financial difficulty. Be especially alert to equity skimming and phony counseling agencies.

Equity Skimming In this type of scam a buyer approaches you, offering to get you out of financial trouble by promising to pay off your mortgage or give you a sum of money when the property is sold. The buyer may suggest that you move out quickly and deed the property to him or her. The buyer collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose. Remember, signing over your deed to someone else does not necessarily relieve you of your obligation on your loan.

Phony Counseling Agencies Some groups calling themselves counseling agencies may approach you and offer to perform certain services for a fee.These could well be services you could do for yourself for free, such as negotiating a new payment plan with your lender or pursuing a pre-foreclosure sale.

Q. Are there any precautions I can take?

Here are several precautions that should help you avoid being taken by a scam artist.

1. Dont sign any papers you dont fully understand.

2. Make sure you get all promises in writing.

3. Beware of any contract of sale of loan assumption where you are not formally released from liability for your mortgage debt.

4. Check with a lawyer of your mortgage company before entering into any deal involving your home.

5. If youre selling the house yourself to avoid foreclosure, use How to Sell Your Home Without a Broker by Bill and Chantal Carey. (Okay, FHA didnt say that. Were just seeing if you are really paying attention.) Seriously, check to see if there are any complaints against the prospective buyer. You can contact your states attorney general, the state real estate commission, or the local district attorneys consumer fraud unit for this type of information.

We told you that with government entities, the rules can change midstream. As we were writing this book, the Department of Veterans Affairs altered the way it has done business for 50 years.

The VA can actually loan mortgage money to military personnel. This happens in very rural areas where a mortgage lender may not exist. However, the VA predominantly acts as a guarantor of mortgage loans for veterans purchasing homes. It acts as government mortgage insurance for real estate lenders.

The veteran can buy a home with no money down and obtain a mortgage for 100 percent of the purchase price. Talk about the risk to the lender!

The Department of Veterans Affairs acquires properties as a result of foreclosures on VA-guaranteed loans. The VA has awarded a contract to Ocwen Federal Bank FSB in Orlando, Florida, to manage, market, and sell these properties. (This is the change.) At this time all VA REO properties have been removed from the market and are accessible only through Ocwen Bank.

Ocwen Federal Bank began listing VA REO properties in early 2004. The properties are listed by local listing agents through local multiple listing services (MLS). A list of properties for sale may also be obtained from Ocwens Web site at www.ocwen.com/.

If you are interested in buying one of the VA REO properties once it is listed for sale by Ocwen Federal Bank FSB, you should contact a local real estate broker to see the property and make an offer to purchase that property through that real estate broker. No longer will the VA Office of Jurisdiction manage these properties.

VA-Guaranteed Loan

Purchase Price Down Payment Mortgage Amount

$100,000 0

$100,000

Buying VA REOs

Our Experience Our experience buying VA REOs or, as we call them, VA repos, has been positive. At the foreclosure sale the VA tries to get the highest amount possible for these properties. However, because of the 100 percent financing, very often the VA cannot get anyone to outbid its credit bid at the foreclosure sale.

Lets say the VA guarantees a $100,000 loan. Two years go by, and the owner gets into financial trouble. The VA provides counseling but winds up foreclosing. The property is worth $105,000. The owner is $5,000 behind in the six months of payments. The VA bids $105,000 at the foreclosure. No one is going to bid because the property and the bid are the same amount.

Once the VA has the title to the property, it is going to make deals. Remember, it has guaranteed repayment of the loan to the actual lender. The VA is out $105,000. Any deficit between what it paid the lender and for what it will eventually sell the property for as a repo will be charged to the veteran-borrower.

We bought this property for $77,850. We flipped this property to another real estate investor for $84,000. We made $6,250. The VA went after the borrower for a $27,250 deficiency. Rather than going to court to get a judgment against the veteran, the VA will withhold benefits if it is not paid back.

In the next chapter we will give you the information to work with Fannie Mae, Freddie Mac, and FDIC foreclosures. These are properties that are either in the pre-foreclosure time period or are REOs. For some of you this will be your foreclosure investing niche.

VA Foreclosure

Property Value Credit Bid Profit Potential

$105,000 $105,000 0

VA Repo

Flip Price VA Price Profit

$84,000 $77,850 $ 6,250