How to Make Millions
in Foreclosures Now
Presented By
License Branding GmbH© 2014
1
Table of Contents
Chapter 1: The Basics On Foreclosure Investing
Page 6
 Four reasons to do foreclosure investing
 How big is the foreclosure opportunity?
Chapter 2:
What is a foreclosure?
Page 13
 Mortgages and Deeds of Trust
 Judicial and non-judicial foreclosures
 Why do bank foreclosure?
 The foreclosure process is a time line
 The four “D’s”: why foreclosure happens
 How helping owners in foreclosure solve their
problems can make you big money
Chapter 3:
The 7 stages of foreclosure
Page 28
 Pre-pre foreclosure
 Pre-foreclosure after notice of default
 Pre-foreclosure after the order to sell property
 Auction
 Post-Auction
 Right of Redemption
 Bank Owned Properties (REO’s)
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Chapter 4:
Investment Strategies
Page 50
 Buying Out An Owner In Foreclosure
 Subject-To Deals
 Short Sales
 “Junior” Liens and Other “Paper”
 Deals based on saving owner’s equity
 Bidding And Buying At The Auction
 Quick Flips Right After The Auction
 Right of Redemption Assignment
 Buying Bank Owned Properties

Options
Chapter 5:
13 Ways To Find Deals
Page 67
(1)
The Local County Court and Web Site
(2)
Bank Owned (REO) Properties
(3)
Real Estate Agents
(4)
Using The Internet To Find Foreclosures Deals
(5)
HUD Homes
(6)
VA Homes
(7)
Fannie Mae Properties
(8)
Freddie Mac Properties
(9)
Other Investors
(10) Lawyers
(11) Bail Bondsmen
(12) Advertising
(13) Letters To owners in Foreclosure
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Chapter 6:
How to evaluate a deal
Page 82
 Knowing when a deal is really a deal
 The 70% investor rule
 Getting contractor bids
 Preparing your “deal” to present to investors
Chapter 7:
How To Fund Your Deals
Page 86
 The money always follows the deals
 “Hard Money” Lenders
 Equity Partners
 Credit Partners
 Cash ad
 Home Equity Loans
 Convention Loans
 Owner finance
 Retirement account (Self Directed IRA)
 Cross Collateralize
 Table Funding
 Train Private Lenders
Part 9:
Fixing Up Properties To Flip
Page 91
 Don’t waste time
 Finding And Working With Reliable Contractors
 Where to find contractors
 Checking them out
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 How to pay contractors
 Buying materials
Part 10:
Flipping and Renting
Page 93
 Working with a real estate agent
 Pricing your property to sell
 Renting
 Lease/Options
Part 11:
Developing Your Systems
Page 95
 Building A Flipping Machine
 Protecting your assets
Chapter 12:
Finding a Mentor
Page 97
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Chapter One
The Basics On
Foreclosure Investing
Four reasons you should invest in foreclosure now
Why is now the time to buy and flip foreclosure properties?
Because, foreclosures are at an all-time high, making this an
unprecedented time in the history of foreclosure real estate.
It’s true that great deals on foreclosures cans always be found, but
your ability to be successful is much greater when the number of
foreclosures is very high. And there has never been a time when
more foreclosure properties have been available than right now.
Foreclosures provide a steady stream of opportunities where
investors can buy houses at deep discounts. And investors know that
all profitable investing is based on the same basic principle-buy for a
low price and sell it for more than you paid.
But remember my motto: “In Today’s Market, Buy Low and
Sell Low”! Just remember to sell it 20-25% lower than market value
and at least 25% more than you paid and you increase your ability to
move houses quickly in todays” real estate market.
Reason #1: Foreclosure Investing Lets You
Buy Real Estate at Wholesale Prices
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Foreclosure properties are like a fire sale on real estate. It's not
uncommon to find properties that can be purchased for 40%, 50%,
even 70% below fair market value and even lower.
I’m not saying that every foreclosure will be an investment
“homerun” opportunity, because it's not true. And if you may have
struck out in previous investment efforts, or your friends or realtors
cant find the “great” deals, it doesn’t mean there aren’t a ton of
awesome deals to be had. All it really means is that you don’t know
where to look for or how to structure the deals yet.
Fact: All successful investors (including me) and many of
my successful students had to learn to use proven strategies in
foreclosure investing to consistently make deals on properties that
make us a lot of money.
The great news for you is if you follow my proven strategies, you can
experience great success and even get rich if that's what you want to
do. It all depends on if you decide to take action or let the
opportunities pass you by.
Reason #2:
Foreclosure
investing allows
you To make a lot
of money on
typical deals
Foreclosure Deal Example
Home value:
Outstanding Lien:
Bought at auction:
Remodeling, repairs,
hold and selling costs:
Total investment:
Sold for:
Net profit:
$100,000
$50,000
$56,500
$14,000
$70,000
$97,500
$27,000
To give you an idea
of the type of
margins I'm talking
about, take a look at
a deal done by buying a home at a foreclosure auction. The investor
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purchases a foreclosure property at an auction for less than $60,000,
puts in another $14,000 into fixing it up, sells it for $97,500, and
makes a net profit of $27,000 on the deal.
Don’t worry if you cant buy houses in your area for only $100,000,
the formula works throughout the country no matter what market
you live.
The most important thing is the following…
The average median income for households in the United States
based upon the US government statistics for 2005 and 2006 was a
little bit over $48,500. As you can see in the example this investor
earned more than half of the median income of the average US
household with only one deal.
You don't have to do many deals before you start having an
interesting new experience; you wont be broke anymore. In fact,
you may start wondering if you want to keep your day job where you
make so much less than your new real estate investment business.
But of course, that's up to you.
Not every deal will earn this much in pure dollars or by percentage
earned on the investment dollars. In some cases you’ll be able to
make much, much more. On others you may find it completely
acceptable if you only make $5000, $10,000 or $15,000 on a deal.
Based on the local real estate market that you're working in, the
amount of money involved in deals, how much will be invested, and
how much can be made on that investment will vary. But the
margins are similar and there's big money to be made if you know
what you're doing. That's what this e-book is all about.
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But the main point is if you want to make money investing in
anything, and this is true of real estate too, you’ve got to buy right.
Buying right means buying at a price that allows you to operate a
moneymaking system to build wealth.
“You make your money when you buy, not when you sell.”
A lot of new investors are sometimes surprised to hear this, but it's a
foundational truth of investing that you've got to get right. If you
want to buy to find, fund, fix and flip properties for big lump sum
profits now, or buy and hold a portfolio of rentals to get a steady
stream of reliable income, you’ve got to buy right to begin with.
How much money does it take to invest in foreclosure properties?
Real estate investment students always wanted know the answer to
this question, with good reason, they know you can't make money
without having money to spend. But let me share a little secret
with you.
Reason #3: You can get started in foreclosure investing
without having any money of your own to start with
Don't be alarmed if you don't know how to find the money yet.
Later in this e-book I’ll give you an overview of where you can find
money to purchase properties, even if you don't have any money and
your credit stinks like mine did when I started.
If you're sincerely interested in making big money in foreclosures the
money will be there to do the deals that you want to do. I started
with nothing and terrible credit and I never had a problem finding all
the money I needed to do the deals. In fact today I have a virtually
unlimited budget for investing, and you can to.
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I know what I'm talking about and I’ve shared how I got all the
money I needed in books, CDs, DVDs, and a master course on real
estate investment. These all contain a ton of specific information
explaining exactly how to get the money that you’ll need. So don't
worry about that for right now.
Even if you think you’re so broke you can't afford to pay a small price
for valuable information that could free you from the tyranny of debt
and the pain of poverty, that's okay. You’ll be happy to know that
you can go to my blog at www.Armandomontelongo.com where
you’ll find many blog posts, and free reports that will help you along.
So how much will you need to start? That depends on the local real
estate market values in your area largely. In some areas you can
work with less than $25,000 to begin with in order to purchase and
profit from properties and make big money. Other areas may require
$250,000 to invest in average single-family homes.
The fact is it doesn't matter whether you've got $50,000, $250,000,
or you're in debt up to your neck to start. It doesn't matter if you
have a low credit score, or don't have a penny in your bank account.
You can start with nothing or next to nothing like I did, and become
a multimillion-dollar real estate investor living in your dream home, if
that's what you want to do.
Reason #4: The foreclosure opportunity is HUGE
Sometimes my students ask me if the real estate investment market
can handle so many investors? What if everybody started investing?
Will there be enough deals for me to do and make money on?
I understand those fears and I had those fears myself at one time.
One thing I learned though was that there's always room for another
investor who takes action. There are more than enough
opportunities for everyone who really wants to do it.
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What you have to understand is that most people aren't going
to do this. Some just never find out about the opportunity. Others
find out about it, but they let life distract them, they forget about it.
Sadly they continue struggling even though the answer is right there.
The great thing is you have this e-book right in front of you right
now, and you can take action. Whether you are like I was when I
got started and desperately needing a way to make more money
than I was, or you simply aspire to greater financial rewards in your
life, you can do it. This market is big enough for you.
How big is the Foreclosure opportunity?
The number of foreclosures available to investors has skyrocketed in
the last five years. There's never been another time like now when
the marketplace is overloaded and jam-packed with foreclosure
properties just waiting for a savvy investor to come along and flip
them for a profit. So you must take action now.
Consider these recent statistics that illustrate just how big
this opportunity is if you want to take advantage of it:
The Foreclosure Opportunity (Jan-Oct 2007)
786,111 Homes in default (Beginning of foreclosure)
689,928 Homes sold at auctions
309,557 Homes bank-owned by after repossessions
1 out of every 200 homes will be foreclosed upon. For a city like
Washington, D.C., that translates to 3,000 foreclosures each and
every month.
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The latest stats are that there are over 2 million properties
somewhere in the foreclosure process, and there's almost 250,000
new foreclosures entering the market every month. When the
market gets flooded like that it’s truly a “buyers market” with a lot of
opportunities to find, find, fix, and flip properties for money.
Do you need to get out of debt and make more money to take care
of your family in a way that makes life a lot easier than how you're
living now? Or do you have a dream home and beautiful car that
you've always wanted to get? Is there a place that you like to go to
and see, and spend some quality time but couldn't afford to go to?
Then read on to learn about how to find, evaluate, and purchase
foreclosure properties. Then get started in one of the greatest
investment opportunities at one of the greatest times in the history of
foreclosure real estate investing.
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Chapter 2
What Is A Foreclosure?
Foreclosure is the legal proceeding where a lender like a bank, or
mortgage lender secures a court order to reposess or take a property
that had been pledged as collateral to secure a loan. In effect what
happens is they get the right to take the property usually with the
purpose of selling it in order to cover the debt owed.
