Hello everyone and welcome back to another installment of our Street Smart Q & A where you have sent me a ton of questions that I’m excited to answer all of them for you.  Before we get started, let me just recap what’s happened over the last couple of weeks in our economy, and tell you that I think a lot of things are on hold right now waiting for the elections.  I don’t think it’s really going to make a difference who gets elected in terms of things turning around.  I just think that a lot of things are on hold.

I’ve been keeping my ear to the ground with mortgage brokers and determining what the market is right now, and what I’m finding is that a lot of loans are not being approved.  Some loans are coming back even after having had the appraisal.  The lenders are coming back and saying we’ll only fund maybe 75% of the loan.  So, the folks are having to come up with an extra 5 to 7% cash down in addition to their 20% down.  That’s a disappointing piece of news, but it does indicate that that’s where things are right now.  That means that lenders are just not letting loose of the cash just yet.  I think we will see it here pretty soon, but I think it will happen after the elections.  Not to say that one over the other getting elected is going to change much, it’s just that I think the psychology of it will be that it’s over at that point, and people will know.

I think the market has already adjusted for the elections and who the market anticipates is going to win, which will have impact in the taxation of the economy, which of course higher taxes means typically lower investment.  Lower investment means lower jobs, lower jobs means lower number of people buying houses.  Lower number of people buying houses means less influx into the economy, less carpet made, less draperies made, less furniture made and so on.  So, there’s a lot of impact with a change in administration and a change in taxing philosophy.  It’ll be interesting to see what happens with this, but for us, the thing to keep in mind is there is a macro economy and there’s a micro economy.

For you and I, the only thing we really have to worry about is our own personal micro economy.  For us, that means buy right and buy cheap.  That means that we have to buy our equities when we go in.  When we go in and purchase the properties, let’s negotiate like we’ve never negotiated before.  Let’s make sure that there’s no possibility that the seller can be bank before we more on.  That is a good segue into my first question here.

A deal structuring question from Suzay _____ ( verify 3:02) from Fort Mohave, Arizona, one of our platinum members.  Suzay says I got a call from a couple asking about a short sale.  MLS comps are $127 thousand.  This is in very good condition.  One whooping negative amortizing loan at 10%, now at $227 thousand balance and notice of default must be in the mail by now.  It was $13 hundred per month.  Washington Mutual is the servicer ______ (3;36 verify) which of course now is JP Morgan Chase.  Freddie Mac backs the loan.  They are 80 days late.

Both adults have lost their jobs.  She is a printing contractor.  He’s a home inspector.  Not much of any of that work going on right now.  Growth in Mohave country is a rocking 6%.  They have three little girls.  A registered sex offender lives five doors down, so that and the only one ugly mortgage is the ugliest.  Eleven MLS houses have sold in the subdivision in six months.  Many other empties plus house has sewer and water.  Okay.  So, we’ve got some sales in the last six months.  That’s very good news.  Can any money be made on this deal?

The short-sale service will charge me $15 hundred and $165 title search.  Then I need a cash buyer and what?  The discount would only be 20% below MLS of 127 thousand, which is 104 thousand.  What should I charge the seller?  I don’t want to pay almost $2 thousand when other deals would bring back more money.  I’m not doing that well on my short sales.  The last one went Chapter 7 and it was poof gone.  Also, their taxes are taken out with the payment and it’s tax time, so for closing that would have to be paid up.  What would you do?  Run away?  Put on some waders or first buy some time with a work out of some kind with the lender help.  Thank you.

All right.  So, Suzay, let’s take a look at the facts.  There’s a $220 thousand first mortgage.  There are only comps of $127 thousand; so obviously, the value of the property is significantly lower than this mortgage.  What I’d like to see if there’s a possibility of before we move on, before you hire anyone else, I’d like you to contact the lender and propose that you, as their financial advisor, find that they can make the payments.  Because between you and I, you’re going to be the one that’s going to take this over and you’re going to be the one that makes the payments.  So, that gives you the opportunity to provide some financial records that will support that fact.

Now, recognizing that the mortgage is significantly lower, let’s ask if there’s a possibility that they will do a write down on the mortgage.  That means leave the existing mortgage in place.  Have it written down to a number that is legitimate; maybe let’s try for at least $15 thousand less than $127 thousand.  So, let’s go ahead and start with your 104 thousand that you mentioned before.  In other words, that would be the new balance of the loan.

Now, let’s take that and with the interest, let’s create an interest expense.  Let’s say let’s bring it down to 4%.  So, your first offer should be number one bring the mortgage down to $104 thousand.  Number two the interest rate would be 4% resulting in X payment.  Just go to your Street Smart calculators in borrowing and it will calculate your payments for you.  All right.  Then the third thing is of course if there’s any adjustable rate, we need to make it fixed.  If it’s an interest-only loan, we need to make it a fixed amortizing loan and wipe away any pre-payment penalty.  Look for all those things.

