2 ) PROBATE IS APPLICABLE IN ALL MARKET CYCLES
One of the benefits of investing in probate properties is that this niche never becomes out of vogue . When I first became seriously involved personally in real estate investing , just after the financial crisis of 2007 – 08 , there were millions of REO ( Real Estate Owned , the euphemism for bank foreclosed properties ) homes on the market . However , there were many fewer real estate investors at that time , because most people were scared , and could not see the bottom of the market . Those of us who were seasoned real estate professionals saw just how low the market had dropped , and then began buying at a frenzied pace . By approximately 2010 – 11 , the supply of REOs was dwindling rapidly , and dropped even further , as the big Wall Street investors also dove into the market , and purchased tens of thousands of homes , primarily in the Sun Belt states .
Short sales was another investment niche that was in favor shortly after the financial crisis of 2008 . Shortsales occurred when property values fell below the previous appraised levels , and could not be sold for a sufficiently high price to pay the existing loan in full . The homeowners , in many of these cases , lacked the liquidity to cover this negative spread between the deflated property value and loan balance , and so these borrowers were compelled to request that their respective lenders approve the sale for less than the outstanding loan balance — ergo the nickname , short sale . Real estate agents , who had seen their livelihoods negatively impacted by the suddenly stifled real estate market , were now assisted by a cottage industry of small firms , which
specialized in making shortsales happen for a few years .
This investment sector quickly faded into the sunset once the U . S . Justice Department and other federal and state agencies extracted billions of dollars in concessions from the major money center banks ( i . e . Wells Fargo , Bank of America , JP Morgan Chase , Citibank , et al ) for their alleged abuses and mismanagement of real estate borrowers during the financial crisis . Instead of paying the U . S . and state governments these multibillion dollar settlements in cash , the majority of these payments were provided to homeowners via credits given to those individuals who were delinquent or in foreclosure . These credits allowed the banks to either reduce interest rates and / or loan balances , or defer loan payments to the end of the loan . The combination of these remedies provided qualified homeowners with some form of loan relief . This action almost immediately eliminated the need or necessity of the banks to approve shortsales , as now the banks were required to spend these concessions on their existing customers who needed assistance . Rather than approve a shortsale and see that loan — that potential stream of income — disappear forever , the new incentives for loan modifications enabled the banks to eventually recapture their lost income via these recast loans . The modified loans would be less profitable than those they replaced , but these loans were once again profitable and still on the books . Whereas REOs and shortsales have come and gone , probate opportunities remain .
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