Sometimes local, state or federal governments also foreclose on
properties to recoup unpaid taxes. In addition to those more common
examples, other lien holders such as bail bondsmen often secure
their bond money loans with liens against properties. Consequently if
a bondee skips town or fails to pay as agreed the bailbondsman can
foreclose on the pledeged property and sell it to cover the debt.
Mortgages and Deeds of Trust
When a lender and borrower negotiate the terms of a home loan,
the agreement is spelled out in a contractual document. The loan
document, often called a “Promissory Note” details the performance
and expectations of both parties to the agreement.
Many people misunderstand what a mortgage is and does, and who
gives it and who holds it. The word “Mortgage” derives from “mort”
and “gage” meaning, “dead pledge”, and that’s what it is. It is a
document that grants the lender the right to foreclose on and sell the
property in case of default on the loan.
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A “Mortgage” or “Deed of Trust” is a separate document from the
promissory note. The “Mortgage” or “Deed of Trust” gives the lender
the right to foreclose on and sell a property if the borrower does not
meet the terms of the loan. When a borrower fails to pay agreed
upon payments on time or misses payments, it is considered a
breaking of the terms of the loan agreement and is considered “In
Default.”
There are other reasons for a loan to be in default such as failing
to keep insurance on the property, failing to pay property taxes, or
making major changes to the structure without prior agreement from
the lender. All of those being common stipulations in loan
agreements.
I’m not a lawyer and this isn’t a course on foreclosure law so you
absolutely have to investigate the laws in the areas you plan to invest
in. You can check out the laws in your state as easy as “Googling”
words like “Foreclosure law, Texas.” Or you can find out at your local
county courthouse.
Judicial and non-judicial foreclosures
Generally, all states are either Judicial Foreclosure states or NonJudicial Foreclosure states. The difference in the two is dependent on
whether they are a “Lien Theory” or “Title Theory” state. You really
don’t have to know every detail of foreclosure law in order to be a
successful investor though so let me make it simple for you.
If a state is a Judicial Foreclosure state they follow “Lien Theory” and
they use “Mortgages.” If it’s a Non-Judicial Foreclosure states they
use “Title Theory” and use “Deeds of Trust.” The way the
foreclosure process works is little different in each case.
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In Judicial Foreclosure states, lenders record a mortgage document
with the local county court in which the property is located when a
home loan agreement is done. If the loan goes into default, the
lender will file what’s called a “Lis Pendens” which means legal action
is pending. What’s pending is the foreclosure process and that initial
filing is the first step in that process.
In Non-Judicial Foreclosure states, lenders and borrowers work with
a third party called a trustee to complete the loan process. The
borrower, known as the “Trustor”, gives a “Deed of Trust” to the
third party called a “Trustee.” The Deed is held “in trust” by the
trustee who is an impartial intermediate in the loan process.
If a borrower later goes into default on the loan, the lender notifies
the trustee who then files a “Notice of Default” with the county court
in which the property is located. The notice of default serves the
same purpose as the Lis Pendens to make a public notice that legal
action is pending.
In judicial foreclosure states if the loan remains in default eventually
the lender goes back to court and to obtain a judgment and court
order to sell the property at a foreclosure sale. Judicial foreclosure
states usually use the county sheriff to conduct the auctions.
In non-judicial foreclosure states if the loan remains in default, after
a predetermined period of time passes the trustee schedules the
property to be sold in a foreclosure sale. Trustees usually use a
private service to conduct foreclosure auctions.
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Type of foreclosure process by state
State/District
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
Security
Instrument
Mortgage
Deed of Trust
Deed of Trust
Mortgage
Deed of Trust
Deed of Trust
Mortgage
Mortgage
Deed of Trust
Mortgage
Security Deed
Mortgage
Deed of Trust
Mortgage
Mortgage
Mortgage
Mortgage
Mortgage
Mortgage
Mortgage
Deed of Trust
Mortgage
Mortgage
Mortgage
Deed of Trust
Deed of Trust
Deed of Trust
Mortgage
Deed of Trust
Foreclosure
Action
Non Judicial
Non Judicial
Non Judicial
Judicial
Non Judicial
Non Judicial
Strict Foreclosure
Judicial
Non Judicial
Non Judicial
Non Judicial
Non Judicial
Non Judicial
Judicial
Judicial
Judicial
Judicial
Judicial
Executive Process
Judicial
Non Judicial
Judicial
Non Judicial
Non Judicial
Non Judicial
Non Judicial
Non Judicial
Judicial
Non Judicial
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New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Mortgage
Mortgage
Mortgage
Mortgage
Deed of Trust
Mortgage
Mortgage
Mortgage
Deed of Trust
Mortgage
Mortgage
Mortgage
Mortgage
Deed of Trust
Deed of Trust
Deed of Trust
Mortgage
Deed of Trust
Deed of Trust
Deed of Trust
Mortgage
Mortgage
Non Judicial
Judicial
Judicial
Judicial
Judicial
Judicial
Judicial
Judicial
Non Judicial
Judicial
Non Judicial
Judicial
Judicial
Non Judicial
Non Judicial
Non Judicial
Judicial
Non Judicial
Non Judicial
Non Judicial
Judicial
Judicial
Why do banks foreclose on homeowners?
When a loan goes into default, lenders would much rather see it
caught up and made current than to foreclose on it. If they end up
having to go through the whole foreclosure process and repossess a
house, it goes against the lender’s business model.
If a property goes to the foreclosure auction the lender usually ends
up owning it. A bank owned property is referred to as an “REO”.
REO stands for “real estate owned.” When a lender ends up owning
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a home that puts them in the house selling business and not the
interest business. Banks don’t want to own houses, they want to
make money loaning money.
Aside from diverting from their business model, foreclosure
costs the banks a lot of extra time and legal
Generally, a lender’s loss mitigation department manages REO
properties. As the name “loss mitigation” implies, their job is to
minimize the losses the bank suffers as a result of owning “nonperforming assets.”
Lenders don't want to be in the business of property
management and are highly motivated sellers.
REO properties not only miss out on income producing interest, but
they require maintenance, have insurance, tax payments, and utility
bills, and in some cases need repairs. All of that means more losses
to the financial institution, so they’re are interested in getting rid of
their REO's as soon as possible.
The foreclosure process is a time line
So, when a borrower is late on or fails to make an agreed upon
payment, lenders act swiftly to protect their interests. The lender
makes efforts to get a payment from the borrower including any late
fees. They inform the borrower that if the loan remains late or left
unpaid it will go into “default” status and a foreclosure procedure will
begin.
The process generally begins once a loan is 30 days in “default”.
The lender notifies the borrower that they are in default of the
agreed-upon terms. At this stage it's still a matter of paying
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whatever late fees and penalties are charged and catching up the
payment due, but the foreclosure clock has begun ticking.
If the loan remains in default, at a specific time, dependent upon
federal and state laws for foreclosure, the lender then seeks obtain
the right to repossess and sell the property. This can begin as early
as 37 days in default, as in the state of Georgia, and in some cases
as long as 90 days in other states.
Again there is a certain amount of time prior to the actual sale of the
property that an owner can still catch up late payments pay the late
fees and any penalties and stop the proceedings. However if the
loan remains in default past what some states refer to as the "cure"
period, the property will indeed be sold at auction.
What happens and the length of the process is largely determined by
whether the state follows a judicial foreclosure process or non-judicial
foreclosure process. Some states such as Texas follow both. Nonjudicial foreclosure processes tend to move along more quickly than
judicial foreclosure processes.
The actual time between the first payment being a day late and the
home or property being sold can vary from as little as 90 days to as
much as a year. In most cases it will be somewhere in between
those two. In either case it is usually a time of great stress and
overwhelm for many property owners.
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Typical Foreclosure Time Line
"Right of
How
Redemption"
Public
Property
before
Notices
Changes
property is
Ownership
sold
Type of
Foreclosure
Cure
Period
Initial
Property
Notice of
Scheduled
Default Filed For Sale at
In Court
Auction
Judicial
States
Late On
payments
1-90 days
Lenders
usually try
to work
with the
borrower to
make loan
good
Lis Pendens,
Usually after
filed by
another 30
Lender's
days, lender's
attorney after
attorney
loan is late 90
obtains a
days or more
judgment and
in default,
court order to
public notice
sell property
made
Notice of
Borrower must
the coming
pay entire
sale of the
outstanding
property is
loan amount,
published
late fees, legal
for three
fees, and court
to four
costs
weeks
Notice of
Usually after
Default, filed
another 30
by Trustee
days, lender
after loan is
obtains an
late 90 days
order to sell
or more in
property from
default, public
trustee
notice made
Notice of
Borrower must
the coming
Trustee
pay entire
Usually 5 months
sale of the
directed
outstanding
or more, can be
property is
foreclosure
loan amount,
much longer
published
auction usually
late fees, legal
depending on
for three
conducted by
fees, and court
owner response
to four
private agent
costs
weeks
Late On
payments
1-90 days.
lenders
Non-Judicial usually try
States
to work
with the
borrower to
make loan
good
Late On
payments
1-90 days.
Lenders
Strict
usually try
Foreclosure
to work
with the
borrower to
make loan
good
Executory
Process
Late On
payments
1-90 days.
Lenders
usually try
to work
with the
borrower to
make loan
good
Court ordered Usually 5 months
foreclosure
or more, can be
auction usually much longer
conducted by
depending on
county sheriff owner response
Notice of
Borrower must
Default, filed
Lender/Lien
pay entire
by Trustee
Lien holder/
holder takes
outstanding
after loan is
Lender not
No notice
possession of
loan amount,
late 90 days required to sell required
property with
late fees, legal
or more in
property
no obligation
fees, and court
default, public
to sell
costs
notice made
Lender's
attorney files
suit in after
loan is late 90
days or more
in default to
get the court
to order
Executory
Process
After three
If executory
days,
Owners have
process
public
three days to
obtained, court notice of
pay all
orders sheriff the coming
outstanding
to seize
sale of the
payments, late
property, evict property is
fees, legal
anyone in it, published
fees, and court
schedule it to for three
costs
be sold.
to four
weeks
Total Time
Between 1st
late Payment
and Auction
usually three
months, can be
much longer
depending on
owner response
Three months,
Court ordered
three weeks,
foreclosure
three days, can
auction usually
be much longer
conducted by
depending on
county sheriff
owner response
The information here is subject to change so make sure you check out the laws
in the areas you’re interested in investing in
20
Everything changes for the homeowner
when a foreclosure procedure begins
Once a “non-performing” loan, that is a loan in default, goes into a
formal foreclosure process the lending institution has a lot less
flexibility with how they can work with a borrower. In most cases
once the procedure has begun the only thing that will stop the
process is to bring all payments to current, pay all late fees and
penalties and any legal or court costs involved up to that point.