Now, here’s a key.  The lender, while you’re talking about modifying the loan, what they’re going to hear is that you’re looking to actually refinance the loan.  Let’s be really clear.  We do not want to refinance the loan.  We want to modify the existing loan.  If we can do that, then you’ve got a deal.  You really don’t need the short-sale service for that.

Now, if that is a possibility they’re going to send in some paperwork and we’re have to manage that situation, and you being a platinum member, we can manage that individually with you.  The other aspect of this is that it’s going to take a while, probably anywhere from four to six months, so be prepared for that and prepare them for that as well.  It’s likely that the lender will set aside the foreclosure until they are able to do this workout.  Then don’t worry about the property taxes, don’t worry about any of that stuff right now.  Let’s just see if there’s a possibility that they’ll actually modify this existing loan.  Very good work.  Very good opportunity here if you can get it to the right numbers.

Now, of course what would be your exit strategy?  Well, obviously if we get the payment down to a number you can stand, that makes sense, then you can put it out on our work for equity and owner finance program.

Now, Neal Mohan ______ (8:58 verify) has a question that I may not have answered.  I don’t have a check mark beside this from the last session, so let me make sure this gets taken care of.  What is the value of an insurance trust?  If you recommend them, how is one established?  Great question, Neal.

Okay.  An insurance trust is actually a unique little vehicle created by Congress that basically says if you buy a certain type of insurance, typically whole life insurance, that can be paid for and counted outside of your estate.  That means that whomever you have as the beneficiary of that insurance trust will actually receive the money at your death and the estate taxes that are taxable to your estate, would not apply to the insurance proceeds.  The insurance proceeds of the insurance trust go directly to the beneficiary without any tax.  So, that can be a benefit of insurance trust.  It really depends on how large the estate is.  In today’s market, if the estate is over $4 million, then that would mean that yes, you should have an insurance trust.  When I say $4 million, I’m saying that the exemption for an individual is $2 million.

At MAS I teach you how to set up an AB trust.  That means that there’s a spousal trust, if you’re married, and that each spouse is either A or B in that trust.  What that does is create an opportunity to double the exemption on the estate.  So, instead of having $2 million it goes to $4 million at your death if there is a living trust.  So, this is real opportunity to have a big hunk of money be protected with the combination of the living trust and the insurance trust.  Great question, Neal.

All right.  Evelyn Pechart asks me, _____(11:14) my daughter will be the beneficiary of our living trust.  I would like her to be the trustee of our land trust, which is our home.  We could have a different trustee for the personal property trust.  Is it okay for her to be the beneficiary of the land trust and the trustee of the living trust, or not good because of anonymity?  Thanks, Evelyn.

Well, Evelyn if your daughter is married, then anonymity is not going to be an issue because we’ll just use her married last name.  If not, you’re right, privacy will not be there for you on your land trust with her being the trustee.  Let’s also take a look at the fact that once that land trust is created, you can dismiss the trustee at any time you want to, so perhaps she could be the successor trustee.  Right there on public record you got a primary trustee and then she is the successor trustee, but nobody really sees the successor trustee because it’s buried at the bottom of page three of the recordings.  The only name that is really indexed at the courthouse is the land trust, primary trustee’s name as the current owner.  So, that’s one way to her name doesn’t necessarily have to be out there in the open.

Also, keep in mind that privacy is just one of the over 30 benefits of land trusts that you can’t get with any other entity.  So, keep in mind that you might choose to give up the anonymity side or the privacy side in exchange for still getting the other 30 benefits of trusts too.  We go in depth on those benefits, which are astounding, when we get together at MAS.  We’re going to do that again in January.  So, if you haven’t’ yet registered for MAS, you can call in at 1-800-578-8580 and ask for the payment plan because you’ve got time before January and we can help you out with that.  Great question.

Okay, got another purchasing property question from Elwardo Ginsburg____( verify 13;32) says please explain how do you negotiate with a seller in order to convert a lease-option deal into a subject-2 deal where you are the buyer, and you’ve been paying on time for say six months.  What are the magic words you use to accomplish this?  All right.  Let me see if I have this straight.  We are negotiating with a seller in order to convert a lease- option into a subject-2 deal.

So, what I would do is say Mr. and Mrs. Jones just wanted to check in with you, see how things are going.  Let me ask you a question.  Have I done exactly what I said I would do when I moved in and then wait for an answer?  Hopefully, they’re going say yes, absolutely.  You’ve paid on time.  You’ve done what you said you were going to do and say great.  What I’d like to do now is I’d like to go ahead and take over the payments to show you…I’ve already shown you that I can do this.  I’ve already shown you I will do this and now what I want is to go ahead and have the deed transferred to my trust and be able to take over the payments.  Would that work for you?

