When you start getting into the world of real estate, you will always run across a lien of some sort, since few properties are owned free and clear, or without encumbrances of some form. It will be helpful to know the different classifications of liens, and how these classifications might affect your buying a note, or purchasing a property. Note can be divided into two categories:

1. Voluntary
These are liens that were put on properties with consent of the owner. These will be specific types of liens that include deed of trust, mortgage, mechanic lien contract, home equity security agreement, and owelty lien

2. Involuntary
These are liens put on the property without the consent of the owner. These liens can either be specific, or non specific type liens. Specific liens include real estate tax, mechanics lien (affidavit), home association lien, municipal lien, and utility lien. Unlike voluntary liens, involuntary liens can have non specific liens that apply to the owner, but also affect the property. Some examples of involuntary liens are IRS liens and abstract of judgment liens.

Click here to view the classifications of liens in a chart style form for easier identification.

As you can see, it is very important to have title work completed, and to acquire a lender's policy to make sure you are protected if a lien was overlooked in doing your due diligence. It is also very important to check with a competent attorney to determine how these liens will affect your note purchase, note sale, or real estate transaction. This is particularly true if there are mechanics liens or judgments.

As you look over your title report, or when completing your due diligence at the court house or online, notice the different liens and encumbrances. Recognizing and understanding all the different encumbrances are part of the learning curve all real estate investors and note buyers must go through to be efficient.

As a warning, BE CAREFUL. The involuntary, non specific liens can get you into real trouble, real quick.

If you have any questions or comments, be sure to contact me. In the subject line, write ASK the PROFESSOR. I will try to answer your questions in the next Note Professor issue.

If you know of anyone who has a Note they want to convert to cash
contact me at www.hpnotes.com
I do pay referral fees.

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I am hearing again pundits and politicians, both Republicans and Democrats, debating whether government "stimulus" will increase demand. It is obvious neither party knows the definition of "demand", but rather merely repeat political talking points. I think a basic repeat of the November 2008 issue is in order. The following is exerts from that article.

When we understand the true definition of "demand", we will begin to see how our politicians distort the meaning of demand, and therefore the concept of demand by equating desire for a good or service with production. No wonder we are in the situation we are in.

DEMAND: The willingness and ability of the people within a market area to purchase particular amounts of a good or service at a variety of alternative prices during a specified time period.

Another Definition: The want or desire to possess a good or service with the necessary goods, services, or financial instruments necessary to make a legal transaction for those goods or services.

I picked these definitions randomly from economic dictionaries. Separately, neither fully explains the concept of demand, but if you combine the two, you will find the most complete definition of "demand" I have time for in this issue.

The first point to notice is that mere want or desire is not the ultimate element of demand. There must also be a willingness, (I use the term "voluntary") as well as the ability to exchange goods or services for what we want. What about "the financial instruments"? In another issue I will delve into the concept of money, but for this issue, suffice it to say that money is merely a representation of goods or services. Is this not why we work or invest; to obtain goods and services we desire not only to survive, but also to prosper. In essence when we go to work, we are exchanging our services for other goods and services that money is suppose to represent.

Think of what the phrase "with the necessary goods, services, or financial instruments" means. An example from a real estate point of view, charging rent means you will trade an individual a place to live in exchange for "financial instruments", which you will then exchange for goods and services you desire. Your renter also works at a job to exchange his/her services for "financial instruments" to pay you rent for a place to shelter him/her from the elements. This is the essence of division of labor, and what makes a free market system function. Demand and production go hand in hand. In other words, without the ability to produce there is nothing to exchange; and therefore no demand.

Next notice in the definitions "purchase at a variety of alternative prices" What this means is for there to be "demand" there must be a price system. In other words, you will exchange apple for an orange, but you might want two bananas for one apple because of your preference. You, the individual, will decide what "price" to put on an orange or a banana. To put it another way, we produce in order to consume. More importantly, production must precede consumption. CONSUMPTION CANNOT EXCEED PRODUCTION.

For the economic concept of demand to function, there must be a price system by which individuals determine what is desired, and how much of it. In other words, a price system answers two fundamental economic questions; what to produce and how much. As a side note, socialism cannot sustain itself because there is no price system. Socialist have the false belief that production will just happen. In their world desire alone is the only requisite for the concept of demand, while completely ignoring the other part of the equation for demand, which is producing goods or services to exchange. Likewise, the statists believe that politicians and bureaucrats can distort or interfere with the price system without negative consequences. A case in point is the Federal Reserve setting interest rates artificially low, while at the same time Fannie Mae not only turned its head to fraud and unsound lending practices, actually encouraged the fiasco. The intentions were "honorable"; to give everyone the "American dream" of home ownership. The result; the housing bubble which exploded. To relate the real estate bubble to this article, government officials and appointees set the price of money artificially low, coupled with lenders were encouraged to make unsound loans. The result was the artificial increased demand to the point where loans were given without any real exchange of goods or services. Another form of consuming without producing.

I am addressing the concept of demand because of a question I received wanting to know if Congress "gave" banks money, as well as individuals, would this not increase demand. The answer is "NO"! To begin, what did Congress produce for the money they are "giving"? Nothing. They merely took money out of "productive pockets" and redistributed it into non productive pockets. Not only did Congress produce nothing in exchange for our production, the recipient of our money exchanged nothing to us to receive our money. This is a form of consuming without producing. As the definition of demand tells us, demand requires willingness and production for there to be an exchange. How can demand increase when there was no voluntary exchange of goods or services?

You will often hear media pundits and politicians incorrectly state that our economy is based on consumer demand. What they omit is "consumer demand" is based on individuals producing in order to exchange goods or services. They imply that all that is needed is to "give" them our money, and in turn this will increase demand. As we have learned this is a false economic premise. The concept of demand also embraces the necessity for individuals to produce something to exchange. This is the essence of any economy and the cornerstone of free markets. Consumption alone does not create demand, it only depletes resources.

We also hear the phrase, "the demand for money". Knowing the definition of "demand", what does this imply? HINT: What goods or services are exchanged for money? When money is printed from thin air, is this the same as production, or is it a form of consuming without producing. Food for thought. Bon Appetite.

If you have questions, CONTACT ME. I will address them in future issues.

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