As the property owner and their property progress down the
foreclosure timeline their options for solving their problem dwindled
down until the only option left is to pay off the loan in full. However
there are many different scenarios that can play out in the process,
influenced by state and federal laws, the lending institution, legal
proceedings, and homeowner motivation and desires.
The final stop on the foreclosure timeline is the actual sale itself.
Again state laws determine the process of selling the property. In
some cases properties are sold at auctions run by the local sheriff’s
office where bidders come to bid on properties they're interested in
buying. In other cases other government entities or private
companies auction the properties.
Foreclosure properties go through various stages, and at each stage
of the foreclosure process you can make deals that easily earn you
thousands, tens of thousands, and sometimes hundreds of thousands
of dollars in profits.
Strategies vary from dealing with owners who are just late on a
payment and wanting to get out from underneath a financial burden,
to negotiating with lenders to acquire properties before they make it
to the sale. Some investors love bidding and purchasing at auctions,
while others like to find the best deals after an auction is over.
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But whatever you decide to do in terms of your investment strategy,
if you want to make money in foreclosures you've got to know what
you're doing to protect your own financial interests. In the following
pages I’ll take you step-by-step through each part of the foreclosure
timeline, tell you about what shredders you can use during that time,
and what you need to know to be successful using that strategy.
Sometime you can negotiate with a homeowner in foreclosure to
do a deal based on splitting the equity in it. Considering that one of a
homeowner’s greatest fears is losing all of their equity, they will be
extremely thankful for your help if you come in as an investor with a
plan to help them save some or most of it. By doing a deal that
allows they to walk away with some money and still leave a sizable
amount of equity in the home for you to work with you can come
away with a great property or deal.
Equity Split Example
Home value $175,000
Loan Balance: $110,000
Net equity: $65,000
You purchase home for $135,000
The owner walks away with$25,000
You get a property with $40,000 in equity in it
leaving you room to sell low and still make a
great profit on it.
A lot of times owners in foreclosure just want out. They really don't
want to have to deal with it anymore, and will be glad to allow you to
step in and solve their problem. Sometimes what they're looking
for can be described as "a clean slate and a fresh start".
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But if you go in with all guns blazing like a hard-ass negotiator who
doesn't care about what they're going through it's unlikely they'll do
business with you. That's true even if you're the only solution. The
last thing in the world they need at that time is an investor who
swoops in and like a vulture.
Remember this rule: You must solve the seller’s problem
BEFORE you can ever get the property.
The four “D’s”: why foreclosure happens
It's sad but true. The four “Ds” are part of life, and they affect us all
including me. These four “Ds” are also the top causes for virtually all
foreclosures:




Death
Disease
Divorce
Disaster
Many times the property owner dies and doesn't leave behind anyone
with an interest in the property. The mortgage goes unpaid in the
bank forecloses. Sometimes the property owner dies and there is
family but they're not interested or don't know what to do with the
property until it's too late.
Sometimes a spouse will die and the remaining spouse may be
overwhelmed, too old to deal with the problems of figuring out how
to keep a house payment going when their assets are tied up. In
some cases they move away out of the area to live another family
and abandon the property.
That's another one. It might be surprising but you can drive around
virtually any town and find abandoned properties. You wouldn't think
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that such a valuable asset would be left behind by a living owner but
for many reasons they do.
There are some other obvious reasons to, such as dealing with
medical bills and medical conditions that keep them from being able
to attend to their financial matters. In some cases someone
becomes too sick or is suffering the ravages of old age and can't
stand their property anymore.
Divorce sits at the top as the number one reason for foreclosures.
Sadly many homes going to foreclosure because the marriages that
preceded them fail first. When that happens oftentimes there's a
court battle in the meantime while the couple fights over divorce
related matters the mortgage goes unpaid in the property is
foreclosed on.
The last of the four “D's” is disaster. I got my first property
from a woman who had suffered a fire and was underinsured. Her
settlement didn't cover her remaining mortgage and she needed to
get out. Sometimes bad things happen in a person just can't afford
even with insurance to take care of what needs to happen to repair a
home.
Other types of disasters could be things like getting in trouble with
the law and being thrown into jail or prison. If you're sitting in a jail
cell you certainly can't take care of your mortgage. And properties
owned by people in trouble with the law actually are the source of at
least a couple of different types of foreclosure properties.
In some cases they're simply away and incarcerated and can't make
their payments. And in other cases they've secured the loan money
of a bail bonds than with their properties and they've skipped town,
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or fail to pay. I learned about these types of foreclosures early on in
my investing career.
There isn’t any better example of disasters and the resulting
foreclosures than the recent sub-prime mortgage meltdown that has
left our whole financial system in chaos. In fact the recent mortgage
crisis is the biggest mortgage disaster in our lifetime.
I’ll leave who’s to blame and what financial institutions deserve to be
bailed out for the politicians to argue over. But here are some key
facts that matter to you as a foreclosure investor:
 Millions of people bought homes that they could afford
to pay for.
 Millions of loans went into default
 A record number of foreclosures have already flooded
the market
 The flood of foreclosures isn't done and probably will
continue for two to three years if not longer.
The bottom line is there's never been a time when your opportunities
to do foreclosure investing were better than right now. So if you've
ever thought about being a real estate investor understand that
there's never been a better time to start than right now. What is the
greatest disaster for millions is your biggest opportunity to build
wealth.
How helping these owners in foreclosure solve
their problems can make you BIG money
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There's an old-fashioned notion that an investor coming in to buy
foreclosures somehow or another is taking advantage of someone
while they're down. Nothing could be farther from reality.
I know what we are actually doing is
helping people at a time of greatest need.
In fact, this belief is the key element to my success in the foreclosure
market. Before I was ever an extremely experienced and successful
real estate investor I was someone who lost a property to foreclosure
so I know what its like to be in both sets of shoes.
I went through a foreclosure before we moved to San Antonio and
I know exactly what it feels like and how hard it is to struggle. It
would've been wonderful to have someone who could've come along
and help take my foreclosure problems off my hands.
Don't get me wrong I don't complain about how my life has turned
out. In fact I'm sure that going through those hard times was the
catalyst for my making the decision that changed my life and my
family's life for the better. But it's not an easy thing to go through.
You see when someone is in financial stress and turmoil they often
don't know how to solve their own problem. Foreclosure can be a
very scary process and as real estate investors we help relieve the
stress during one the most traumatic times in a sellers life. And
remember, a tragedy has happened before a foreclosure starts and
you may be the only stress reliever these sellers will have.
Sometimes owners in foreclosure or about to be in foreclosure are
feeling overwhelmed due to a life change, a change in employment,
or a need to move quickly. When that happens and they may need
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to sell fast in order to solve their problem. In that case once you
understand what their needs are you can help meet them.
Because it's such a difficult time for them, you need to have a lot of
empathy when approaching an owner in foreclosure. I follow some
basic rules:
The first thing that's important is try to understand their problem is
important to them not what you want from them. Do more listening
than talking. You can't fake sincerity, at least not very well, so try to
be empathetic with them and help them with their problem
Find out what their number one problem is and it will give
you a clue how to structure a deal that solves the problem
and helps you to make a good investment in the process.
Sometimes they want to save some of the equity they have in the
home. Sometimes they may have paid off a large portion of their
loan but have recently gone into default status and are terrified at
the idea that they may lose all of the equity. For many, this equity
may represent the only major asset they own.
However, in many, many cases, especially in this market place,
sellers simply want to walk away from their property. They want to
get the bank off of their backs, and will allow you to walk into a
property without a lot of negotiation because they simply want you
as an investor to keep the bank from showing a foreclosure on their
credit.
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Chapter Three
The 7 Stages of the
Foreclosure Timeline
The foreclosure process is a series of stages that that begins
when a loan goes into default. Different people define the various
stages of foreclosure differently. There is no one definitive or official
description of the stages, but here's how they are as I see them.
Stages of Foreclosure
1. Pre-Pre Foreclosure
2. Pre-Foreclosure after Notice of Default
3. Pre-Foreclosure after Order to Sell Property
4. Auction
5. Post-Auction
6. Right of Redemption
7. R.E.O.
The Pre-Pre Foreclosure Stage
Before a property ever shows up as a foreclosure, someone is
already struggling financially. They may be getting close to the point
where they aren't going to be able to their make payments on time
anymore or even get to the point where they can make them at all.
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It's not so uncommon. I’ve talked about the four “D's” that are the
root cause of most foreclosures. Sometimes life happens and it puts
us into positions where we have to take dramatic actions. As an
investor in foreclosure real estate you play multiple positive roles in a
situation like this to the seller, the lenders, and to yourself.
The borrower doesn't want to get to the point where they can't pay
their bills. The lender certainly doesn't want to get to the point
where they're getting late payments or no payments at all. And they
definitely don't want to go through a foreclosure process that likely
ends up with them repossessing a property. And you as the investor
may be able to solve everyone’s problems!
It's important to note that you should never think of yourself as some
sort of a parasite feeding on other people’s problems. You didn't
have anything to do with their being in trouble, and you in
fact maybe be have the solution they need to get out of
trouble. The fact that you make money by helping other people out
of there difficult situations is a bonus not a negative.
How Do You Find Out About
Pre-Pre-Foreclosure Opportunities?
Because these borrowers haven't defaulted on loan it isn't likely that
there's any kind of a legal filing yet that you can use to track them
down with. But there are some other places where you can find
leads that may develop into opportunities.
Divorces are a legal procedure that can be researched and like we
noted before it's one of the four D’s that are at the root of most
foreclosures. So if you can make contact with someone who is in
divorce proceedings you may find someone who is eager to get out
from underneath a financial burden that was based on two incomes
but is now being supported by only one.
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You can find divorce information through your local court system. In
some cases those records may be available online and in others you
may have to go in person or have someone else go in person and
gather that information.
Contact divorce attorneys letting them know what you do in case
they have anyone who may be in need of your services. Be patient
with the process of getting leads from attorneys, as there may be
some time between when you drop off your card or send a letter
until they contact you.
Divorce attorneys can welcome your help in purchasing their client’s
property and helping get the case settled. In many cases (but not
all), attorneys are not interested in helping their client get the most
dollars for their house, because their client would rather settle the
divorce dispute as quickly as possible than wait for a higher offer.
The attorney’s interest is his or her client’s best interest. Most people
going through divorce simply want that lame husband or nagging
wife out of their life and are willing to let their jointly owned property
go cheaply to help have a quicker divorce.
By letting the divorce attorney know that you will purchase the
property quickly, you help them get the divorce settled and you are
helping both the attorney and their client meet their needs.
Remember, during divorce most people believe that divorce costs so
much because it is worth it.
Another good source for pre-pre-foreclosure opportunities is bail
bondsmen. They are potentially a source of more than one type of
lead for potential sellers of property. In some cases they can tell you
if someone is a homeowner that's in trouble and might want to get
out of a property quickly.