If they say no, Elwardo, then I would go to the next thing and say well, I’ve really got to make sure that I’m taken care of here, so what I’d like to ask you to do, Mr. and Mrs. Jones, is transfer your property into a trust.  You will be the beneficiary of that trust and we’re going to put the assignment and quit claim of beneficial interest in that trust into escrow.  That means if anything ever happens to you, there will be escrow instructions saying that I have the right to get my deed, and what that helps me do is avoid your probate.  God forbid anything happens to you, now I’m tied up, and I won’t be able to refinance, sell, mortgage, pledge, or do anything with property that otherwise would have been mine.  So, I’m going to ask you to go ahead and at least set that up, and by the way, I’m also asking that once we get this set up, that you say give me another three months.  Let me show you that I can and will make the payments on time, and then transfer it to me then.  Will that work for you and just keep adding three-month increments until they say it works for them.  Now, you’ve got the benefit of the best of our world.  You control the deed.  You are able to satisfy the sellers and have a great house.  All right.  Keep me posted on that, Elwardo, I’m interested in hearing with what happens with that.

Now, Dee Crouching Cougar_____(16:18 verify).  That’s cute.  Dee says how can you tell if you are structuring a good, preferably great deal?  What are the steps that should be followed?  Well, it’s kind of a broad-based question, Dee.  The real key element that I’ve found and the best way to structure deals is to first take the information on the seller questionnaire.  Gather as much as you possibly can.  Now that you have that information, compare it to the possible offers to make.

First before you do that, we need to do some filtering.  Number one, you must obtain the seller’s problem and their pain.  What is there real problem?  It’s usually not the house.  It’s usually getting rid of the house, getting rid of the payments, getting rid of some problem.  Okay.  So, let’s find out what the problem is then we’ll create a solution.

Number two, once you’ve identified that and all the details about the existing financing on the property then you’ve got what you need to be able to take a look at what your exit strategy is.  How much are you going to sell it for?  When are you going to sell it?  How are you going to sell it?  When I say how, I mean are you going to sell it with a realtor or are you going to sell it yourself?  Are you going sell it after it’s fixed up or before it’s fixed up using my work-for-equity program.  If you use the work-for-equity program, obviously that means you can keep the cash for the fix-up in your pocket and give credits to the new buyer to be able to buy it.  It is a wonderful program if you haven’t tried it before.  All of you on the call, absolutely need to do this because it is so powerful and it really has changed so many of our platinum’s businesses because they’ve been able to set themselves up to be able to have the new person moving in taking care of all the repairs.   It’s a great strategy.

Determine those factors then do your PAW, which is your property acquisition worksheet, and that way you’ll find out your final numbers.  Now, these forms that I’m mentioning are in your Buying, volume one.  Also, on your websites when you own the Buyer or the Seller websites from Street Smart, we post all of these forms there on your administrative private side, so that you can easily, quickly click on any form, open it up, and use it.  Any form that you have purchased, we turn those on for you on the backside of your website.  Isn’t that a great thing?

The next step, though, is once you determine what your real numbers are; now we’re going to create the cost-to-sell worksheet.  Now this is essentially the most it could cost you to sell their home.  Let’s come up with these numbers before you go visit with them.  Then when you visit with them, take out a blank cost-to-sell worksheet and have the seller assist you in filling that out.  When you get down to the final number, you ask can you handle that?  And the seller says yes or no.  If they say no, then you say how much of that can you handle?  They say an amount.  If you like that number, then that’s good.  Then we’re going to have to deal with the balance.  So, that’s all the process of doing the cost-to-sell worksheet.

Now, if the balance is too much and if the seller cannot pay you say monthly payments to make up that difference, then we need to go to the bank and work through a short sale as we were talking with Suzay on.  That’s a step-by-step process of how the process works.  Like I say, it’s pretty broad-based questions, so ask me more specifics if you need to.

Now, we got a selling property question.  At the last Millionaire Deal Maker in Columbus, you promised to teach us how to do a come-fix-me-up deal, i.e. how to sell a house that needs repairs to someone who could fix it up using lease-option.  Unfortunately, there was not enough time for you to cover this topic since people like me, had a lot of other questions.  Please explain in detail how you do this.  Please take at least ten minutes to cover this subject thoroughly.

