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I wanted to share a quote with you that I recently came across.

“Never in the history of America has there been so great an opportunity for practical dreamers as now exists.  The six-year economic collapse has reduced all men, substantially, to the same level.  A new race is about to be run.  The stakes represent huge fortunes which will be accumulated within the next ten years.  The rules of the race have changed, because we now live in a changed world that definitely favors the masses, those who had but little or no opportunity to win under the conditions existing during the depression, when fear paralyzed growth and development.”

“We who are in this race for riches should be encouraged to know that this changed world in which we live is demanding new ideas, new ways of doing things, new leaders, new inventions, new methods of teaching, new methods of marketing, new books, new literature, new features for the radio, new ideas for moving pictures.  Back of all this demand for new and  better things, there is one quality which one must possess to win, and that is definiteness of purpose, the knowledge of what one wants, and a burning desire to possess it.”

“The business depression marked the death of one age, and the birth of another.  This changed world requires practical dreamers who can and will put their dreams into action.  The practical dreamers have always been and always will be the pattern-makers of civilization.”

“We who desire to accumulate riches should remember the real leaders of the world always have been men who harnessed, and put into practical use, the intangible, unseen forces of unborn opportunity, and have converted those forces (or impulses of thought), into skyscrapers, cities, factories, airplanes, automobiles, and every form of convenience that makes life more pleasant.”

“Tolerance and an open mind are practical necessities of the dreamer of today.  Those who are afraid of new ideas are doomed before they start.  Never has there been a time more favorable to pioneers than the present.  True, there is no wild and woolly west to be conquered, as in the days of the Covered Wagon; but there is a vast business, financial, and industrial world to be remolded and redirected along new and better lines.”

“In planning to acquire your share of the riches, let no one influence you to scorn the dreamer.  To win the big stakes in this changed world, you must catch the spirit of the great pioneers of the past, whose dreams have given to civilization all that it has of value, the spirit which serves as the life-blood of our own country – your opportunity, and mine, to develop and market our talents.”*

Now, this could have been written anytime in the past several years.  But it is a quote from “Think and Grow Rich”, written by Napoleon Hill in 1937.  Most tenets contained here have great application to the current economy and foreclosure investors everywhere.  So I ask you what is your dream and how can you use it to build your fortune?

*Napoleon Hill, Think and Grow Rich, The Penguin Group, 1937

As we have already discussed, the State’s budget is in some serious financial straits.  The Courier-Journal reports “Code Red” since it has so many problems.

The Pew Center report, which the article is based on, forecasts quite a few problems for the states for the next decade.

“States will continue to struggle over the next decade because of the combination of the length and depth of this economic downturn, the projected slow recovery and the overhang of unmet needs.”

“. . . Key points from the Pew report shine a light on next best practices: diversifying a state’s economy. Aligning revenues and expenditures; rethinking caps, laws and amendments that prevent lawmakers from being able to act; lawmakers stepping up and making the tough decisions demanded by this economic crisis.”

Diversification of the economy should be priority number one, but that supposes we have an educated workforce that will lead the way into knowledge based, information jobs.

I have yet to see a legislature that doesn’t try to pass the buck, so the question is, Will the Kentucky Legislature make the tough decisions needed to right the ship in the upcoming session?  So far I haven’t seen any bills that have been introduced to tackle the problem.  If there are any, please let me know.

All of this begs the question, is the State Budget Code Red?  Or simply Code Blue – dead and needing some serious life support?

Ok, so we went over what an actual Master Commissioner is and what he or she does here.

For Tip #2, let’s discuss the difference between a “note” and a “mortgage”?  The note is the actual contract that loans money to an individual.  The individual agrees to pay back that money at a certain interest rate.  There can be one, two, or more individuals on the note.  So that is why sometimes you only see one spouse who has signed the note.  Most banks will want as many people obligated on the note though, so it is more than willing to take several other co-signers, if it can get them to sign.

The mortgage on the other hand, acts as a lien against the collateral, in this case, the collateral is the real estate, home, or other building that the bank will take an interest in.  If the debtor defaults, it is presumed that the bank will be made whole taking back its collateral and selling it off, to earn its money back from the note.  Kentucky still has dower and curtesy rights, something I’ll go over in a later post.  The short answer is that once an individual gets married, the spouse has an immediate interest in any property.  That is why there can be one spouse on a note, but both spouses must sign a mortgage.  That is also why you sometimes see a bank suing an “unknown” spouse.

For a mortgage to be enforceable, it must be recorded.  Kentucky is generally a “race-notice” state, meaning that the first person or bank to record its mortgage at the county clerk’s office, takes first priority.  Thus, it is a “race” to the courthouse to see who can file or record the lien first.  Recording the lien in the county clerk’s office gives “notice” to everyone else that you have a lien, what that lien is, and how much you are owed.  There are a few small exceptions to this rule, which I’ll go over in a later posting.

Every other entity that files a lien after that first lien just falls in line in order that they filed in.  A piece of property can have numerous liens on it, such as a first and second mortgage, judgment liens, home equity lines, and many others.  That’s why it is important for you to file a lien against a piece of property as quickly as possible.  Recording the lien puts everyone on notice of your interest in the property.

