THE FORECLOSURE SCAM AND THE REAL WAY TO CASH IN ON REAL ESTATE

It's hard to miss the full page newspaper ads – such as in the Washington Post and likely in your local paper as well – blaring about "the investment opportunity of a lifetime" by investing in foreclosures.

"The current rise in foreclosures is an incredible opportunity for you to make incredible real estate deals!" claims the WaPo ad. 

All of these ads are scams.  Yet it turns out that there is a genuine solution to the mortgage crisis, and those who understand it will be able to make a lot of money.  Let me tell you how to do it.

The mortgage crisis is serious because banks that owned mortgages on homes proceeded to sell them to investment firms who packaged thousands of them together and sold shares in these packages called "mortgage backed securities."  What makes it serious is that at the end of the day you can't figure out who exactly owns the home.

This means that the title of millions of homes is mixed up in an unravelable Gordian Knot.

When people find themselves upside down or underwater on a mortgage – the value of the home has dropped so far below what they owe – they walk, forcing foreclosure.  But the guy who actually performs the mechanism of foreclosing – the "mortgage servicer" – can't reduce the value of the mortgage as he doesn't own it.

This means that buying a home under foreclosure just means you are buying the mortgage on the home, the right to make payments on that mortgage – and the home may still be worth less than the mortgage.  Now you're the one who's underwater, not the previous owner.  You've been scammed.

The real investment opportunity is not these foreclosure scams you read about in newspaper ads but in public auctions of homes held in your county for failure to pay property taxes.

Your state, not the federal government, determines real property law.  When securitized upside down mortgages are sold for back taxes in a public auction, the new owner gets a clean title – no mortgage, no liens, virgin clean.

Say there's a home with a mortgage of 600K, the owner can't sell it for 500K so he walks.  The mortgage servicer can't find a sucker to pick up the mortgage, and the property taxes go unpaid.

The county treasurer sends out the required notices by registered mail which go unanswered, and the home goes up for public auction in a tax sale to recoup the taxes due of 30K.

Why wouldn't the mortgage holders pay the taxes, which are a fraction of the home's value, to retain ownership?  Because there are thousands of them owning a tiny piece of the mortgage backed security, and it's in none of their interests to pay thousands of dollars for that tiny piece that's worth much less.

So the taxes don't get paid, the public auction held, and the person with the winning bid in cash – cash – gets the title free and virgin clear.  Even a plumber's lien for repairs on the property is wiped out.  Clean title, period.

Foreclosures are going to be peaking this year, spilling into 2009.  Then comes a great wave of public auction tax sales in 2009-2011.  But they are already starting to happen.

What you want to do is stick to homes in your local area that you can look at and inspect.  Watch for Legal Notices in your local newspapers for such auctions.  Periodically call County Treasurer's Offices in your local area and ask them about public auction tax sales.

Purchasing free and clear title to homes via such tax auctions is the way to acquire unencumbered real estate far below its value, the real way to cash in on the mortgage crisis.

It's also the way to solve the mortgage crisis as a whole.  The entire mortgage crisis will be solved by county tax sales that wipe out everyone who has a claim,  all mortgages, loans, liens and claims, present and future.

Within two to three years, this massive problem will be solved – if, the gargantuan if, Congress stays out of the way.  No new laws, no new regulations, no interventions, stay out of the way, and local county tax authorities will wipe the problem clean.

Politicians in their infinite desire to screw things up, may not allow this solution to work.  So you might consider taking advantage of public auction tax sales in your area in the near future.  Every county has a "paper of record" in which the Legal Notices are found  – call your County Recorder's office to find out the paper of record.  Many counties will put you on an email list notifying you of auctions.

And please – ignore the trumped-up foreclosure scam ads.

[Note:   A TTP hat-tip of thanks for much of this information goes to TTP'er "Skye."  Skye's father was a second assistant bookkeeper, while the richest person in his neighborhood where he grew up was a truck driver who drove other people's trucks.  He now has a net worth of low eight figures through hard work, doing his research, understanding economics, and not investing in newspaper ad scams.  He suggests TTP'ers consult two books: Henry Hazlitt's Economics In One Lesson, and F. A. Hayek's The Road To Serfdom.]