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They also might have foreclosed on properties that were used as
collateral to secure bond money. Bail bondsmen are not in the
property business and they need cash. Sometimes you can get
control of a property by giving them cash for the bail bond loans that
they have against properties.
Another way to attract pre-pre foreclosure opportunities to yourself is
by placing “We buy houses” and “We pay cash for houses” or “Get
quick Cash for your house now” signs around. You may also have
magnetized signs made to put on your vehicles, place ads in
newspapers, or hang flyers on billboards around the area that you're
interested in investing in.
WARNING: I caution people against thinking that using just one of
these individual lead generation techniques may bring a flood of
investment opportunities to you, but the combination of all of them,
along with other research will help you have a steady stream of
money making deals to work on.
What's really great about most of these strategies is that they’re all
low or no cost other than your time and maybe to print up some
flyers or letters to send out. A small price to pay for the type of
returns you can make investing in foreclosure properties.
Statistically speaking most foreclosures happen within the first couple
of years that the loan agreement is recorded. Most people don't put
a very big percentage down on their homes before purchasing, so
most of these loans, especially that early in the payback, are very
close to the full value of the home making it more difficult to swing a
profitable investment deal on them.
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But not all property owners struggling financially or desiring to get
out quickly are in that situation and even they are, there are still
investment strategies you may wish to investigate.
About evolving homeowner motivation
to negotiate with an investor
Understand that if it’s still early in the process they may not be
entirely open to that discussion yet. Usually until they've exhausted
all of their resources or ideas about how to keep from losing their
property they wont want to discuss a deal with you. But when they
are ready to talk you need to be ready to go too.
When you first approach an owner in foreclosure be aware that
you're probably not the only one who is making contact with them
about their property. In fact several investors may be contacting
them and almost seem like a swarm of vulture circling over wounded
prey waiting for it to die. What that means is you got to be
compassionate and understanding of their situation.
You should be respectful and careful when speaking with them. Use
language like "the property" rather than "your home" because their
emotions may be stinging and they're probably feeling distressed. By
using the term “property” vs. using the term “home”, you help the
seller to begin detaching emotionally from the property.
The best way to differentiate you from others is to be truly interested
in hearing about their situation and ask questions that “draw them
out” and that show compassion at the same time.
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Ask questions such as:
"What can I do to help you?"
“What is the most important thing
you need when you sell the property?”
“Please tell me about the problem.”
“Tell me what happened to get you in this situation.’’
“How soon do you need to sell the property?”
These questions spell compassion, give you vital information you
need to have negotiations (such as when they tell you how soon they
need to sell or the most important part of selling their property) and
they are “closing questions” which leads the seller to selling YOU
the property.
What they tell you about their situation, and how they answer the
question of what they would like for you to do will become the
foundation of your negotiation with them.
Once a default notice is filed the clock starts ticking and
they know their time to solve the problem is running out
Not to sound cruel, but this works to your advantage as an investor.
As their awareness of time running out grows, if they haven't found a
way to stop the foreclosure process, their motivation to talk with you
is likely to increase greatly.
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You Need to Have a Systematized Way
to Contact Owners in Foreclosure
One of the ways to differentiate yourself from all the other investors
is to be persistent in your attempts to contact them and it least let
them know that you're available for consultation. A series of letters
or postcards, an in-person visit, or a follow-up phone call if you've
already talked to them in person as a courtesy is appropriate.
Don't be surprised if you're mostly ignored until time is almost
running out. What that means is you'll have to be ready to act
quickly when the opportunity comes.
Pre-Foreclosure after Notice of Default/ Lis Pendens
As I mentioned earlier, it takes about 90 days in general before the
lender will take that first official step of the foreclosure process and
file either the Lis Pendens or have the trustee file the notice of
default. Once that happens though the foreclosure clock is ticking
and an owner must take action or else their property will end up at a
foreclosure sale.
Once someone reaches the stage where they've either fallen behind
on payments or quit making them altogether, it is unlikely that they
will catch up. There are several strategies that owners in foreclosure
may try to use to avoid losing the property.
During this period between the filing of the default notice or Lis
Pendens, sometimes called the "cure period" lenders will allow a loan
in default to be caught up as long as the borrower pays all payments
up to current and any late fees and legal costs incurred up to that
point.
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A lot of times getting an opportunity to negotiate with owners in this
pre-foreclosure stage is difficult. At this point they've probably got in
calls and letters from other investors and possibly from other lenders
making offers to help. Your system for contacting and following up
with owners in foreclosure and the consultative approach you take
will help you differentiate yourself from the others.
Owners in foreclosure may have a significant amount of equity, and
their number one goal may be to avoid losing all of it. Some just
want to cut their losses and get out. Some want to keep from
damaging their credit so they can get a clean slate and a fresh start.
Others may have unrealistic expectations about the value of their
property making it impossible as an investor to work with them.
Some are just not receptive at all and no matter what you say to
them, they stay confused and eventually end up losing their property.
Why Women Are Smarter Than Men
Coming from a man with such an aggressive personality you may
find this comment strange. However, I have seen it hundreds of
times, when in foreclosure, women are smarter than men.
This is because men have the “hero” mentality and think until the
eleventh hour that they can “save” the property. The strain this puts
on the family is that after foreclosure they get kicked out of their
home by the sheriff.
Women however look at this much more realistic. They realize the
gravity of the situation and more quickly except and want to make a
“nest” or “home” somewhere else. They are willing to move out and
not attempt to save a property when they know neither they nor
their husbands will be able to do so.
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This is why when men begin to talk about “saving” the property, you
tell them in front of their wife, “I have been told that men get
egotistical and typically want to save the property. That ego goes
away when the sheriff removes you from the property. I urge you to
listen to your wife so you can make a home somewhere else.”
This little phrase can bring a man to his senses and allow the
wife’s comments to make sense to him. I have purchased
many a pre-foreclosure with these two sentences.
The down Side of Investing in the Pre-foreclosure Stage
The downside of investing in a pre-foreclosure stage is largely that
you have to deal with owners who may not be willing to deal with
you. Then when they finally do show an interest in talking, you may
not have much time to do your due diligence, arranger investor
financing, and execute the deal before it's too late.
One of the big risks in this stage is the risk of losing deals that you've
invested a lot of time on. Another negative of this stage for a lot of
investors is the possible negatives of dealing with someone who is a
very distressing time in their life. You've got to be compassionate yet
professional, understanding of their predicament, but you are in
business and have to make a profit.
The Upside of Investing in the Pre-Foreclosure Stage
One of the big upsides of the pre-foreclosure stage is that it takes
some persistence and patience to make contact and continue to
follow up until you get an opportunity. It's not always easy. And you
know what they say: “if something was easy everybody would be
doing it.” Which means that you won't have as much competition.
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It's also possible to gain control of properties very little outlay on
your part so finding investment partners or investors can be easier to
do.
Pre-Foreclosure after Order to Sell Property
After a predetermined period of time has passed following the notice
of default, the next step is to schedule the property for sale at a
foreclosure auction. In judicial states, an attorney representing the
lender petitions the court for a judgment and order to sell the
property.
In non-judicial states, after the predetermined time following the
notice of default being recorded, the trustee schedules the property
for sale at auction. (In both cases and in most states the property is
ordered to be sold and notifications are posted on the property, and
are published in a paper for three weeks prior to the sale.)
During this stage generally in order to avoid the
auctioning of the property the owner must pay off the entire
outstanding loan balance, late fees and court costs.
However, the lender can still choose to allow the homeowner to just
bring his/her payments current in order to avoid foreclosure.
Obviously, if they couldn't make their monthly payments, it's not
likely that they'll be able to pay off the whole loan or make an even
large payment of several months payments and late fees either.
So in this case the stakes are raised much higher for the owner
in foreclosure with a limited amount of time and ways that their
problem can be resolved. Naturally, you're much more likely to find
the owner to be much more open to negotiations during this time.
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The down Side of the Pre-Foreclosure
after the Order to Sell Stage
One of the downsides of this stage is that like the owner you
don't have much time to put together the deal. Because of the time
limitations, and because the only thing at this point that will “cure”
the loan is payment in full long with court costs and late fees, your
options of the type of deal you can do are somewhat limited.
Unlike earlier, even if you tie the property up for virtually nothing,
there likely isn't enough time to flip it. So you also risk a lot of time
lost. That isn't to say that it isn't possible to tie up a property and
then find an investor flip it to for a profit in that short period of time.
It can be done, but you’ll have to work fast to do it.
The Upside of the Pre-Foreclosure
after the Order to Sell Stage
One of the advantages to this stage is that there isn’t much time.
Yeah, earlier I said that it was a disadvantage too, but let me explain
why it's an advantage for you as an investor. Number one reason is
the closer the date of the sale gets a more cooperative those who
you need to deal with for investment purposes will become.
There is one type of investment strategy we will talk about a little bit
later but in brief it's called "a short sale." The basics of a short sale
or that you negotiate on behalf of the owner to get the lender to
accept a discounted amount to pay off the existing loan before the
foreclosure.
Remember, banks don't want to foreclose on properties, and they
certainly don't want to repossess properties and then have to sell
them. Statistically speaking most properties that go to auction end
38
up being repossessed and owned by the lender. So the closer the
sale actually gets the more flexible the bank is for other solutions.
The $100,000 Tip!
I believe with every product I release I must give a tip worth at least
$40,000. You see, there is no way I could teach you everything I
know in one book. Believe me if I could I would since I don’t
particularly like sitting down and writing a book. It is WAY more work
than flipping a house and I don’t have a lot of patience.
At the same time, I feel if I am going to do something, I am going to
do it Extremely Well. So with every product you could make
millions if you took action, but at the same time I want to give you
at least one clear cut tip that can make you a minimum of
$40,000.00.
The Temporary Restraining Order
In real estate a Temporary Restraining Order, also known as a
TRO is not the kind that you use for a stalker boyfriend or psycho
girlfriend. It is an order that fends off the lender to prevent
foreclosure.
I learned about this when I had a partner on several projects who
decided without telling me to stop making payments on projects that
we jointly owned and to attempt to sell these properties out from
underneath me.
When I first found out I was beyond pissed, but after my initial anger
I needed to get smart. He had no luck in selling the properties and I
had no idea that he was doing this until I received notice from the
bank that they were in pre-foreclosure. I believe in living up to my
39
responsibilities so I filed a TRO which staves the bank off for a
minimum of 30 days (until the next auction takes place) and allowed
my lawyer to send him very persuasive paperwork to turn the full
interest of the properties over to me.
How is this a $100,000.00 tip?
Too many times I have seen inexperienced investors who find
properties with $30,000.00 - $250,000.00 in profitability but let it go
to foreclosure and never get the deal. The problem is they didn’t
know how to stop the foreclosure process in time. A TRO when filed
is a strong tool in your investing toolbox to get you the time needed
to acquire funds in order to purchase the property.
