Archive for the 'Short Sales/Foreclosure' Category

Comments Off on Why Carleton Sheets Is Wrong About Buying A Duplex At A Sheriff’s Sale

carleton_sheets_reflectI’m a big fan of Carleton Sheets. In fact, it’s because of his late night real estate investment infomercial that I first became interested in aquiring duplexes.

He’s creative. He thinks outside the box. He inspires people to dream. He’s well-spoken…

But he’s flat wrong about some things; especially buying duplexes at the sheriff’s sale in Minnesota.

When a duplex owner falls behind on mortgage payments, the bank issues a notice of default (NOD) and schedules a sheriff’s sale. The NOD usually occurs when the property owner is 3-4 four months behind, and the sheriff’s sale when he is six months behind.

At the sheriff’s sale, the bank “buys” the property back. Now, they don’t show up with a suitcase full of cash to pay themselves. Rather, it’s a paper transaction. Most of the time, their opening bid is equal to the amount owed on the duplex.

So, if a duplex sold for $450,000 in 2005, and the investor put just 10 percent down, there would likely still be something just under $400,000 outstanding on the mortgage.

You are welcome to bid and buy the property at the sheriff’s sale. You just have to show up with enough in cashier’s checks to pay for the property in its entirety. In other words, you’d need to walk into the sheriff’s office with $400,000 on you; to buy a duplex you’ve likely never been inside.

Even if you had that kind of money, in all likelihood that duplex is no longer worth anywhere near that amount. In fact, it may be worth as much as 30 or even 40 percent less. Read the rest of this entry »

Comments Off on Duplex Owners: Could You Do Me A Favor?

Stack of hundred dollar bills laid out on top of IRS form,If you’re a duplex, triplex or  apartment building owner who’s behind on mortgage payments and facing foreclosure, please do me one favor.

Call a qualified tax professional and pay whatever it costs to discuss your specific case with them before you let the property go back to the bank.

See, when a bank “forgives” the debt of your loan, this may be viewed by the Internal Revenue Service as a gift. Gifts can be taxable.

This is not true for single family home owners. But if you live in a duplex, the unit generating income property is considered an investment, and therefore, taxable.

Just imagine losing the duplex to foreclosure, years of tarnished credit, and then facing a huge bill from the IRS on top of it.

And guess what? Not even filing bankruptcy can protect you from the IRS.

Before you panic, know that you may also not owe taxes. Unfortunately, there isn’t a single standard for everyone. Rather, your tax liabilities or lack thereof following an investment property foreclosure are determined by something called your “basis”, which of course, is unique to you and your property only.

This tax consequence can also be true if you are considering a short sale. However, on average short sale properties sell for considerably more than bank-owned properties. In other words, if a short sale or foreclosure is, in your case, a taxable event, selling your property for more money will result in a smaller amount of forgiven debt, thereby reducing the amount that can be taxed.

There are options if you’re facing foreclosure with your investment property or duplex. Whether you choose to let the property go back to the bank, sell it as a short sale, or are successful with a loan modification, it’s important to be fully informed of all the potential consequences before you make your decision.

No matter what, know this. Life will get better. I promise you.

Minneapolis Duplex Foreclosure Freeze Thaws

said on January 3rd, 2011 categorized under: Short Sales/Foreclosure

Comments Off on Minneapolis Duplex Foreclosure Freeze Thaws

seated snowmanIt may be cold outside, but last month, Bank of America rather quietly thawed out its national duplex foreclosure freeze.

What does this mean to you?

Well, in south Minneapolis and parts of St Paul alone, I can can think of at least 15-20 duplexes that were slated to go to Sheriff’s Sale last summer and because of the “robo-signing controversy” and subesequent foreclosure moratorium, didn’t.

But they are going to Sherif’s Sale in January and February.

Which means they will either hit the market as short sales or, more likely, foreclosures. The short sales will happen this spring.

Property owners have six months to redeem the amount bid at the Sheriff’s Sale, and if they fail to do so, the bank takes control of the property.

These duplexes should start hitting the market in mid-summer to early fall.

If you’re a seller, this means you should think about getting your property listed before the wave of foreclosures comes ashore.

And if you’re a buyer, you should align yourself with a Realtor who, as a result of specializing in duplexes and distressed properties,  knows where they are and can help you pre-empt your competition for those that are especially good values.

As I said, I know of at least 15 – 20 already!

Facing Duplex Foreclosure? There’s Always Hope

said on December 30th, 2010 categorized under: Short Sales/Foreclosure

Comments Off on Facing Duplex Foreclosure? There’s Always Hope

Climber on the summit of a rock spire.I spoke with a duplex owner facing foreclosure the other day.

He’s in the last three months of his redemption period and time is running out.