Well, Elwardo basically the concept is this.  You can offer a property, as I was just mentioning a couple of minutes ago, on our work-for-equity strategy.  It is very powerful because you don’t have to do the repairs.  What happens is you take the work-for-equity kit and in there there’s several different ads you can try.  One of them essentially says come fix me up.  You put that in the newspaper and it gives it some description about the property.  They call in.  Then you interview them and you find out who they are?  Where they work?  How long they’ve been there?  How much do they earn?  And their spouse the same questions.  We kind of figure out who we’re talking to.  Then we ask them basically to rate their abilities and tell us what kind of skills or background they have in renovating or remodeling property.  If those skills are very light and your rehab is very heavy, then that’s not a good candidate unless they have someone in the family that can help or they have enough cash to hire the people to do it professionally.  So, you got to make sure of those things upfront.

Once you’ve determined that you got a customer that makes sense for you to take a risk with, there’s a number of documents that have to be executed.  First of all, there’s the rental agreement.  There’s you option agreement giving them an option to purchase that property.  There’s the promissory note where they’re going to promise to pay you the amount of money that is actually the amount that you credit them towards the purchase of the home when they complete the work.  That’s the key element.  You can’t cut a deal like this unless they are willing and able to complete the work.

Now, the fourth document that needs to be created is our independent contractor services agreement.  That actually is the glue that binds the tenant/buyer/contractor to our deal because it specifically outlines that that new, let’s call them tenant/buyer, is actually contracting with you to do these repairs.  Contracting with you to do these improvements and in fact, right there in the contract, you’re going to agree to pay a certain amount of money as a credit towards their option.  By having these four different elements of paperwork, now you’ve got the opportunity to glue the deal together, but we don’t stop there.

The other thing we do is from Renovations, volume 11, we go ahead and do a scope of work and depending on what needs to be done at the property, we might even have a scope of work for each one of the trades plumbing, heating and air conditioning, electrical, roofing, painting, and carpentry general.  The scope of works that I’ve already got done for you in the renovation system allows you to be able to complete those on a per room basic.  I’ve actually listed all the things in there that I want you pay attention to per room and then give instructions beside those items that I’ve spelled out.

Once you do that, you’re going to attach that as an exhibit to your independent contractor services agreement.  Then it’s clear exactly what work they’re going to do.  That they have agreed to contract to do that.  That they are going to be compensated in the form of money that is credited towards the promissory note that they owe you.  You see, they’re still going to owe you that money until they actually complete the work.  When they complete the work, then you will satisfy the promissory note.

We usually create a step-by-step process of how we’re going to credit the repairs that they do, so it’s going to be right there, spelled out in the independent contractor services agreement.  I usually credit say in three trounces ______(25;01 verify), or three credit patches depending on the work that’s performed.  When that’s complete, then we can credit like step one, let’s call it, or payment one and then payment two and payment three.  Payment three comes in when 100% of the work pursuant to the scope of works is complete.

Now, with all of that said, there’s still some clauses that we put in each one of the agreements as a disclosures.  In the rental agreement, the option agreement, and the independent contractor services agreement we spell out the relationship that’s being created here and the understandings that are present.  Number one that the property is in need of repair and the optioning buyer recognizes that it needs repaired and in fact, is contracting to do it and so on.  We’ve got all of this spelled out in the work-for-equity kit that’s available through Street Smart at 299.95.  It’s all the documents that you need.  It is our step-by-step process.  It’s the ads.  It’s a filled-in version.  It’s a blank version.  It’s a forms disk that comes with it.  Everything is done for you, so when you use this method, I highly encourage you to follow all of these steps because really creating the right paperwork is going to be critical when you take the risk of a work-for-equity situation.

Now, when I say risk, I want you to understand there’s an enormous benefit to doing it as well and we absolutely love it as a technique to…number one get the properties filled quickly because when you run the ad that I described, the phone will ring off the hook.  You’ll have lots of people very attracted to do the things to the property.

Secondly, not only will you have that opportunity, but recognize that typically when you’re fixing up property, you’re doing it on your dime.  When they are fixing it up, they’re paying rent.  They’re fixing it up on their dime and paying rent at the same time.  Good news, Elwardo.  I hope you understand that and can take advantage of that great technique.

Now John asks thanks Lou for the Q&A.  I was considering selling a condo in Florida with seller financing.  The person’s credit is less than perfect, and therefore I was considering a land contract.  With a land contract, is the buyer recorded as the owner of record?  I ask related to homestead benefits to bring the buyer’s cost down, yet maintain more control of the deed with a land contract.  Please briefly explain.  Land contracts are still confusing to me.

Okay, John, essentially a land contract, another name for land contract, is contract for deed.  I call it agreement for deed.  In some states, it’s also called bond for deed.  The main distinction for you to understand is that basically you keep the deed and the person has a contract to get the deed.  They get the deed when they do what they agreed to do in the agreement.  Once that agreement is complete and they pay you off, they get the deed.  It’s a distinction between the other side of the coin, which is you give the buyer the deed, and carry back a mortgage against the property, which of course requires that you would have to foreclose to get the property back.  In Florida in fact, you have to foreclose to get a property back on land contract as well except for the times that you don’t have to.

