BluegrassForeclosure.com

The Courier-Journal has an interesting article on investment that are worth taking a second look at, including commercial real estate.

“Commercial real estate — which is now experiencing trouble similar to the housing market — might be a good investment opportunity, [Josh] Gilliam said.

“In that situation, you don’t have distressed properties so much as you have distressed owners,” he said.

People who don’t have millions of dollars to buy property outright can buy into real estate investment trusts — securities that trade on stock markets, he said.

But [John] Roberts said retail bankruptcies and an oversupply of property also means there is “a lot of risk” in commercial real estate.”

In the same article was this little nugget: “the federal government has been buying mortgage-backed securities, pushing interest rates down. In the spring, the rate on a 30-year, fixed-rate mortgage dipped below 5 percent for the first time in Freddie Mac’s Primary Mortgage Market Survey, which goes back to 1971. The rate was 4.78 percent last week.  . . .

. . . “Now is a great time to purchase,” said Adam Hall, a loan officer with Fifth Third Bank and secretary-treasurer of the Mortgage Bankers Association of Kentucky. “Buyers have lots of options.”The low rates have also caused a surge in mortgage refinancing, which makes sense if the homeowner plans to keep the property at least three to five years — long enough to recoup the closing costs associated with getting a new loan at a better interest rate, he said.”

Finally, it looks like the percentages of loans going into default is up as well.  Signs again, that the unemployment rate continues to drive default rates.

This news certainly doesn’t bode well for our local economies and it certainly shows that foreclosure rates will likely continue to break records in 2010.

“Statewide, Ohio’s unemployment rate climbed to 10 percent from 9.7 percent the month before.

Kentucky’s major metro areas followed suit, with Lexington-Fayette inching up to 8.4 percent from 8.3 percent, and Louisville-Jefferson County moving to 10.3 percent from 10.1 percent.”

From the Kentucky Transcript: “The number of homeowners on the brink of foreclosure fell in November, the fourth straight monthly decline.

Nearly 307,000 households, or one in every 417 homes, received a foreclosure-related notice in November, down 8 percent from a month earlier, RealtyTrac said Thursday. Banks repossessed about 77,000 homes last month, down slightly from October. . . .

. . . But foreclosure filings were still up 18 percent from a year ago, and a new wave is expected next year as unemployment remains high and borrowers fall out of loan-modification programs.”

Even though some economic reports assert that we may be exiting the recession on a national scale, I find it hard to believe that we are truly on the road to economic recovery just yet.  Not with unemployment rates still looming as high as they are.  With no new jobs or few new jobs being created, the recession, or the after shocks of it, could still be felt all the way through 2010 and possibly into 2011.

If you are investing in foreclosed real estate, or if you are investing in general, here is a great primer on how to read a company’s balance sheet from The Motley Fool.  The Motley Fool, www.Fool.com, (that’s a great domain name) puts out great advice and does not confuse you with a lot of technical jargon.  Well worth the read.

If you are a regular reader, then this comes as no surprise to you.  Cincinnati.com has an interesting article:

“Roughly one out of 10 Ohio and Kentucky mortgage holders are behind on their payments, according to new trade data.

While both states’ foreclosure rates and rankings remained the same, both saw about a 1 percent increase in the portion of homeowners falling behind on their loans, a pattern that played out across the nation, according to the Mortgage Bankers Association. . . .

. . . Lost jobs, rather than subprime loans made during the housing boom, are now the main reason homeowners fall behind on their mortgages. . . .

. . . Kentucky court records show that foreclosures were higher in Boone, Campbell and Kenton counties through the third quarter than at the same time in 2008.

While Ohio and Kentucky statewide foreclosure rates appear to be slowing their growth, the pipeline for potential foreclosures appears to be surging.”

And unlike the subprime mortgages, many of which were bad loans, mortgages in default due to job losses are much harder to predict and much harder to deal with.  That’s why we are certainly not out of the woods yet, and it is even likely to continue well into 2010, if not further.

We’ve discussed what the Master Commissioner is here and what a note and mortgage are here.  Let’s go over how the Master Commissioner actually gets the property and/or is ordered to sell the property.

As noted previously, Kentucky is a judicial state, meaning a foreclosure action must be filed in court and an order entered to sell it.  How does this happen?

A complaint must be filed in the circuit court of the county where the property is located.  Not to get all legalese or anything, but the circuit court has jurisdiction and the county where the property is located is the correct venue.  So if the debtors or soon to be former owners have moved out, you don’t have to worry about filing wherever they are located.

The Plaintiff is the entity that files suit.  The Plaintiff has to have a legal right to begin a foreclosure.  In most cases, it is a bank that holds a note and mortgage against the property.  It can also be a trust (more on securitization later), a servicer for the trust, or some other lien holder, whether it be a tax lien or a judgment lien.

