GENERAL TECHNICAL EDUCATION GERMANY

A short sale is when you get the bank to not take $140,000, you get them to take less, like $110,000. The banks are going to do this for several reasons. First, they're going to have a lot of expenses that are associated with a foreclosure. They're going to have realtor's costs, foreclosure costs, holding costs, repair costs-they're going to have all sorts of fees associated with a foreclosure.

Inevitably, the bank is only going to recoup somewhere around 70% of the value of the property. That's why banks will take short sales on foreclosures. The natural follow-up to that is, “Why are foreclosures such a hot commodity right now, and why is there a lot of buzz about them?” There are several reasons to that too, and it's really scaring the banks right now.

The first one is: when I was at the bank and someone had equity in their home and I found out they had equity, I would call them up and say, “Hey, Mr. Smith, I see you have $30,000 in equity in your home. How would you like to get a home equity line of credit?” Or, “How would you like to pay off that car with a home equity loan?”

So banks are constantly calling these homeowners to use equity in their home because there are some potential tax savings in structuring your finances that way. That's one of the things.

Secondly, inflation is outpacing wage growth. That means what it takes for you to buy milk and eggs today is going to increase faster than how much your earnings are going to increase on average. For instance, if you have someone who's making $100,000 a year, let's say inflation is 3% and your raise every year is 1.5%. So inflation is growing at twice the rate your salary is. That's another component. That means folks are earning less and less, relative to the goods they're going to have to buy.

• The next thing is that a lot of folks may recall this brief refinance boom we've been going through, which is pretty important. People went out and got a lot of mortgages called “Adjustable Rate Mortgages,” which have an extraordinarily low interest rate to start, let's say 3% in some cases. But in a couple of years, maybe two to five, depending on the term of the Adjustable Rate Mortgage, their rate is going to go up, it's going to adjust upward.
• So people went out and bought more house than they could normally afford, or they refinanced, got the low payments, and bought a car that they couldn't afford if their payment had to adjust upward. What's going to happen here in the next two to five years is that all of these ARMs are going to be adjusting upward, and that's pretty critical because people aren't going to be able to afford them.
• They aren't going to be able to afford them because they didn't count on it, and also because inflation is outpacing wage growth. All of this sounds great, but you may say, “How is that going to affect my business?”

Here's the way it affects your foreclosure real estate business. If you're in a judicial foreclosure State, where properties that are in foreclosure go through a judicial process before a foreclosure is complete; or a non-judicial foreclosure State, where the properties go through a trustee as they're going through a foreclosure-you're going to see less and less equity in these properties.

• So if you know, like I said earlier, that banks are going to take short sales because of the numbers-meaning they have to pay all of these expenses-and the foreclosed properties aren't going to have a lot of equity in them, you have to be able to negotiate short sales effectively if you're going to be working in the foreclosure market.

The foreclosure market represents the most motivated sellers. Traditionally, with motivated sellers, you'll find really good deals. That's why banks are going to take foreclosures on the conditions that are spurring on all these foreclosures. It's an amazing phenomenon that we're working on right now.