That’s one of the reasons that I love agreement for deed because often you don’t have to.  You work something out with the new tenant that’s moved in.  Actually, they’re the buyer now, and they create an agreement with you to get out of the property if they can’t make the payments, and you’re not going to be harmed by that situation.  That’s the best way to set this scenario up.  If you’ve given the deed, obviously you have absolutely no choice but to foreclose to get the property back if they don’t pay.  But with an agreement for deed, that may not be the case, and I say hey, if I’ve got any chance where I don’t have to go through foreclosures, especially in Florida, that’s a lengthy process there, then it make sense to give it a try.  A good question, John.

The next question as part of that is I ask related to homestead benefits to bring the buyers costs down yet maintain more control of the deed with a land contract.  So, that question might be can they apply for homestead exemption?  And the answer is yes they can, so I encourage you to go ahead and do that.

Now we have a tenant problem question.  Lou, how do handle people who complete the rental application receipt agreement, provide certified funds with and without a signed lease, and then decide to rescind.  They also stopped payment by telling the bank they lost the certified check.  This has occurred to me twice recently.  Wow.  Okay, John, well one lesson would be go to the bank with a certified check and cash it as soon as you get it, so they aren’t going to be able to go to the bank and try to undo that certified check.

Second, the answer is the rental application receipt agreement is a contract.  They have contracted to take that property.  They have contracted to take if off the market.  They have given you a reservation fee, and they have agreed that it becomes liquidated damages since other people may have been turned away, and it may be necessary for you to re-advertise the property and re-market the property.  It’s all stated clearly in the application.  If they say can I have my money back, you say, I wish I could give it back, but you agreed in writing that indeed that would be our money because now we’ve got to re-market the property.  We took it off the market when you committed to us.  That should help you through that process.  All right.

Brian Musa ______(31;40 verify) has a lease-option question.  He says Lou, unfortunately, my grandmother has dementia and can no longer live in her house.  Currently, she is living with my aunt.  Is there anything we can do to protect her home from being controlled, taken by a nursing home.  If we lease-option the house, could the nursing home still take the house?  Well, Brian, yes.  The answer is yes they can.

First of all, I’m sorry to hear about your grandma and this is trying time for many families when you have to be faced with situations like this.  Unfortunately, I wish we had done the work earlier because if there had been a transfer out of her name over a long enough period of time, and in many states it’s five years, called the lonership _____ (32;35 verify).  If they find that it has been transferred for a very long time, then they don’t try to come back and take it as part of her assets.  But any time shorter than that, they can take the property back.  If you lease-option it, that’s still means that when you finally exercise ______(32:56 verify) than Medicaid is going to have a lean against it for the money that the Medicaid has about that.  Although she could lease-option the property, and it would delay the state from being able to come in and take the asset until you actually buy the property.  Then they would be able to get the cash at that time.

Next you say I’m a little confused on how your rent works using your lease-option paperwork.  Does the tenant pay a month in advance?  How is the reservation fee applied?  First of all, all rents are paid in advance.  When a tenant pays on the 25th of the month, according to my policy, than that carries them through the next 25th of the next month.  This differs from mortgages.  Mortgages are paid in arrears.  In other words, you borrow the money, wait 30 days, then make your first payment.  What you’re really making is a payment on last month’s interest on the past 30 days’ interest, and that should clear up how the application of rent goes.  Then you say how is the reservation fee applied.  It’s applied to the money that is needed at the table.

So, for example they’re going to need their option fee, and they’re going to need their rent.  I definitely want to get the option fee out of the way because that’s money that is difficult to collect later.  Let’s go ahead and get that, settle that piece.  Then if you have to work with them on the first month’s rent, maybe you can work out a payment plan or something like that.  But we definitely want to collect the option fee if we possibly can.

Last call you mentioned free website to list a lease-option for sale.  Can you name a few?  I think I did in that call, but I’ll name some again.  Craigslist is one.  Kagigi.com. There is some other rent-to-own sites.  I believe it’s renttoown.com that you can list for free.  There’s another one.  It is a paid site called rent.com and then there’s another one called fsbo.com.  I believe that is a fee-paid site.  There’s another called postlets.com, and postlets what they do is post for you to multiple sites.  Okay, great.  Glad that helped.

