This is Part 1 of a three-part series. (See Part 2: Navigating a foreclosure auction and Part 3: Lenders, bidders unleash foreclosure deals.)
Earning big profits from properties that are in the foreclosure process is a “numbers game.” One way or another, about 95 percent of homes with defaulted loans are never sold at a foreclosure auction. The reason is the owner either reinstates the mortgage (usually by refinancing or adding a junior mortgage) or sells the property.
That’s where you enter the picture! If you are a mortgage broker, you can build a very lucrative business helping owners who are in default by offering to refinance or create a new junior mortgage. Of course, you will need to have sub-prime loan sources to provide the new financing. Or, you can become a buyer of properties that are in the default process.
Purchase Bob Bruss reports online.
OPPORTUNITY #1 – PURCHASE FROM THE DEFAULTING BORROWER DURING THE PRE-FORECLOSURE REINSTATEMENT PERIOD. The time between the lender’s recording either a Notice of Default or filing a mortgage foreclosure lawsuit against the borrower and recording a “lis pendens” against the property title allows the defaulting borrower to sell or refinance the property.
Some Realtors specialize in listing homes that are in default. However, this can be very risky for the realty agent if the home doesn’t get sold before the foreclosure sale occurs. For this reason, realty agents who take listings of homes in default should be certain (a) the listing price is at or below market value so the home sells quickly, and (b) the listing period should be several weeks shorter than the reinstatement period. If it isn’t, the defaulting borrower might sue the agent for damages, arguing the agent had the home tied up on a listing, and it didn’t sell so the borrower lost it in foreclosure.
As an investor in foreclosure properties, there are many advantages to buying homes that are in default during the reinstatement pre-foreclosure period. You get to inspect the house, receive the seller’s defect disclosure statement (but don’t expect the defaulting owner to always fully disclose known defects), arrange a comparative market analysis (CMA) to determine the property’s market value based on recent sales prices of similar neighborhood homes, negotiate with the defaulting owner, and even “walk away” if you can’t buy at a satisfactory discount from market value.
Most professional foreclosure buyers, also known as “the 40 thieves,” try to buy foreclosures at least 20 percent to 40 percent below market value. Reasons are to leave room for resale (or refinance) profits and provide leeway for unexpected fix-up costs.
Please be aware many defaulting borrowers who are in the foreclosure process are not thinking straight (otherwise they wouldn’t be in the foreclosure process!). Most of these people are primarily concerned about their other problems, such as divorce, family difficulties, illness, or unemployment. Many of these defaulting owners are downright hostile toward prospective buyers. Others are expecting a miracle, such as winning the lottery or receiving an inheritance.
Locating the defaulting owners can be a major problem. Maybe they moved away from the area with intent to abandon the property. Or the property might be occupied by tenants who don’t want to give you the owner’s contact information. Perhaps the owner died. Sending letters to the legal owner(s) at their last known address (easily obtained from the local tax collector’s office) often works.
But my experience has been better sending postcards such as “Do you know of a homeowner in your neighborhood who wants to sell their home? Save the sales commission. Please phone me at 555-555-5555. Fast cash.”
On the front of the postcard, be sure to include your return address (use your post office box or a mail service, such as The UPS Store, but not your home address) with the magic words “Address Service Requested.” If the postcard is forwarded to the owner’s new address, then the post office will send you that new address. The cost is only 70 cents for this powerful information.
However, do not send postcards saying, “I understand you are going to lose your home in foreclosure. Please contact me if you want to sell or refinance now to get cash before it’s too late.” That will get a response – but the wrong kind if the defaulting owner’s spouse, kids, or mail carrier finds out!
If you don’t mind rejections, you might want to try phoning the defaulting homeowner. However, if you operate a business, such as a real estate brokerage, be very careful of the do-not-call telephone registration laws. Still another method of contacting the owner is to knock on the door of the property. If you can deal with “mom and pop” property owners, you will be amply rewarded for your hard work. But remember, “It’s a numbers game.”
(For more information on Bob Bruss publications, visit his
Real Estate Center).
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