It all comes down to this…As long as there are financial problems that are too overwhelming for homeowners to resolve and our country operates on a credit and loan system, there will always be foreclosures, pre-foreclosures, tax auctions, foreclosure auctions and sellers-in-distress. Financial distress can be caused by separation, divorce, death, loss of job, or a failed business. Unexpected (and sometimes expected) life changes put homeowners in a position where they absolutely can not see any other way out. Some move willingly and feel relieved, others are angry and must be evicted, some clean the house before they go, others take every single thing they possibly can, right down to light switch plates and commodes, then leave holes in the wall. Some people are devastated by the foreclosure, embarrassed about it and do everything in their power to avoid it or stop it. There are also people who just plain walk away, don’t care about what is happening and they go buy another house, just like replacing a car because they were “advised” to get another mortgage before the late payments or foreclosure showed up on their credit report.

The foreclosures that happen because of unexpected life changes will never stop, because it is impossible to control the unexpected. For the general population, a mortgage payment will be the largest monthly bill they see, and it will be the largest investment they make in their lifetime. If their income brings in just enough to pay all the bills and “survive”, any change…however minor…can start the ball rolling downhill.

There is another kind of foreclosure that can be avoided and clearly the feds and other regulatory bodies have stepped in to force an end to it. Although progress has been made to end unethical, illegal and predatory lending, clearly it still happens. In a nut shell, Buyers are given mortgages when all the numbers show that they won’t be able to afford it. We are not talking about the self employed buyer, who writes off 65% of income to save taxes at the end of the year, we mean the buyers who have no documented income, or documented but marginal…no bank accounts…poor credit history…no cash for down payment. HOW DO THEY GET A MORTGAGE??? You can bet they didn’t get it at your local bank!

These buyers most likely worked with someone that was practicing shady techniques to get them a mortgage. We have heard many a-horror-story about the lender that gave a pre-approval for 100% financing, then the day before closing said “sorry, they want 10% down payment…”, or the broker who gave $10k in cash for the buyer to open up a bank account on the premise it would be returned after closing. If Buyers are qualified properly, credit/debt information is accurate, the appraisal is accurate, the loan officer really looks at the whole picture so as to protect the public and not just make the close for personal or business profit…then these types of foreclosures would slowly disappear. It is no benefit, and does no service, to the public to suggest or imply that they qualify for a mortgage when they don’t! Is this type of morally wrong lending common? No. Does it happen? Yes. Is this one of the reasons homeowners foreclose? Absolutely.

If research providing statistics on the number of closed sales in ratio to the number of foreclosures that ensued 24 months later for each Lender/Mortgage Broker/Originator across the states, you would see a pattern. The problem of “shady lending” exists because mortgage brokers/originators are not held to the same high standards that the rest of their industry is. Hopefully someone will start this extensive research in the next few years, and help put an end to this problem. The public needs to know when they get an “Approval” or “Pre-Approval” for a loan, they can feel confident that their mortgage will go through, they CAN afford it and that the Lender stands behind their words.

Perhaps 5 to 7 years from now we will see a slight decline in the number of recorded foreclosures because less lenient laws regarding lending will become tougher. Perhaps the next generation of homebuyers will realize that credit and loans are not disposable, as we currently seem to think. Hopefully, with more information available to ALL consumers about ALL aspects of buying a home, we will become less innocent when it comes to spending huge amounts money.

The only way to STOP foreclosures is to STOP lending and revert to a Cash-Only country, and that’s just not going to happen, nor should it.

Here's a quick look at the series of events that created this new cycle. Real estate is stable - good balance between buyers and sellers market at the end of 2004. Lending practices are lightening up. Early 2005 the market shifts very quickly into a sellers market and at the very same time lending policies become wide open. The investors which work on the rent-to-own, lease purchases/lease options etc., move into flipping instead. There is little need for owner financing - as long as your breathing - you can get a mortgage. Over a period of 2 years we slowly work into a buyers market at the same time that fraudulent mortgages are at an all time high. POOF! Real estate speculation gone wrong turns into a tidal wave of foreclosures as we are in a full blown buyers market. What's going to happen?

The lenders will tighten up, we are already seeing it (or closing up!), the sellers will lower prices to compete with the larger volumn of REO'S on the market, the rent-to-own guys will come back into the picture because the average Joe can't qualify for a 30 year anymore which will bring the market prices up again - typically they can charge more for the property and charge a higher interest rate by owner financing...and the cycle starts all over again. We think we'll be retired by then, but who knows!

Don't be afraid of the turmoil. Foreclosures are here to stay, and in big numbers for quite a while. Get ready to BUY!