TRO Tips
 The best time to file a TRO is the day before the auction so you
can “buy” yourself an additional 30 days until the next auction.
 The typical TRO costs around $500.00 and for the return on the
investment where you can easily make $100,000.00, it is a
simple and wise choice.
 Make sure you have the property under contract with the seller
before filing a TRO and investing the $500.00.
The Auction Stage
The auction stage can be pretty exciting. Think about it. You show
early in the morning on the scheduled date anticipating properties
that you've already researched, arranged funds for purchasing, and
are ready to buy some properties at true wholesale prices.
The local county sheriffs typically run the auctions (for judicial
foreclosure states). Trustees generally use the services of a private
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company who auctions on behalf of the trustee (in non-judicial
foreclosure states).
At this stage the owner of the property is out of the picture.
Attorneys representing the lenders, investors, and spectators gather
around the auctioneer. The auctioneer starts off the process usually
by explaining the rules of bidding.
Some of the more common rules are as follows:
 The opening bid is usually the amount owed on the outstanding
loan plus the late fees, court costs, and attorney's fees.
 Those wishing to bid must start off higher than that amount in
some cases by one dollar and in others by as much as $100.
The auctioneer determines the specific amount required to bid
over.
 If more than one person is bidding, the bid amounts must
increase by a predetermined amount also determined by the
auctioneer. It is common for the amount to be $100 but is also
not unusual for them to require increments of $1000.
 Most auctions require that bidders have a cashiers check or
cash with them to cover their bids. Often times only a sizable
deposit is required, with the balance having to be brought to
the auctioneer's office within 24 hours. Sometimes the balance
must be brought in the same day.
The auctioneer then initiates the bidding process. They read either a
cause number or a file number and identifies the property by Lot
number and address, and then open it up for bidding. In most cases
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there won't be any bids on the property at all and it ends up with the
lender. It's likely that if a property is worth bidding on, they'll be
more than one investor bidding on it.
So the auctioneer will say, "plaintiff, what is your bid?" Then the
attorney representing the lender or a clerk will announce the amount
of money owed to the lender. Then the auctioneer asks, "are there
any other bids?"
Anyone interested this point begins the bidding process, so if the
opening amount was $357,335, the first investor may say, "I bid
$357,535. Then the auctioneer will ask are there any other bids. If
no one responds, or after the last bid of several, he or she will say
something like, "Going once, going twice, sold.”
Disadvantages of purchasing at the auction
Auctions are my least favorite way of purchasing properties. I make it
very clear that I have never purchased a property through an
auction. That is right, never.
The risks are too high as you will read about below and you have
too many people getting too excited (emotional) about a property.
This drives the prices of properties too high, and in fact, I have seen
auction prices go past the actual value of the property.
This is not intellectual educated investing,
it is financial suicide.
Of all the stages of the foreclosure process the auction is probably
the one with the hardest to manage and highest risk strategies. The
reason for that is when you purchase a property at a foreclosure
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auction there is no guarantee of a clear title. As far as auctions go
“caveat emptor” or “buyer beware” is the real deal.
What you don't know might kill you financially
Not to scare you away from foreclosure auctions, but many an
investor has made the tragic mistake of purchasing a property they
hadn't done enough research on. There are many kinds of problems
that can come by purchasing if you haven't done your due diligence.
When a property is sold at a foreclosure auction the position of the
lien on the property is critical to the investment decision. Generally
speaking the original purchase loan is “first position” or “senior” lien
meaning it takes priority over “junior” liens in the repayment process.
When a lender forecloses on a property their lien is in “first position”,
by law generally they are allowed to discount the amount owed, but
they can’t bid higher than the amount owed. In fact they would
prefer it if there were investors bidding on it so they would just
recover the outstanding loan amount and not have to take
possession of the property.
When a “senior” position lien forecloses on a property it wipes out all
“junior” liens with some exceptions such as some types of tax liens.
If a foreclosure is brought by a junior position lien, it does not wipe
out superior positioned liens.
If you don't know what you're buying, you may win the bid on a
property that has a tax lien on it. You may buy a property that still
has a mechanics lien on it. You may buy a property that has multiple
liens on it.
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You may win a bid at the auction thinking you're buying a mortgage
in the first position when it's actually a "junior lien." That means the
first position lien is still in force, and now you're responsible for it too,
with the probability that you don't pay it’ll be foreclosed on!
It's not always a bad thing to buy Junior lien, in fact it can be a
pretty savvy strategy. But if you do it by accident you’ll be crying all
the way to the poor house while paying for it. (I'll explain why
buying a junior lien could be an advantage later)
There's a lot of risk in purchasing at the auction if you don't know if
the title is clear or not. That means you've got to have a title search
on anything that you're considering purchasing.
Another big risk in purchasing at the auction is the unpleasant
discovery that people are still in the property when you get there to
inspect it. Depending on state laws regarding these things you may
have to evict them and in some cases in states where a right of
redemption exists they may legally be able to stay in until the right of
redemption expires.
Rights of redemption in states that have it can vary from as little as
30 days to as much as one year. So your new tenant could be a big
problem for you again if you haven't done your research and
thoroughly inspected the property before making a purchase.
The upside of buying at foreclosure auctions
You might think after that there is no upside to buying at foreclosure
auctions but that's not true. The bottom line reason why investors
buy at foreclosure auctions is because your ability to purchase
properties at wholesale prices is unmatched purchasing any other
way.
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I mentioned before that if a property is worth bidding on it's likely to
bid on by more than one investor. But sometimes the other bidders
stop, or haven’t researched that property so they don't bid on it.
Post-Auction Investing
This is another one of those opportunities in foreclosure investing
that a lot of other investors overlook. Imagine for a moment that
you're an investor who's just purchased a property at an auction for
$110,000 and it's worth $135,000.
If someone walked up to you and said “I'll give you $115,000 for that
right now.” Uou may very well be tempted to do it. Consider for a
moment the return on investment. Most investor’s look at the money
they invest and do an analysis based upon return on investment over
a year.
So if you invested $110,000 and get back $115,000 the same day
you earned an instant 4.55%. When you amortize that over the
course of a year that comes out to a 1642.5% rate of return on your
money. A lot of investors will say no to the offer but some seeing an
easy way to make $5,000 and walk away doing nothing more will say
yes.
Right of Redemption
I mentioned earlier that there was a right of redemption in some
states. The former owner of a foreclosed property can present the
purchaser with the exact amount that was owed at the time of the
sale and they must sell it to him or her. It almost never happens, but
it's good that you be aware that it can happen for two reasons.
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Reason number one, is if you purchase a property that a previous
owner has a right of redemption on, you'll have to wait until the right
of redemption period expires to sell it.
You can begin to market it and sign a contract for the sale of the
property prior to the right of redemption expiring but the actual sale
can't take place until the right of redemption has expired. The other
reason is because a right of redemption in general with some
exceptions can be assigned to someone else.
That means you can purchase or negotiate for a right of redemption
from the previous owner pretty much at any time during the process
of foreclosure. So if you want to buy the property but can't get the
funding you need now, you can buy yourself some time by securing
an assignment of the right of redemption from the previous owner.
Downside of negotiating for a right of redemption
There really aren't many downsides to the strategy other than
whatever it is that you negotiate in reimbursement to the previous
owner for the assignment of the right of redemption. It really
shouldn't be too much. But you do run the risk of losing whatever
you've invested once the right expires.
So if you don't find an investor or the funds to do the deal in time,
you only risk losing the money that you invested to purchase the
right of redemption.
The upside of purchasing a right of redemption
Generally speaking most owners aren’t going to exercise their rights
anyways so they will be willing to give it up for a small price. That
means you can secure a future option to purchase a property at its
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maximum amount of the price that was paid at the foreclosure
auction during the period until it expires.
So with very little down (usually a couple hundred dollars), you can
secure the right buy and flip a property if it has sufficient equity and
value to an investor or interested homeowner. It's a very overlooked
strategy but a powerful one for leveraging an opportunity if you
aren't ready at the time the foreclosure process is going on.
Buying bank owned properties (REOs)
Bank owned properties are called “real estate owned” more
commonly REO’s by the banking industry. Those are the properties
that don't get purchased by investors at foreclosure sales. Most
banks that deal in home loans have REO's to sell.
A lot of times a property will be repossessed after a foreclosure by
the lender and when the right of redemption has expired they will
resell it. There are a number of different sources of REO properties:
Where to Find Bank Owned Properties
 Local, regional, and national banks
 The Veterans Administration
 The Department of Housing and Urban Development (FHA)
 The Federal National Mortgage Association, (Fannie Mae)
 The Federal Home Loan Mortgage Corporation (Freddie Mac)
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There are different ways to find and purchase REO properties. In
general however you can work with a real estate broker or agent to
find these properties in areas where you wish to invest. You can also
research REO property availability online through one of the
subscription services available.
How Do You Manage Risk in
Foreclosure Real Estate Investing?
Each of these stages has unique opportunities for real estate
investors to acquire properties at low prices using what I would
describe as stage specific strategies. Each of these stages and their
corresponding strategies have advantages and disadvantages.
It's important that if you pursue opportunities in any of the
stages that you be aware not only of the opportunities to make a lot
of money but the risks as well. Basic investing operates on the
principle that the greater the risk the higher the possible reward.
Smart investors understand that risk isn't something to be feared
but to be managed. There are two aspects to every investment
opportunity that you must be fully aware of: upside potential, and
downside potential. Upside potential is how much you stand to gain
if the investment works out. Downside potential is how much is put
at risk or "exposed" if things don't work out so well.
It's important that you do, due diligence when planning to
acquire properties in the foreclosure real estate marketplace: The
first thing you should do is research the foreclosure law for the areas
that you want to invest in. Consider the foreclosure process and the
stages and decide what stage you are going to focus on for
opportunities.
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Determine what factors such as price, condition, and location,
current marketplace conditions, whether you want to flip for quick
profits, or buy and hold for rental income will make a deal doable or
not doable for you.
Research what properties are available that are in those stages
understanding these factors will help you narrow down your search
for opportunities.
Using methods I'll show you a little bit later, research the foreclosure
opportunities in the area that you're interested in investing in. Once
you find a property that catches your interest it's time to do an initial
evaluation of the property to determine whether there is a possible
investment opportunity.
If it looks like it might be a potential deal the next thing you'll do
is get to know the perspective property, and the situation that the
current owner is in if he or she is available. By gathering this
information you’ll know what options are available to you as an
investor.
Using the information that you gathered in the previous step, we'll
make a realistic appraisal of what it will take for you to do the deal
and make money. The next thing to do is to find the money to do
the deal. Unless you're planning on using only your own cash on
hand I'll show you how to find and attract active prospective
investors to fund your deals.
