and oil sky rocketing. Some thing way out of killter.