I tried to reach him months ago to see if I could help him avoid foreclosure.

I didn’t hear from him.

I tried again recently, and he responded.

He confessed to being depressed and overwhelmed by the stress of near unbearable financial hardship. Totally understandable.

But when I suggested we do everything we could to keep him from foreclosure and all its consequences, he was resistant. Basically, with so little time left, he wondered why he should even try.

In Webster’s dictionary, the fifth definition of the word “try” is “to make an attempt at”.

In his case, an attempt to change his financial future, possible tax consequences, and long term credit damage caused by foreclosure.

I encouraged him to take a chance and simply try.

After all, whether it’s in real estate or life, we never know all we’re capable of until we attempt it.

Sometimes it’s infinitely more than we ever expected.

And if we fail, at least in this scenario, failure results in foreclosure; an outcome he expects anyway.

But if we succeed, he may be able to buy a property again in two years. With a foreclosure, he’s staring at seven.

Isn’t that worth an attempt?

I think so.

I hope he does too.

Winter Duplex Dam Sure To Cause Spring Flooding

said on December 17th, 2010 categorized under: Short Sales/Foreclosure

Comments Off on Winter Duplex Dam Sure To Cause Spring Flooding

floodYou’ve probably heard some lenders have put a temporary stop to duplex foreclosures while they investigate and review the potentially fraudulent practice of robo-signing the paperwork.

And odds are, you think this a good thing.

I do too. Well, sort of.

While it’s important that banks obey the law and foreclose only on those who have legitimately defaulted, in the end, I think we’ll all find there are a lot more of those kinds of people than there was fraud.

And what happens come spring when those properties hit the market along with all the others?

According to Realty Trac’s Rick Sharga, “There are five million loans that are seriously delinquent right now and not yet in foreclosure. A large, large number of those will hit the foreclosure pipeline next year. So 2011 is probably going to be a little bit worse than 2010.”

That, of course, will probably result in far too much inventory on the market, adding even more downward pressure on prices. 

In other words, if you’re considering selling, you might want to get out ahead of the flood.

Comments Off on Duplex Owners Facing Foreclosure Learn Meaning of Fear

Winner at vw showI’ve heard it said that the word FEAR is an acronym for False Evidence Appearing Real.

And if you’re facing foreclosure, it’s a helpful acronym to remember.

A property owner who’s in the process of readying a property for a short sale called this morning. The absolute terror in her voice was palpable.

It seems the bank had called her husband and threatened to not only sue them, but garnish his wages.

And he believed them.

Their subsequent panic caused them to imagine all sorts of horrors; including sleeping under a bridge and living out of a VW van. This, when they’ve already found a place to rent and have moved in.

While I’m not an attorney, it’s important to bear in mind that Minnesota, Alaska, Arizona, California, Connecticut, Florida, Idaho, North Carolina, North Dakota, Texas, Utah and Washington are non-recourse loan states.

In other words, the bank can’t come after them for any remaining debt after a short sale or foreclosure. The debt is tied exclusively to the property, not the owner; unless that indebtedness is the result of a second mortgage or Home Equity Line of Credit (HELOC).

The bank’s collection agent, of course, wants to recoup as much money as possible for the bank. And But they have to do so within the confines of the law.

Remember,  if your property is in the process of foreclosure, the very worst thing that can happen is the bank takes ownership, your credit is damaged for seven years and you may owe some taxes on the part of the property that was an investment.

Granted, those aren’t anything to take lightly. But life will get better once you get out of a mortgage you can no longer afford.

There is hope and life after a short sale or foreclosure. Things will get better. I promise.

What Happens With Every Missed Duplex Payment?

said on November 22nd, 2010 categorized under: Short Sales/Foreclosure

Comments Off on What Happens With Every Missed Duplex Payment?

Short Sale Real Estate Sign Isolated - LeftHow many duplex payments are you behind?

The answer tells me almost everything I need to know to short sale a Minneapolis duplex.

While each lender has its own rhythm and schedule, there is largely a predictable pattern of what happens as property owners miss more and more payments in the state of Minnesota.

(Please note foreclosure timelines and practices vary by state, so it’s important you check with someone in your specific area as to which guidelines apply to you.)

According to the Minnesota Home Ownership Center, the following is an average timeline for the foreclosure process in Minnesota:

1st Missed Payment – At this point, the lender generally calls the duplex owner and follows up with a letter reminding them about the overdue installment.

2nd Missed Payment – The calls and letters continue, with one of those correspondences being a thirty day default letter.

3rd Missed Payment – Attempts to collect continue, but at this juncture, things begin to change. The account is usually transfered to the foreclosure department, with a “Notice of Intent to Foreclose” sent to the duplex owner.