Okay, we got some tax questions here.  Being the rare conservative in the state of Massachusetts, I’m concerned about taxes.  Can you explain what is going to happen to the short-term capital gains if Obama is elected?  Well, Brian, I’m afraid that’s going to become a thing of the past, my friend.  The philosophy of the Democrats is that basically government can do a better job than individuals can.  So, therefore, they have a philosophy that in order to do the better job than the individuals can, they must collect money.  In doing so, they typically go after the things that hurt the fewest voters.  They don’t realize that their actions actually hurt voters, but psychologically, they’re thinking that they won’t get votes if they hurt people directly.  So, they’re hurting them indirectly with some actions that I happen to believe are detrimental to our overall capitalist economy because taxation always rescinds an economy.

It does not improve on an economy, and this has been proven over 100 years of tracking.  I actually have a chart that shows taxation over the last century, and then exactly what happened to the economy right after the taxes where changed when taxes went high.  We’ve had taxes as high as 90% in this country in the past, and of course during that period of time, the economy came to a shrieking halt.  So, one of the things that Obama will have to do is raise taxes in order to pay for all of his aggressive programs that he plans to do.  So, expect that capital gains will go absolutely through the roof.  That we won’t be able to sell anything and get money, and that the only real strategy for us will be the 1031 tax deferred exchange where you take your profits and roll it into more property.  That is the only gain that I see in the foreseeable future if that election were to take place that way.

I look at both candidates with some disdain, and I think honestly it’s a choice between socialism and communism, and we have to make some decisions about our future as a result of that.  But I’ve always seen, though, that our economy is resilient regardless of who’s in the White House, but it does help to have a mismatch between the White House and Congress.  When you got Congress without any restraints on it, then you got some real challenges there.  So, it’ll be an interesting ride to see what things look like after next week.

We got, let’s see, some create cash flow questions.  I heard that some people use a life insurance policy to create cash flow.  Please explain how this works and what type of policy should you use if you’re in your early 50s?  Well, I don’t personally think that insurance is a great investment.  Insurance should be used for insurance purposes, something like replacing income, for example, if you were to get unhealthy.  If you had a situation happen or death, then you’ve got that influx of cash and of course health, but life insurance, the idea is, that it’s basically a forced savings plan.  What you’re doing is getting the benefit of your premium over time buying insurance and that is figured out by their actuarial tables that determine how long you’re going to live.

So, basically they’re saying we’re gambling that you’re going to live this long, and so as a result, we’re going to collect this much money off of your premiums, and if we do, then we’ve made and taken in a lot of cash.  If they take in the cash, the theory is they’re going to invest it well.  Some companies like AIG did not do so.  They invested it poorly in things called sub-prime mortgages.  As a result, the government had to come in and bail them out, which is a sad story.  So, life insurance to create cash flow, that really to me doesn’t add up to be a good strategy.  Cash flow comes from when that policy itself actually throws off a cash benefit.  And yes, there’s many different products out there.  If you’re interested in it, sit down with a independent life insurance agent, and let them tell you all the different programs that are available.  Obviously, if you sit down with someone from Allstate, they’re going want to sell you Allstate Insurance.  So, I think it’s better to talk to a certified financial planner and see what they might be able to do to help you.

Now we have an affiliation with the ARK.  Call the office at 1-800-578-8580 to obtain a telephone number, and they can probably guide you on a lot of different policies that are available.  They are one of our providers and many of our platinums and golds use their services to do their taxes, to do insurance planning, to do life planning, financial planning that is.  So, they may be able to help in that arena.

Okay.  We got Becky Sharon says what are my best options for a loan modification in Naples, Florida?  How would the options be different in Cincinnati, Ohio?  Property: Two bedroom, two bath condos bought as rental investments.  The rents in Naples have dropped from 1150 a month to 800 a month this year.  Details:  Two conventional, no dock, 20% down, jumbo adjustable 30-year loans on two, two bedrooms condos.  Borrowed 5/12/06.  Appraisal amount $230 thousand.  Loan amount 183, 920.  Interest is 6.5% for five years fixed, then it adjusts beginning in 2011 with a 2.25% margin.  I owe today 179,132.  Loan is current and has been paid on time each month, so there are no additional fees or interest that has been added.  There are no other loans on the property.  We are paying the expenses of our two investments out of savings.  Have started two companies, so only small passive income the past few years.

Okay, Becky.  Well, I would go for the loan modification absolutely.  I would say talk to the bank and try to get somewhere with them.  The challenge is that you’re not behind.  That does not mean that they won’t work with you, they will, but it really depends on who the lender is.  That’s the only thing you didn’t tell me.  That’s the only thing I’m not aware of that I might be able to help better if I knew who the lender was.  In any case, you’re absolutely right about Naples.  It has taken a nosedive and it’s amazing just how big of a struggle it’s become for all the nice folks that live in Naples.  That also means that the banks know this, and so, I would definitely go to them and say my cash flow is just not there.  I’m asking you to make this adjustable-rate loan into a fixed-rate loan.  I’m asking you to lower the interest rate from 6.5% down 2% for the life of the loan.  That way, you’ll have enough cash flow to be able to make this work.

