The Creative Investor - Manipulation Of Hud And Marginal Properties

I really hesitate to expose to all of you clean living above board Investor types here on TCI. The semi seemy side of Real Estate,

Inasmuch as we have just finished one of the longest most argumentative 12 pages of posting this site has ever seen. My God, it took the Rev. Locke to interceed and the highly efficient no noncense Nancy to research it. All of which I read, cogitated over, then went out and bought mints as per some of the posters instruction.

I think it was when the assessors office actualy reduced a tax valuation on a property that it all fell into place. So I called an acquaintence of mine who has sold out for money and become a burocrat in Washington D.C. (courtesy of Telsa). I woke him up. Yes it was about 11 AM but remember sleep is a traditional perk of his job. I asked if he had

information re: the area which was under discussion so long here on TCI. Yes, it was known and identified as an area in which four gang signs are not enough to enter a Seven/Eleven. The varied languages were not necessary but the dialect in common use was indeed picturesque and those of the Real Estate Profession who officed, dwelt or hung out in the area were dealing primarily with HUD, as Huddy baby was the prime conduit for negotiating the Buy/Sell of properties. Indeed without Hud there would be no market at all. Values would approach zero and all Real Estate Activity would cease.

Let me explain. An owner does not pay his mortgage payments. The property goes into foreclosure. If it is in an area where no right thinking Lending Institution would lend without an FHA guarantee to bail the lender out on any default. Well Hud is the organization assigned to handle the problem. They take it over after foreclosure and they examine the property, board it up if necessary and it is assigned to them. They offer it for sale and take as a starting point the total monies lent plus the cost of the foreclosure and maybe a little on top for management. Local Brokers check it out. Realize that the true value is below the listed amount and they start to bid into the property. If the bids are too low they are rejected, but guess what. Hud reconsiders and the price drops until smarty broker fronting for a trust who may in fact be them, gets an acceptance and they buy. Listed at $43,000, sells for $11,300. Looks like a winner. It is a winner as long as Hud stays active and makes a market. Real property value unsupported by our employees in Washington probably true value about $4,500.

Now the Broker, who is also a Mortgage Broker,then arranges a sale to a new buyer. . Not at what the Broker er excuse me Trust paid for it but at this crazy supported high market price at which price it went into foreclosure. So it is sold for $47,000. Broker makes a commission and of course arranges the financing based on prior sale before foreclosure. Broker gives a little help to the new buyer, arranges to cover costs of all fees etc. Buyer gets property probably with no money down. The Trust helps with costs and it is a winner. Broker oops Trust bought at $11,300 sold for $47,000 looks great. Right? The Buyer got in at nothing down. Win/win for everybody well everybody but the taxpayer.

Of course the crowining insult. Say the Broker wants to keep the property wants to have an office there, is into wino's drugs and an occasional sound of gunfire. Ah I love the sound of a firefight between gangs in the early morn. Apocalapse revisited. So what does the broker do? She goes down and has the property reappraised by a local appraiser and down comes the tax rate to the lower amount. Smart lady. It does expose the true value of the property.

See the figures can all be adjusted. Yes you can make a great many deals a month. You can also make money. Just as long as dear old Hud stays active. On each new sale the price has to go higher to cover the Brokers commission and the sums advanced to the New Buyer cause he may be new to property but he does know he cannot make the payments. He is just going to get enough money out of the deal to make a few payments then default all over again. Takes Hud time to get him out. He fights the eviction and if he does a really good job he stays a year. He is rent free. In some parts of our society that is a big plus even better if it can be repeated several times. You take a family of 8 members, 4 adults, they take turns going into ownership of these properties. Say a year of free rent per ownership. 8 members in the family Yip 8 years free rent. Not bad, beats working steady.

The pivot in all this is the Broker/Trust Owner.
Should be qualified as a Real Estate Broker and a Mortgage Broker. Each transactioin produces a portion of a commission and each mortgage placed does also produce a portion of a commission.

Now do not point the fingure at Philli, we have it here in the South part of town. So do most major cities who have created slums.

Do not fault the Broker, if you are limited in your outlooks you go to the area in which you can operate. They are merely symptomatic of the major problem. The Slum is the real problem.

Most of you who are familiar with slums realize they breed unrest and rebellion. Look at Los Angeles. The Watts Riots, we have had two biggies. Detroit, they had a goody.

Lets see how can we change all this? I am working on it.

Cheers, The Container King. Lucius