The purpose of doing this is to minimize any downside potential, and
to maximize your upside potential. By knowing what the risks are,
thoroughly understanding your perspective property and strategy,
you can take steps to minimize the risk exposure, and maximize your
deal’s attractiveness to investors.
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Chapter 4
Investment Strategies
Buying Out An Owner In Foreclosure
Probably the most obvious investment strategy when you find a
property meets your investment criteria is simply to buyout an owner
in foreclosure (or just about to be). In some cases the owner is
happy to just get out and will gladly allow you to simply buy the
property for the balance owed.
There are a lot of different ways that you can fund a buyout such as
conventional loans or finding a "hard money lender" for a loan.
Deals of this type will vary greatly depending on the needs of the
individual owner and your goals and resources as an investor.
However it is not uncommon for foreclosure properties to be in poor
condition and in need of repair. So going the way of conventional
loans can be difficult due to the condition of the property and the
time available to arrange the loan.
An owner may need a little bit of cash to move, so you might
consider giving them enough to cover their moving expenses and
perhaps one or two months rent in their new home. Make sure that
you never give the cash until they've already moved out or at least
see them standing outside the property with their bags packed and
the U-Haul full of their furniture and ready to roll.
Before you buy any foreclosure properties you’ll of course need to
make sure that you have the property inspected and minimally have
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an “abstract” done on the property to make sure there aren't any
surprise liens on the property. If everything checks out and the
numbers work, find your funding, and makes some money.
Property Abstracts and Title Insurance
A Property Abstract is performed by a title company to check
the status of the title of a property out. They will note any legal
documents and activities associated with the property such as
deeds, mortgages, wills, and probate court, pending litigation, tax
sales. In essence, anything that may affect the property. The
abstract will also show the “chain of title” documenting who
owned the property, when and how long a particular holder
owned it for, and pricing information.
Title Insurance is issued by a Title Company after conductimg
a title search that assures that the title is free from all defects,
liens and encumbrances. The policy covers losses and damages
if a title turns out to be unmarketable and provides coverage for
loss if there is no right of access to the land
The usual limit of liability is the purchase price paid for the
property. Coverages usually can be added or deleted with an
endorsement. A seller or buyer dependent upon the parties’
agreement may purchase title insurance. Coverage lasts as long
as the policyholder has an interest in the land insured and
typically no additional premium is paid after the policy is issued.
Advantages of a buyout to the homeowner
The greatest advantage to the homeowner in this case is the ability
to walk away from a troubling financial situation free and clear.
Don't underestimate the power of the emotional weight of that
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burden and its influence on owners in foreclosure to want to get out
quickly. Once they're out they’re free to start rebuilding their lives.
Advantages of a buyout to you as the investor
Buying out an owner in foreclosure is no different than purchasing
any piece of real estate. There will be a full title search done prior to
the transfer of ownership ensuring that you will have a clear title
and no restrictions on what you can do with your new property.
Make sure to investigate the laws affecting the property you're
considering purchasing. Some laws have been created to protect
owners in foreclosure from predatory investors and restrict what
types of deals they're allowed to do if the property is their primary
residence.
“Ownership Takeover” deals
An “Ownership Takeover” deal is where you and the current owner of
the property agree that you will take ownership of the property
subject to the current financing on it. In these types of deals the
owner transfers ownership of the property to you with the agreement
that you will continue making timely payments to the lender.
Typically the current owner will sign a "Quit Claim Deed” which
transfers the ownership of the property to you. Now you have
control and ownership of the property, and you take over the
payments. It's important to note that the loan is still in the original
owner's name.
You’ll want to have a property abstract done to ensure that there are
no liens or other encumbrances on the title before transferring
ownership to yourself. In the mean time your job is to locate a buyer
to flip the property to.
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The new buyer arranges for new financing and at the closing the old
loan is satisfied with the proceeds from the new loan ending the old
owner’s obligation. The difference between the new purchase money
and the payoff on the old loan minus whatever costs you may have
incurred to do the deal are yours as a profit.
Ownership Takeover: Deal Example
Home value:
Owed by current owner:
3 months expenses:
Moving and closing costs:
$150,000
$125,000
$3,500
$2,500
Sell for:
Pay back current loan:
Payback Expenses borrowed:
Loan Fee:
Profit on Deal:
$125,000
$6,000
$3,500
$15,000
What kind of expenses might there be? In arranging financing for a
deal like this you'll need enough to cover the payments for a period
of time, money to do repairs or fix-up that may be needed to get the
home ready for resale, closing costs, and title work.
As part of the negotiated agreement with the previous owner you
may give them a small amount of money in order to move out of the
property. It is highly suggested that you make sure that the owner
has packed up and moved before completing any deal.
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Advantages to the owner with Ownership Takeover deals
An owner in foreclosure is usually under heavy financial stress
and has fallen behind on their payments causing their credit score to
go down. One of the biggest advantages for the owner is that you'll
be making their payments on time, which will help repair their credit
score because the loan is still in their name.
An owner may be somewhat reluctant to do the deal until you
assure to them that you will be making the payments and that they
will always be on time. The owner may also want included in the
purchase contract an agreement that you will sell or refinance the
property in an agreed-upon period of time.
A third-party such as private companies that handle loan payment
arrangements can be contracted to assure the current owner that
you will be making payments on time. They will report to the seller
the status of payments.
The "due on sale clause” concern
Typically loan agreements include a "due on sale clause" that gives
the lender the right to accelerate the loan and call the full balance
due if the owner sells the property to the third-party. Some investors
fear doing Ownership Takeover deals because they're concerned that
a lender may call the loan due at some point putting the investors at
risk.
Due on sale clauses were created at a time when interest rates were
high and going higher. Because many of the loans at the time being
assumed were at much lower interest rates, lenders felt they were
losing out on earnings by allowing loans to be assumed. They
remedied the problem by including “due on sale clauses” that
protected their interests.
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Today the mortgage interest rates are much lower and the likelihood
of a lender calling a loan due is very small. Think about it, if a lender
has a borrower who's fallen behind on their loan payments and is
facing a foreclosure it's not going to upset them if suddenly the
payments are being made on time and the loan is made good.
I'm not saying that a lender will never call a loan due based on the
“due on sale clause” because it technically can happen. But it's
highly unlikely and shouldn't deter you from using an ownership
takeover strategy.
If you want to learn more about Ownership Takeover including video,
negotiation strategies and all my documents to perform a no-money
down Ownership Takeover, go to www.armandoMontelongo.com/
OwnershipTakeovervideo/index.php
Short Sales Strategy
A short sales strategy is a good one to use when you find a property
that's would otherwise be a deal, but the debt on it exceeds or is too
close to the full value to make a profit. Let's say that the property is
worth $150,000 and the owner owes $145,000 and is behind two or
three payments, and also needs $5,000 for repairs.
So if you pay off the loan to get the property, pay to get it ready for
sale, as well as holding and closing costs you've exceeded the actual
value of the home making it impossible to make a profit. A lot of
times investors will walk away from a situation like that not knowing
about the possibility of doing what's called a "short sale."
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A short sale can be done by negotiating with a bank or mortgage
lender’s Loss Mitgation Department on the part of the owner to get
them to discount the balance due on the loan. They then allow the
current owner to sell the property to a third party and then accept
the dicsounted amount as payment in full, satisfying the debt.
The lender has several factors that will influence their willingness to
allow a short sale such as the finacial state of the current owner, how
far behind they are on the payments, and the likelyhood of “curing”
the loan before it goes to auction.
Advantages to the Home Owner doing a short sale
The biggest advantage to a homeowner in doing a short sale with
you as an investor is avoiding having a foreclosure on their credit
history. They may be in bad financial shape now but chances are
they're hoping for a better future and having a foreclosure on their
credit history makes future credit purchases more difficult. Of course
there are emotional benefits as well when an owner who is in a
troubling financial situation can walk away free and clear from it.
Advantages to the Lender doing a short sale
Lenders don't want to repossess properties that they've lent money
on. Often times the value of the property has fallen significantly due
to lack of maintenance and disrepair. This presents them with the
option of taking a loss on the original loan versus acquiring a
continuing nonperforming asset that will require upkeep,
management, tax payments, insurance payments, utility payments,
with no surety as to how long it will take to sell.
By going to the lender with a short sale offer, you are really helping
them to solve one of their big problems. So definitely don't see
yourself going to them as a beggar hat in hand looking for a
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handout. Far from it, your professional investor helping to solve
problems for homeowners, and lenders, and making a profit for your
efforts.
How to approach a lender with a short sale offer
Lenders loss mitigation Departments usually won't accept a short sale
offer untill after a notice of default has been issued or recorded.
Every lender has different policies on short sale offers. Bear in mind
that it's likely to have to pass through several hands before approval
and your job as an investor will be to satisfy the criteria for the
lender to say yes.
Some of the typical things that you'll need to provide to the lender in
order to make your short sale offer more likely to be accepted are as
follows:





Information that documentd the owners financial hardship
Contractor estimates of repairs on the property
Photo documentation of the condition of the property
A summary of your offer
An explanation as to why a short sale is necessary for you to do
a deal and help out both them and the property owner
You don't want to lie or falsify any information, but you don't have to
present it in glowing terms either. So one of the ways that you can
help the lender make a positive decision is to play out the financial
hardship of the current owner, the terrible condition of the property,
and the likelihood of it going to foreclosure and into their REO
Department without a short sale.
Disadvantages to the owner in short sale offers
If the property in question is not the property owners primary
residence and the lender agrees to a short sale offer and accepts
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less, the forgiven amount is considered as income for the borrower
and is liable to be taxed. That will be a consideration the owner will
have to bear in mind when deciding what to do.
Recent legislation provided new options for owners and foreclosure if
the property is a primary residence. In some circumstances FHA
offers a guaranteed loan at a fixed rate if the lender agrees to accept
85% of the current amount owed including, the loan balance, late
fees, penalties and all other fees.
The downside of this option for homeowners and foreclosure is that
they will lose a good portion (50-100%) of their equity and are not
allowed to participate in home equity loan programs while paying off
those loans.
Short sales also negatively affect homeowner’s credit scores as
they are a type of settlement. A short sale will remain on a their
credit report for seven years, though depending upon other credit
information it is typically possible to obtain another mortgage 1-3
years after a short sale. But on the flip side a foreclosure on their
credit report may be worse for future credit consideration.
Buying “Junior” Liens and Other “Paper”
A mortgage or deed of trust can be understood as having a “position”
in the lien pecking order. Lien position is one of the important pieces
of information you've got to have when considering a foreclosure
property for investing in.