4th Missed Payment – Things start getting expensive with the fourth missed payment, as this is when the account is forwarded to a foreclosure attorney who, of course, starts charging legal fees; fees that are added to the property owner’s debt. The attorney starts earning his or her keep by sending a notice to the duplex owner.

5th Missed Payment – Matters become more serious with the fifth missed payment, because it’s at this point that the attorney schedules the Sheriff’s Sale. Once the sale is scheduled, notice of it is published for six consecutive weeks, usually in publications like Finance And Commerce or Capitol Report.

Read the rest of this entry »

Can You Rent Your Short Sale Duplex?

said on November 18th, 2010 categorized under: Short Sales/Foreclosure, Tenants

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for rentThe other night I stopped by a Minneapolis duplex to see if I could help the owner avoid the potential credit and tax consequences of foreclosure.

Guess what I saw in the front yard?

A “For Rent” sign.

Mind you, the sheriff’s sale has already happened on the property; meaning the owner has six months or less to either redeem the loan or lose it to the bank.

And the owner is within his rights to collect rent (unless the lender has told him otherwise).

But if you were a tenant and knew the duplex was in foreclosure, would you want to move in? If so, would you expect a discount on the rent?

Perhaps the owner simply planned not to tell them.

Trouble is, Minnesota state law requires him to.

A duplex owner in foreclosure must notify a prospective tenant, in writing, not only that the building is in foreclosure, but also the date the redemption period ends.

What’s more, the owner cannot lawfully sign a lease that extends beyond that redemption period.

So what’s the worst that can happen? After the bank reposses the duplex, the tenant can sue the landlord; not only for rent, but also for defending against an eviction case brought by the bank.

Seems to me like this guy’s got enough trouble already.


lemonsDo you know how much the bank bid on your Minneapolis duplex at the sheriff’s sale?

You should, because it could make you money.

In the midst of this sour housing market, many lenders have begun to realize the duplexes they hold mortgages on are lemons, and no longer worth the amount that’s owed.

And as difficult as it may be to believe, they truly don’t want the property back as a foreclosure. After all, foreclosed properties typically net the bank far less than short sales do.

What’s more, they are in the money business, not the landlord business. It costs them even more money once they have possession of the duplex to evict and/or manage tenants.

So some banks are getting smart. They’re bidding far less than what’s owed at the sheriff’s sale. Some are even bidding at or below current market value.

What does that mean? If the delinquent duplex owner can come up with the amount bid, they can redeem the loan and have neither a foreclosure or short sale on their credit report.

For example, I am working with an owner who owes $300,000 on his mortgage. We learned today that the bank bid just $153,000 for the property at the sheriff’s sale. If my client comes up with that money and pays the bank before the end of the six month redemption period, the debt will be considered paid in full; the only hit to his credit will be a result of the payments he missed or was late on.

Of course, the bank needs to be paid some additional interest and penalities on top of this. However, I am confident we can sell the duplex for at least what the bank bid at the sheriff’s sale. I knew we couldn’t sell it for the full amount he owed.

What if we sell it for more than the bank bid? My seller pockets the difference.

For example, if we were to sell it for $180,000, estimating $20,000 in penalties and selling costs,  he would have $160,000 left over. After he paid the bank the $153,000, he would put $7000 in his pocket.


Unfortunately, this is not true for all duplex owners facing either short sale or foreclosure. And, as always, you know and explore all of your options before letting the property go back to the bank (which could result in tax and employment consequences to you).

However, if you’re one of the lucky ones, your bank may have just given you the opportunity to make lemonade.


VisaMastercardLOGODuring real estate’s boom years, many duplex and single family home owners tapped into their property’s rapidly escalating equity through the use of a Home Equity Line of Credit or HELOC to pay debt, remodel the kitchen, or take a long dreamed of vacation.

Many other duplex buyers availed themselves of easily available bank credit, financing purchases of duplexes through the use of two mortgages; a first and second. The intention was to pay off the latter in a couple of years; when, as a result of appreciation, they would have earned the equity to refinance and pay off the second.

Kind of like credit cards.

But now, years later, we’re discovering that second mortgages (which is what an equity line is) are a lot more like MasterCard and Visa than we ever imagined.

Many duplex owners owe more on their property than it’s worth. Some, due to job loss, health issues, divorce or relocation can no longer afford to pay either their first or second mortgage. As a result, they face either foreclosure or a short sale.

Minnesota is a non-recourse loan state. As such, the first lien holder or bank may not, following a short sale or foreclosure, chase the duplex owner down and require them to pay the amount they were shorted on the loan.

But guess what?

The second lien holder can.

Why? A clause in the mortgage papers signed when the duplex was purchased.

Read the rest of this entry »