UNDERSTAND THE UNDERLYING CAUSES OF FORECLOSURE by Oscar Morante

First lets recapitulate last months short sale article. Short sales are a great way to obtain discounted property. Short sales happen when banks allow home owners to sell their properties for less than what they are owed. Short sales are one of the main techniques of pre-foreclosure investment.

We all know that foreclosures are caused by the default on the payment of a mortgage loan monthly installment. Default of monthly installment is primarily caused by debt-over burden. Debt over-burden in turn is caused by a homeowners over commitment to financial responsibilities. In other words, the home owner cant keep up with expenses, develops unsustainable debt and cant pay the mortgage. Understanding the underlying conditions that cause default is a key to effectively negotiate with home owners and initiate short sale transactions. Underlying Causes of Foreclosure

Financial Slippage: This is the condition in which most responsible, smart and hard working individuals in foreclosure find themselves. We live in a capitalist system society. The system creates more opportunities but it is also less forgiving. Long term un-employment is devastating to the middle class. So is the astronomical cost of health care. People in this category often resort to tapping equity in order to make ends meet. If matters do not get quickly resolved, the house becomes over mortgaged; they default and end up in bankruptcy. Foreclosure comes next.

Over-Indulgent Lifestyles: It is often that people live at or beyond their means. For these people, as soon as there is an income disruption, extra expense or similar event, mortgage payments become impossible to pay.

Interpersonal Problems: Usually divorce. No one wants to take responsibility for payments or one single income is insufficient to make the payments. Therefore they default.

Death or Incarceration: People in this category stop paying sooner or later. Even if payments are up to date and performing, title problems appear. Eventually someone decides that the banks should not be getting paid. Default soon follows.

Over-Optimistic Lending Practices: Often, in their quest to get commissions, mortgage brokers encourage home buyers to commit to the maximum mortgage payment level that they can possibly sustain. Usually the reasoning is that the property will go up in value and the home-owner will be able to refinance. It is not hard to find 100% financed houses in which dual income homeowners pay up to 50% of their combined income in mortgage payments. Needless to say, for these people just about any financial challenge will result in default and possibly foreclosure.

Mortgage Lending Fraud: This is often the result of mortgage brokers specialized in sub-prime lending. These brokers embellish the financial capacity of unqualified home buyers. The home buyers end up with high interest loans and usually higher payments than expected. The result of this is that the new homeowner defaults soon after buying the house.

Irresponsible Homeowners: These are people that are irresponsible with their personal finances and / or take advantage of the system. They do things such as abandoning the property as soon as they feel like it, or refinance the house in order get cash and let the property foreclose.

These are the primary underlying reasons for foreclosure. Often home owners in foreclosure fit into combinations and permutations of two or more categories at the same time. The underlying reason for foreclosure is greatly helps in understanding where the home owner is at.

It is essential to understand the underlying reasons for foreclosure. This, in combination with listening to the particular situation of each homeowner, allows the investor to effectively negotiate short sale purchases.

######

Please contact Oscar Mornate for Permission to post this article on your site. Credit for the article must be give to Oscar Morante, Best Short Sales (C) 2006 Advanced Real Estate Concepts, LLC., Portland OR. All rights reserved. More information about the author can be found at www.bestshortsales.com. Offering Short Sale Products & Short Sale Seminars

About the Author
Advanced Real Estate Concepts, LLC was founded by Oscar Morante in 2004. The company's mission is to acquire over-mortgaged properties that have gone into pre-foreclosure by getting lenders to discount debt in order to mitigate risk of loss at auction. Oscar has developed proven techniques and strategies for success through short sales investing.