We just covered a lot of information about loan modifications at our Millionaire Deal Maker event, which is definitely a training that all of you need.  I always teach to the very market that we’re in, and this is exactly what I’m seeing, folks, is that loan modification is a real opportunity over the next six months.  Taking an ugly loan and making it pretty.  What I call putting lipstick on a pig.  This gets you the opportunity to really make this business sing and dance when you’ve cost of funds that’s really, really low, and the banks should cooperate because of the new homeowner act that went into effect in July.  That act is really designed to encourage the banks to do loan modifications, and as you heard me mention earlier to Suzay, I was talking about forgiveness of debt, which is another big deal in what I believe is going to happen with this new program.

The only problem is that the guidelines haven’t come out yet.  So, those lenders that were already doing modifications, aren’t going to be delayed.  Others, who weren’t doing loan modifications, are going to have to wait for the HUD guidelines to tell them what to do.

Vic Rhodesie _____(45;41 verify) has a question.  Lou, we had a great time at MDM.  It’s always a pleasure to visit with a quality of students that your organization attracts.  Thank you for the opportunities that you extend to Mark and I.  When looking to do loan modifications, is there another violations of RESPA to be aware of other than the mortgagee not receiving a HUD statement prior to closing?  That would be evidence to help you convince the bank to do a workout or modification.  Well, Vic is referring to exactly what I mentioned a few minutes ago that I focused on loan modifications at MDM.  Thank you for mentioning that, Vic, and surely I’m happy to have you and Mark both as part of our platinum program and also our BizWiz program up there in the Charlotte, North Carolina area.

I’m excited to tell you that there’re actually many, many different errors that banks and lenders make in the RESPA area.  Now, let’s backup for everyone on the call right now who’s saying what in the world is he talking about.  All right.  Some years ago Congress passed a law called RESPA, which was Real Estate Settlement Procedures Act.  What the act did was create guidelines for lenders, title companies, attorneys, everyone who’s closing a loan or closing the sale of a property to follow.  One of those guidelines says that the HUD-1 closing statement has to be provided to the borrower at least 48 hours prior to closing.  We all know that ain’t what happens.  Now, to go beyond that, there’s a lot of other things that are often miscalculated such as the big rectangular box on a loan disclosure document on annual percentage rate.  That is often miscalculated.  Sometimes they include the points, sometimes they don’t.  Sometimes they leave it blank.  Sometimes they round it off.  There’s often a lot of mistakes in the actual documents, and that gives you another bit of leverage if you’re working with a lender.

Now, there are also companies that do a forensic analysis of the mortgage to find these mistakes, and they charge a fee for that, but once it’s done, now you have leverage with the bank to say look, you guys did not follow the law.  Now, I want my loan modification or now I want a reduction in the mortgage.  Folks, it’s legitimate if they made a mistake.  If they didn’t do it right, then you can use that to your benefit.  Hope that helped, Vic.  All right.

Teri Moore Miller says hi Lou, wow what a lot of great information we learned at MDM.  One such information was about Section 1403.  Could you elaborate on that a little by telling me the exact act ruling that I should quote when asking the lender to modify the loan?  Yes, Teri Moore, that is the letter that we created to be able to send the lender to explain to them first of all, that we’re aware that the new law has passed.  We’re aware that the government has come up with a plan for this.  We’re aware that the banks have the requirement to talk to us before a loan goes into default or while it’s in default especially if it looks like the lender will lose money in the transaction.  They have the right to modify that loan, even forgiveness of debt.  So, that is very powerful information.  We are posting that to our websites too.

By the way, if any of you do not have the Street Smart websites, my friends, you’re making a mistake.  You must pay attention.  The opportunity to have technology working for you instead of you working for all the other mistakes that are made is absolutely available to you at pennies on the dollar.  We got the buying, selling, and borrowing websites that gives you creditability on the front end of your business, but on the back end is where the real power is.  That’s where we’re able to post, not only all of our forms, but also when you graduate our events, all of the auto-fill forms are turned on.  But in addition to that, as things such as Section 1403 come out, we post those there as well.  We created a letter.  We posted that there as well.  Any time that we make tweaks to the Street Smart system, your forms are updated there as well for free.  So, access to having that information is absolutely powerful.

We just posted something to our platinum site that’s also going to be posted to the websites that is an access to all the municipals codes in the country in addition to the state law codes that we have posted there.  We have a copy of a mortgage for all 50 states.  Copy of the landlord tenant laws for all 50 states.  The foreclosure requirements for all 50 states.  The notarization requirement for all 50 states.  All of that is posted right there on your websites, your administrative site.  So, I encourage you to go there and find that information, Teri Moore, and you’re going to have what you need.  Be glad to answer any more questions that might come up.