Right now, with so many banks foreclosing on their notes and mortgages, they have a glut of real estate owned that they need to get rid of.  A great time for the foreclosure investor.

I hope this helps clear up some questions about notes and mortgages.  For the next post, I’ll go over what happens pre-foreclosure.

The foreclosure rate is not likely to go down anytime soon.  In fact, it appears that not only will it rise slightly, it is starting to hit individuals with good credit scores.  Up to now, most of the foreclosures were in the subprime range.  However, not any longer.  The crisis is slated to last well into 2010.

With no end or relief in sight for the unemployment rate, there is no alternative but for the foreclosure rate to begin creeping into individuals with good credit.

“The latest evidence was a report Thursday that a rising proportion of fixed-rate home loans made to people with good credit are sinking into foreclosure. . . . The report from the Mortgage Bankers Association also found that 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September. It was a record-high figure for the ninth consecutive quarter.

The data suggest the housing market and the broader recovery will remain under pressure from the surge in home-loan defaults, especially as unemployment keeps rising.

. . . But analysts say there are too many foreclosed homes that have yet to be dumped on the market and expect further price declines.”

Read the full article in the Courier-Journal.  If you are looking for good investments, you need to get to know your local bank’s REO department.

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Spurred on by the economy, including the foreclosure rate, Kentucky tops the country in child deaths related to abuse.  “Kentucky has the nation’s highest rate of death due to child abuse and neglect, according to a report by a child advocacy group in Washington, D.C. Employing the most recent information available, from 2007, the Every Child Matters Education Fund found Kentucky had 4.09 deaths per 100,000 children.”

As pointed out in Business Lexington, even the commercial real estate market is feeling the pinch.

“The national commercial real estate market bubble has been deflating steadily for almost three years with values down approximately 40 percent from 2007 highs.

While even in a continuing bearish economy, Lexington is experiencing more development activity than many, if not most, other mid-sized to major American cities, the Bluegrass is not immune to worrisome market forces in commercial real estate.”

And even commercial loans go into default.  “On the national scene, many borrowers have already been struggling to meet monthly payments. According to Trepp, the New York-based provider of Commercial Mortgage-Backed Securities (CMBS) and commercial real estate information, analytics and technology, the delinquency rate of securitized commercial real estate loans hit 4.8 percent in October, dwarfing the 0.77 rate a year earlier.”

The entire article is definitely worth the read.

Banks still reporting a downturn in their income for the quarter.  Bank of Kentucky Financial Corporation is also reporting the same.

“The Company reported a decrease in diluted net income per share of 40% for the first nine months of 2009, and a decrease of 70% for the third quarter, as compared to the same periods in 2008. Highlighting third quarter 2009 results was an increase in total operating revenue of 1,065,000 (7%), an increase in loans of $110,809,000 (11%) and an increase in deposits of 158,272,000 (16%), as compared to the third quarter of 2008. Offsetting these increases was an additional $3,225,000 provision for loan losses and a $523,000 increase in losses on the sale of other real estate owned (OREO) as compared to the third quarter of 2008. Contributing to the revenue increase was the result of increases in net interest income of $873,000, or 8% in the third quarter of 2009, as compared to the same period in 2008. Contributing to the increase in the provision for loan losses were higher levels of charge-offs and non-performing loans in the third quarter of 2009 as compared to the same period in 2008, and management’s continuing concerns over the effect of the declining housing market, falling real estate values and the overall deteriorating economic conditions will have on the Company’s loan portfolio. The losses on the sale of OREO property included a loss of $462,000 on one property.”

As you can see they speak directly about their real estate owned or REO department.  Many banks have had a huge increase in their REO and must figure out something to do with all the foreclosed property that they now have.

Yet another great way for the foreclosure real estate investor to pick up some good bargains.

The more I read about banks and their reports, the more interesting theybecome.

First Federal Bancorp reports “All forward-looking statements are based on current expectations regarding important risk factors including, but not limited to, real estate values, the impact of interest rates on financing, changes in general economic conditions, legislative and regulatory changes that adversely affect the business of the Company, changes in the securities markets and the Risk Factors described in Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2009.”

A small decrease was reported, “At September 30, 2009 assets had decreased $5.1 million or 2.1% to $235.8 million compared to $240.9 million at June 30, 2009.”

This shouldn’t be a shocker that many states are in fiscal trouble, including Kentucky.  Kentucky made the top 15 list of states in the most trouble as reported by CNNMoney.com.  Not something we need to be known for right now.

“The list is based on several factors, including the loss of state revenue, size of budget gaps, unemployment and foreclosure rates, poor money management practices, and state laws governing the passage of budgets. . . .

. . . In a separate study released Wednesday, the Center on Budget and Policy Priorities found that states will likely have to make steep cuts in their fiscal 2011 budgets, which start next July 1 in most states. That’s because the critical federal stimulus dollars will run out by the end of 2010.”

So what is it going to be?  Raise taxes and pinch an already over-burdened middle class?  Or, slash critical services, like education, which are needed to re-train current workers and attract knowledge workers in the new information economy?  Or, the third option, stick your head in the sand, make no hard decisions, and hope that somewhere down the line someone else does it for you . . . You decide which is most likely . . .

UPDATE: similar article, giving more detail on why states are in such trouble.

UPDATE II:  here’s the full report from the Pew Center on the States.