The Defendant(s) can be numerous, depending on what is going on with the property.  Most often the first defendants are the actual debtors.  If the debtors are not the actual owners of the real estate (such as commercial property), then you have to add the owners of the real estate, the tenants and anyone else that has an interest in the property.  You also have to add any tax lien holders, whether it is a federal, state, or local municipality, or a third party entity that has bought a tax lien.

Then you need to add any entity that holds a senior or junior mortgage, any other type of junior lien, or even unknown spouses, or unknown heirs, if one of the debtors is deceased.

As you can see, it can get pretty convoluted assuming what type of liens are recorded against a piece of property.

Next: how a foreclosure lawsuit gets to judgment.

Mortgage delinquencies hit a record number during the 3Q of 2009.  As reported at Cincinnati.com:

“For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That’s up 58 percent from 3.96 percent a year ago.

Being two months behind is considered a first step toward foreclosure, because it’s so hard to catch up with payments at that point. . . .

. . . .The delinquency rate for the 15-county Greater Cincinnati/Northern Kentucky region was 4.4 percent, up from 3.61 percent in the same quarter in 2008. . . .

. . . . In Kentucky, the average debt was $117,329, up from $115,707 a year ago.”

Overall, the mortgage delinquencies have slowed.  But we are still not out of the woods.  If the unemployment rate continues to hover around 10% or more likely, even climbs slightly, then mortgage delinquencies will continue to rise as well.  It is not likely that there is going to be huge number of new jobs being created any time soon, so watch for it to continue this way for awhile.

Here is some slightly good news, but not sure how long it will last.  As the AP is reporting:

“Home sales surged for the second month in a row in October, climbing to the highest level in 2 1/2 years as first-time buyers rushed to take advantage of an expiring tax credit.

Home sales nationwide are now up nearly 37 percent from their bottom in January, data Monday showed, though they are still 16 percent below the peak in autumn 2005. At the current sales pace, there is only a 7-month supply of homes on the market and in some areas there are bidding wars. . . .

. . . The recovery is being driven by lower prices combined with federal programs to lower mortgage rates and bring more buyers into the market.”

And therein lies the rub . . . once the federal programs finally run out, what will the market look like then.  Probably not much better, but who knows.

I’m adding information on every county master commissioner, contact information, and pertinent addresses that you will need to attend a master commissioner sale in your county.  There are 120 counties, so check back every week to see if you county has been updated.

If you have any suggestions on making BluegrassForeclosure.com easier for you, please send them to me or leave a comment on the site.

For Tip #3, let’s discuss what happens pre-foreclosure.

For a foreclosure to begin, the debtor must go into default somehow.  Usually, this means that they have stopped paying and are 60 – 120 days delinquent.  There are numerous other ways listed in a note or mortgage for being in default.  These include not keeping insurance on the property, not naming the bank or finance company as the loss payee, not paying your taxes and numerous other reasons.  Read the fine print of your mortgage, you may be surprised the ways you can be delinquent.

Usually, before the subprime meltdown, the foreclosure would be automatically assigned to a foreclosure attorney.  Now, these days, the account first goes in “loss mitigation” and many of these departments are in-house for a loan company or servicer.  Loss mitigation specialists are trying to work with the debtor and figure out what can be done.  They may be able to qualify a debtor for a lower interest rate, lower rate of payment, tacking the delinquent months to the end and catching up the debtor current, or many other reasons.  If you think you may be to work it out with your bank, you have to call them.  You never know until you ask, present them with your financial situation, and see what the bank can do.  You must be willing to call your bank and turn over some financial information.  But many more banks are becoming much more creative to keep people in houses and not have to get the property back at a substantial loss.

Assuming that a loss mitigation deal cannot be worked out, the account goes to a foreclosure attorney.  Once that attorney gets the case, they order a title search to determine what kind of liens are against the property.  The attorney will learn a lot from this title search, such as the actual legal description of the property, what taxes are owed on it, what kind of tax liens are against the property, what other mortgages or liens are against it, if their client is in first position or quite possibly a lower position, and lots of vital information.

From this report, the attorney will prepare the complaint.  The complaint is the actual petition that is filed in the circuit court.  It must spell out how the bank holds a legal interest in the property.  The complaint must also notify everyone or every entity that has an interest in the property as well.  The bank has a legal duty to property notify all entities that a foreclosure action is being filed.  Hence, the title report is very important as it spells out exactly all of the entities that may have an interest in the property.

A bank then files the complaint in court and sends notice to all of the other entities.  This is called service.  You must “serve” these entities either by actually having a sheriff or constable hand the complaint to the actual defendant, or by having it mailed via certified mail.  This actually gives “notice” that a suit has been filed and gives the other parties a chance to respond.  This response is called an “answer” to the lawsuit and the entity has 20 days in which to file its answer.

Next: more on who is the “Plaintiff” and who is the “Defendant”.