Any liens taken out against the property that are “junior” or
subordinate (For example second mortgages or HELOCs) to the lien
being foreclosed are "wiped out" by foreclosure. However if a junior
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lien holder bids in at the foreclosure sale covering the amount owed
on the mortgage being foreclosed on in addition to the amount of
their lien, they in essence can walk away with a rebate post-auction.
So if you're an investor and you happen to run across information
that shows that there are junior or subordinate liens on a property
being foreclosed on you can often approach those lien holders and
purchased those at very deep discounts sometimes as much as 95%.
Why would they be willing to sell their lien at a such deep discounts?
Because unless they're willing to come up with enough to pay off the
senior position lien they're going to get nothing anyways.
So when you as an investor approach them with any kind of a deal
it's found money for them. They may say no but if they say yes you
have a couple of different junior lien strategies you can use to make
money.
Strategy number one is you can just hang onto the lien and hope
that the property gets bid up well above the starting price which is
the amount owed the foreclosing mortgage holder. If that happens
then junior liens are paid off in order of their position. So if you're
holding a second position on a property that is likely to be bid up at
the auction you stand a good chance of making money just by having
bought the lien.
Strategy number two is sort of an insurance policy to make sure you
win a bit. You can do this by purchasing the second position at great
discount, then showing up at the auction and bidding in immediately
at the full amount owed plus the full value of the second position lien
that you hold.
If somebody else outbids you then you simply make money from
your discounted second position lien, If you win the bid, as the
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second position lien holder, you are due the amount owed on that
lien. You still have to have enough to fund the amount you bid in at
but you will be getting the amount of your lien back shortly. That
puts you in the advantageous position. You’ll be able to bid much
higher than your competitors at least initially. And you’ll have a
guarantee that if there's competition, you will make money from your
junior lien.
If you do decide to follow a junior lien investment strategy make sure
you check with your local laws to find out what you have to do to
claim the funds owed on your lien. If you sit around and wait for a
check chances are none will ever come. You'll have to file with the
court in order to get the money but generally speaking that process
doesn't take long.
Deals based on saving owner’s equity
Many times an owner's biggest concern is the fact that they've
Built up a substantial amount of equity in their property and they fear
losing all of that in a foreclosure. Your opportunity as an investor is
to help them preserve at least some portion of their equity by
arranging to purchase the property and then refunding a portion of
their equity back to them.
As long as the deal still meets your investment criteria and has an
acceptable profit margin you're free to negotiate the amount of the
equity you're willing to refund to the owner in order to get their
agreement.
Advantages to the owner
The advantage to the owner is that not only do they get to walk
away free and clear from a financial burden and cause of a lot of
stress but they also preserve at least a portion of their equity. This
gives them the ability to rebuild their financial life with something
already to start out with.
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Advantages to you as an investor
in helping owners preserve equity
The biggest advantage for you as an investor is this gives you one
more way to gain an agreement on a potentially profitable deal. The
fact is that the owner faces losing everything in a foreclosure so
you're helping them make something out of potentially nothing.
Bidding And Buying At The Auction
As far as upside potential goes there's nothing like a foreclosure
auction to ensure the ability to purchase real estate literally at
wholesale prices. As I've mentioned before there's a lot of due
diligence you've got to do first before bidding on any properties
though. Minimally you got to at least have a title abstract done
before bidding on it.
Strategies for bidding at auctions
Always make sure you know the upper limit of your bidding budget
before you begin bidding. Don't ever get caught up in a bidding war
if it takes you higher than your acceptable limit on a deal. Only
increase your bids by the minimal acceptable increments with the
exception being if you believe that larger jump in increment might
help discourage a competitor from continuing their bidding. It's very
exhilarating to bid in at auctions, but remember it's your profit dollars
that are being lost the more you bid.
Another tip on bidding at auctions is to be prepared to bid on more
than one property. If you go there expecting to bid on one and it
turns out that there are so many investors that the profit margins are
eaten up by a bidding war you won't want to go away emptyhanded. There's always the risk that a property may be sold or cured
before going to auction so it's always good to have a backup plan.
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Advantages of purchasing at auctions
Your biggest advantage of purchasing at auctions is the deep
discounts you can get. You can also double up on your efforts by
being prepared to bid on more than one property at an auction.
Since you are ready to be there, it pays to make efforts to investigate
more than one potential property deal before the sale.
Disadvantage of purchasing at auction
The biggest disadvantages of purchasing at auctions are the risks of
taking ownership of the property that has liens and encumbrances on
its title. Another big disadvantage would be not having done your
research and purchasing a second position or subordinate lien
thinking that you bought a first position mortgage.
Quick Flips Right After The Auction
Many investors overlook this opportunity but right after an auction
is over is a great time to make deals with other investors. One of the
things that you can do is offer to purchase a property that an
investor just purchased. You might wonder why somebody would be
willing to do that but consider this.
Imagine if you're an investor and you just purchased a propertyand
have an opportunity within the first five minutes to make $5,000 on
it. Wouldn’t you do it? You might. It's worth asking.
And you also have the option of flipping what you win to one of
them. When you figure out the yearly return on your investment it's
phenomenal money. So from an investment standpoint it makes
great sense. It's not for everybody but just keep it in mind.
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Right of Redemption Assignment
Some states have what's called a “right of redemption.” Right of
redemption gives the owner a right to reclaim their property that
they lost through foreclosure by purchasing it back for the price that
was paid at the auction.
What a savvy investor can do is purchase from the owner their right
of redemption. (For some consideration to be negotiated with the
owner probably some token amount of cash you have them assign
their right of redemption to you.) Now you have the legal right to
purchase the property back from whoever purchased it at the auction
any time until the right of redemption time expires.
Time periods for rights of redemption and vary greatly from state to
state so it's important to check on the laws governing those rights
where you're planning on investing. The laws are also different
depending upon whether its commercial or residential real estate, or
if it's a primary residence versus a secondary or rental property.
You can even “flip” the right of redemption to an investor to
purchase the property. So if you give the owner that was foreclosed
on a few hundred dollars, you can then flip the assignment of the
right of redemption to the new buyer for a few thousand dollars.
Check your state laws about “flipping” the assignment for right of
redemption.
Advantages to you as an investor in
purchasing a right of redemption
The advantage for you is that if you see a property that you’d like
to do a deal on but you can't do the deal before the property goes to
the auction you can still buy yourself the time to arrange a deal later.
Let's say the property is just too close to the date of the auction for
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you to make arrangements or your already tied up with other deals
and don't have the time to arrange funding right now.
Purchasing the right of redemption from the owner gives you the
luxury of finding the funding, perhaps even finding the new buyer
before you exercise the right. That puts you in an advantageous
position of being able to do the deal when you're ready.
Your risks purchasing a right of redemption
The biggest thing you risk in purchasing a right of redemption is the
loss of whatever your consideration was to acquire it. Chances are
though you won't really be investing a lot in it so the risk is minimal.
Buying Bank Owned Properties
One of the bread-and-butter strategies for real estate investing is
purchasing bank owned properties after banks repossess them
following foreclosures. The great thing about purchasing bank
owned properties is that there's always a constant inventory of
properties to choose from, they've gone through the foreclosure
process and have clear titles, and generally the banks do a good job
watching over them until they sell them.
As mentioned earlier banks are not in the real estate business and
want to sell their REO properties as soon as possible so they are the
proverbial motivated sellers. There are many sources of REO
properties that you can choose. You can deal with banks directly or
work with the real estate agents to locate and negotiate for them.
You may be able to deal directly with the loss mitigation Department
of local banks for local REO's, but national banks will direct you to the
broker that handles REO properties for them. While not every REO
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property is a bargain, you will find many that would be very
profitable to do deals on.
Warning: Don't get visions of ridiculous lowball offers to the banks
but understand as motivated sellers they will consider reasonable
offers that will fit well within your investment criteria.
The biggest thing to remember in purchasing REOs is that 60% of
my REO purchases are on resubmittals. This means the bank said no
originally and every 30 days I would re-submit the same dollar
amount. Banks become more motivated the longer a property sits
on the market.
Disadvantages of REO purchases
Typically banks will discount REO's somewhat but not to the level you
could buy through owner in foreclosure deals or foreclosure auctions
there is less money per deal to be had. And the competition for
every deal is greater. If you find an REO property you're interested
in you'll need to act quickly to make a deal.
The good news is considering this current economic climate, and the
amount of foreclosures that are on the market and that will be soon
hitting the market, in my opinion, you will be able to purchase bank
owned properties for considerably less than what even many home
owners could approve.
The advantages of REO purchases
The biggest advantage of the REO purchasing opportunity is that
generally speaking it's pretty easy to purchase an REO. It doesn't
require the same kind of research that buying an auction does, and
carries less risk in general. Because of the smaller risk factors and
65
ease of access to the properties, a lot of investors are looking into
REO's to purchase.
Purchasing Options
There are many types of options that you can negotiate with the
owner. The idea here is to give you some flexibility in arranging a
deal. Purchasing an option from an owner is similar to purchasing a
right of redemption. Let's say you run into an owner in foreclosure
you can negotiate an option to purchase later. In the meantime you
can find another investor to flip to, or at some point exercise your
option to purchase the property.
Advantages of options
One of the great advantages of options is that it gives you the time
to put together a profitable deal. If you can put one together then
you simply let the option expire. If you do secure an option contract
with an owner, unless it's the right of redemption, it will expire once
the property reaches the foreclosure auction.
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Chapter 5
14 Ways To Find
Foreclosure Deals
1.
The Local County Court and Web Site
You can find out about investment opportunities by taking a trip
to your local County Court House. When a lender initiates the
foreclosure process either through their attorney or through a
trustee, either a Lis Pendens or a Notice of default will be filed in the
county court system in which the property in question is located.
Those records are public documents that you have access to. Usually
you just have to go into the County Clerk's office and request the
records you're looking for. You may have to go to the county
sheriff's office in order to get a list of pending foreclosures before
proceeding to the clerk's office to investigate each individual
properties file.
Your job at the courthouse is to research the file of the property
that you're interested in thoroughly for anything that might affect a
potential deal. You’ll be looking to see what position the loan is in,
information on additional liens on the property, original loan
documentation information, contact information for the lending
institution or lien holders. Any of which could be important to you.
In many counties today you can do at least some of your research
online by visiting your local county government website. This can
save you a lot of time and money especially for doing preliminary
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research on properties. Many county government websites now give
you the ability to search for foreclosure and other information.
Just below is an example from the Porter County Indiana Sheriffs
website: http://www.portercountysheriff.com/info/sheriffsale.html On
the Porter county Sheriffs web page you click on “Sheriffs sales” and
that takes you to the page displaying the foreclosure notices.
County governments understand that it's important to make
information about foreclosures easily accessible for potential
investors and other interested parties. Websites for other counties
are usually very similar to this one.