Okay.  Jay Macondo_____( verify 51:55) has a question.  I had a second position and had to foreclose on a house because the person never made a payment on the money he borrowed.  I went through the whole eviction process, and took over the house only to find out that I was upside down.  We know owe $124 thousand.  The house is appraised at 105 thousand.  I caught up the loan twice and offered the bank 95 thousand, but they never accepted because they needed the old owner’s signature.  Now, we withdrew the first offer and countered with a $45 thousand cash offer, but they still want the old owner’s signature.  Can we do a short sale with the evicted owners absence and how?  I loaned this person $17 thousand and paid $85 hundred to catch up the loan, add $25 hundred to fix the house after the eviction.  I am getting a little money back because the house is rented, and I’m getting $750 a month to a potential buyer.  We have not made payments since I caught up the loan in December of ’08.  You must mean ’07, Jamie.

First of all, what I’m hearing you say is that the loan is actually not your loan.  It is the original borrower’s loan.  They borrowed from the bank on their first mortgage, and they borrowed from you on your second mortgage.  You have now foreclosed, taken the property back, and it’s yours subject to that first mortgage.  The good news is you are legally a holder in due course, and that means of course, that you have the right to continue to make the payments on the first as the loan exists now.  Unfortunately, in order to change that loan, the lender is well within their rights to say we have to have the signature of the first mortgage borrower to agree to adjust their loan.  It’s not your loan, Jamie.  It’s the original borrower’s loan that would be changed with the consent and cooperation of their lender.  So, you don’t really honestly have any control in this situation.

Jamie, about the only thing you can do really is to allow this property to go to the foreclosure steps and be the successful bidder at the foreclosure steps.  Hopefully, it would be at a greatly reduced price.  Many lenders now are coming up with a much lower price, and they’re offering it on the foreclosure steps at lower than they are owed for their mortgage.  But if that does not take place, then they take it back at the higher price, and you’ll go through the lender at that time to offer your lower price.  This is too bad, and unfortunately, it is a precarious situation for a lender.  Most lenders when they take back a property, pay off the underlying loan or they let it go.  That’s why you’re seeing so many second mortgage lenders only accepting 500 or $1000 on their second mortgage because they know that they still got a problem.  They got to pay off that first mortgage or take the property subject to that first mortgage, and then perhaps be upside down on it.  So, it’s not a good plan for anybody to be in second position unless you’ve got plenty of equity and can afford to play the game that way.

The other alternative of course, Jamie, is to go find these people and say look, I’m trying to help restore your credit.  I’m trying to help salvage your credit.  Now, of course, you and I both know, they’ve already got a foreclosure on there, and they got all these arrears that are showing up on their credit now, but the truth of the matter is, if this were able to be worked out, then they wouldn’t have any more bad marks after this.  If you were able to actually modify that existing loan and get it reduced, then that would actually _____(56:18)  to their benefit and as you make payments on time, on that first mortgage, that could really help.

Dorothy Belgers ______ (verify 56:27) says what can I do to protect my business, our LLC, tenants, and reputation from my partner who is contemplating filing bankruptcy.  She has been told that she would have to include our LLC as she holds 50% of one of our properties, and as she has the mortgage in her own name.  The deed to the property has her name and mine each equal 50/50.  I am trying to get a mortgage in my name to protect the property, but I’m not sure my credit rating is good enough to do so.  How, short of her signing off immediately, can I protect my part of these things and go forward.

Well, let’s see here, Dorothy.  First of all, in bankruptcy what happens is the debt gets divorced from the borrower, so the borrower is not any longer personally responsible for that debt; however, that does not mean the debt cannot be collected.  It can because of the collateral.  So, in this case, if she’s trying to divorce herself from that debt, she could win that, but the lender still has their lean against the collateral.  They can even go back to the bankruptcy court and get the court to allow them to get a lift of stay and go forward with a foreclosure action.

So, the important thing is that you have tenants in the property.  You have money in the property, and hopefully you have enough income to be able to make the payments.  So, just because she gets divorced from the debt, does not mean that she will have to remain part of the deal, and in fact, if there’s a way that you could “buy her out” and you might say, well there’s not enough equity in the property to buy her out, then fine.  Let’s get her to go ahead and assign her shares in the LLC to you, and probably with the bankruptcy trustee blessings that she would do that if there’s no equity for the bankruptcy trustee to come after on behalf of all the other creditors.

Okay.  Well, hopefully that helped.  My goodness we had a great variety of questions today, all over the place.  Deal structuring, tenants, lease-options, owner financing, loan modifications, creating cash, all kinds of great stuff, trusts, everything.