Monday, April 10, 2006


How to Execute a Planned Foreclosure and Make a Killing

There’s a new game in town with interest rates on the rise. It’s called the “Planned Foreclosure” and here’s how it works.

Jim and Mary Jones work for a big automaker in Detroit Michigan. They both work in one of the big Manufacturing plants and on a good year can earn $100,000 each because of the vast overtime hours they can put in.

Two years ago they bought a $500,000 home with a low interest only ARM loan that will change as interest rates change. The payments are unbelievable low and they make more than enough money to pay the monthly bills.

Oh how times change….

Suddenly, Jim and Mary can’t get overtime pay because nobody wants American cars. Their incomes shrinks to nearly ½ of what it was. Interest rates and their house payments are on the rise as the Federal Reserve pushes up the prime interest rate. What will they ever do?

Forget selling the house. They haven’t been there long enough to break even. Staying there won’t work anymore because they simply can’t afford it.

Welcome to the planned foreclosure…

Jim and Mary find an aggressive lender to loan them 125% value of the their home’s value while their credit is still great. They take the $50,000 from the new loan and put it down on a much smaller home, perhaps costing only $250,000. This isn’t hard to do because they’ve got 20% to put down on the house. So they get the new house.

Jim and Mary move into the $250,000 home with a $200,000 mortgage. Now they can live a sane life again. Life goes back to normal.

But what about the $500,000 home? What happens to that? They simply tell the bank they can’t afford it and it falls into foreclosure.

Yes, their credit is in the house of pain for a while, but they’ve got a new house now. After-all, it’s only 7 years until the black mark comes off the credit report. Maybe times will change and they buy back the bigger house down the road.

It’s expected that this new trend is going to start picking up as more and more people get squeezed out of their homes. You’ll start hearing more about this. The mortgage lenders are about to get killed.
My question is who’s picking up the tab?

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