The example on the next page is a digital copy of a "notice of
foreclosure sale” document. This document tells you about the
property in question.,the date of the foreclosure sale and terms of
the sale. There are other documents available that can help in your
search for investment opportunities.
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2.
Banks with (REO) Properties
As I mentioned before the vast majority of foreclosure properties end
up going to the lender after a foreclosure sale and are what's known
as bank owned or REO properties. Virtually all banks that make
property loans will have banked on properties to sell. How you get
access to their properties varies from bank to bank.
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Local banks
It's common for banks to resell mortgage notes on what's called the
secondary market for mortgages. That’s a process by which large
institutional investors buy packages of "bundled" mortgages at a
discount from their face value.
Some banks don't resell the mortgages they have and are called
"portfolio lenders. Because they keep their own mortgages in their
"investment portfolio" properties they've loaned money for come
back to them as REO's after a foreclosure.
With these portfolio lenders often times you can deal directly with
them to negotiate a purchase of one of their REO properties. Each
individual case is different so you'll need to check with them. In
some cases they only sell their REO's through a real estate broker or
agent.
Sometimes they have someone in-house that handles their REO
properties for them, so you just need to ask until you find someone
who can help you with finding properties that you might be
interested in or direct you to the person you can talk to about it.
Large regional or national banks
Larger national banks that make loans all over the country are not
likely to deal directly with anyone interested in their REO properties.
Generally speaking their properties will only be available through a
real estate broker or by using a real estate agent to help you find
them.
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3.
Real Estate Agents
Real estate agents can be your best friends in the foreclosure
investing business. Why is that? Because they only make money
when you make money so their success is based entirely upon your
success.
One of the first things that you should do when looking for
foreclosure investment opportunities is to contact local realtors and
ask them who in their office handles REO properties. Usually there’s
someone there who specializes in bank owned properties and that's
who you want to deal with.
You've got to realize that you're not the only investor talking to
them. In fact they're likely to be dealing with many investors who
buy banked on properties through them. What that means is
whatever you deal with them, you're using their time so they have to
know that you're serious.
When you're working with someone who's doing a lot of work for you
finding properties you've got an invaluable asset. So it's important
that you reward their work with deals. If you do you will quickly
move up on their "short list" and be amongst the first to find out
about new REO opportunities before others do.
Real estate agents will also be your connection to finding HUD, VA,
Fannie Mae and Freddie Mac properties. Get to know several and
build a track record of business with them, and you'll have a network
of real estate professionals who will you bring more deals than you
can do.
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4.
Using The Internet To Find Foreclosures Deals
The Internet can be your most valuable tool in your real estate
investment business. You can research and locate properties from
many sources, find investment partners and money to do deals, and
even find buyers or renters for your properties.
Foreclosure Subscription services
Do a global search online for "foreclosures" and you will quickly find
about a gazillion different services offering foreclosure information
from around the country. What's nice about these subscription
services is that you can literally track property from default to sale
using their service.
I'm not endorsing any in particular service but here's a
screenshot of one of the services available:
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These types of services are very convenient because of the flexibility
of the types of searches you can do. You can search by what stage
the foreclosure is in, where it's located, or look for banked on
properties. This makes it quick and easy to find deals to do.
Here's an example of one of the subscription service’s information
available about an individual property. Once you subscribe you'll have
access to a long list
of options to
research
information about a
property you're
considering
investing in.
It's well worth the
small monthly
investment required
to have access to
information that
can help you make
tens of thousands
foreclosure
investing.
in
Many of subscription services offer free trials before they begin
charging your monthly fee, so look around at several before making a
decision which one you want to use. You can use the subscription
service information in conjunction with your other sources of leads
and research to help find and make profitable deals on foreclosure
properties.
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5.
HUD Homes
The “HUD” in “HUD Homes” stands for the United States Department
of Housing and Urban Development. The Department of Housing
and Urban Development works through a sub-Department called the
Federal Housing Administration also known as the FHA.
What the FHA
does is promote
homeownership
by
"guaranteeing"
loans made by
financial
institutions
thereby making
loan access
easier for lower
income home
purchasers.
When a home guaranteed by the Federal housing administration
goes into default, and then foreclosure, the FHA ends up with the
property. The FHA does not work correctly with investors interested
in their properties. Their properties are marketed and managed by a
company contracted by the FHA.
If you're interested in a HUD or FHA property you must go through a
real estate agent to see and inspect a property first. You must also
go through the real estate agent in order to place a bid for the
property. Check with your real estate agent for the exact procedure
for bidding.
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Generally speaking, the FHA operates a sealed bid process where you
submit your bid and then wait to find out whether it was accepted or
not. You can make lowball offers on FHA properties but
unreasonably
low offers are
not likely to
be accepted.
The FHA goes
through a
process of
taking bids
and
evaluating
them, and excepting one or none. They then reassess the asking
price of the property. If it remains unsold they drop the price and
reopen bidding incrementally until someone purchases it.
VA Homes
Veterans Administration homes, like FHA homes are properties
owned by the Veterans Administration. Like the FHA VA backs loans
to veterans and when one goes into foreclosure like the FHA they
end up owning them. The VA does not deal directly with parties
interested in their properties.
To find VA home investment opportunities go to their website at the
Veterans Administration like the FHA also use a third party “Ocwen”
to manage and market the properties for them. You can visit their
website to find VA homes in your area at http://www.ocwen.com/.
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To purchase
a VA home
you must
participate
in a sealed
bid not
unlike the
HUD home
process.
After
inspecting
the property
and
determining
how much
you'd like to
offer on it you submit your bid and wait.
There are some advantages and disadvantages of investing in VA
properties. The Veterans Administration offers loans to veterans for
no money down. One of the effects of this policy is that many
borrowers who probably couldn't afford to purchase a property if
they had deployed money down become homeowners.
The result is that they also represent a higher percentage of default
then the average home purchaser. And since often times they’re not
financially sound, the properties tend to fall into disrepair and are in
lower income areas.
One of the greatest advantages of purchasing VA foreclosures is that
the VA offers its own financing to investors which includes money to
fix the property out. So with the VA, you can not only find a good
source of properties, but also find your lender all in one stop.
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To find out about and purchase VA homes you'll need to work with a
real estate agent. Check with your local agent for the specific details.
8.
Fannie Mae and Freddie Mac properties
Fannie Mae and Freddie Mac are acronyms respectively for the
Federal National Mortgage Association and Federal Home Loan
Mortgage Corporation. Both of these government directed private
companies were created as a result of the federal government's
interest in promoting wider availability of home loan funding and
thereby increasing homeownership.
The way they accomplish this
goal is by purchasing
mortgages on the secondary
market, pooling them into
and selling them as
guaranteed mortgage backed
securities. By purchasing
mortgages from lenders in
reselling them as mortgage
backed securities they
indirectly increase the supply
money available for
mortgages lending and
increases the money available
for new home purchases.
is
of
Fannie Mae and Freddie Mac also get involved in just about every
aspect of the mortgage industry and one of those involvements is
ending up with their own foreclosure properties to sell. Like HUD and
VA foreclosures, Fannie Mae and Freddie Mac properties can only be
purchased through a real estate agent working along with the
organization that markets and manages their properties.
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You can find information on Freddie Mac properties and who to
contact at http://www.homesteps.com/. Information on how to
purchase Fannie Mae foreclosure properties can be found at
http://www.fanniemae.com/homebuyers/homes/howto.jhtml.
9.
Other Investors
Another great source for investment opportunities are other real
estate investors. One of the realities of real estate investing is once
you get going and develop a source of leads it's very difficult to do it
every single deal you can do. But investors with a good property
lead oftentimes are willing to share it for a finder’s fee.
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Developing your lead network
This is a good time to stop and talk about developing a network.
There is a foundational truth to success that you cannot make it
without helping other people and getting help from other people.
The sooner you grasp that, the quicker you'll be enjoying the success
you're looking for.
Whether you're helping owners in foreclosure find solutions for their
problems, or helping lenders solve their problems, or helping other
investors either find a way to make some money on the deal they
cant do, or helping them to find deals, it's all about give-and-take.
To be successful in real estate investing you need to develop a
network of contacts; Real estate agents, bank contacts, lawyers,
other investors, context and title companies, contacts and local
government, contractors.
10. Lawyers
Lawyers can be an excellent source of leads for foreclosure
properties. They work with some of the people who are going to the
four D's we talked about earlier such as divorce or a death in the
family. Some attorneys also specialize in lawsuits against insurance
companies who have underinsured homeowners with claims.
In this case what you’ll need to do is contact an attorney asked them
and let them know what you're doing and how you can potentially
help their clients. It would be a good idea to have some cards and
maybe flyers made out to leave or mail it to them. Another good
way to get the attention of attorney is to offer to buy them lunch if
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they say yes you’ll haven't opportunity to explain about what you do
and ask them to send any leads they may have your way.
The power of asking
One of the secret strategies for success that I've discovered is the
power of asking. You see, a lot of times people just don't ask and of
course they'll get exactly what they asked for—nothing! Someone
much wiser than me once said asking you shall receive, seek and ye
shall find. I've discovered that's how the world works.
Never be afraid to ask for what you want. The worst that can
happen is someone can say no. The truth is, it's more likely that
once you educate people on what you do and how you solve
problems, you get a lot more positive responses that you may have
thought you would.
11. Bail Bondsmen
Another good source for leads for foreclosure properties are Bail
bondsman. With them you'll have two opportunities for a property
lead; one, from the who they know who may be in trouble and on
their way to incarceration or simply in need of selling quickly.
Another way a bail bondsmen may have a lead is if they've foreclosed
on the property that secured a bail bond loan that was defaulted on.
Like lawyers ask around introduce yourself and let them know what
you do and how you can help solve problems for their clients.
12. Advertising and Marketing
You should consider a serious advertising and marketing effort for
your business. There are several different things you can do to use
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advertising and marketing to drum up leads for your foreclosure
investing business:

Billboards with “We buy houses”, “Cash for Houses quick”,
“Get cash for your house now.”
 Post signs in the yard of properties that you're working on.
 Magnetic signs on the side of your vehicles.
 Business cards
 Flyers
 Place ads in newspapers and local real estate magazines.
 Lunches with lawyers
 Visits with bail bondsmen
 Direct mail to donors in foreclosure
 Direct mail to loss mitigation departments of lenders
13. Bird dogs and scouts
Develop a network of birddogs and scouts that bring deals to you for
a finder’s fee. Most likely these will be people who want to get
involved in real estate but don't know what to do yet. By letting
them work with you bringing you deals you can help them learn how
to do the business while you get leads for deals.
These can be college students, family friends, real estate agents or
anyone else who might want to make an extra thousand dollars for a
deal that stands out. Teach your birddogs and scouts exactly what
to look for, in the areas that you're interested in and they'll bring you
a constant stream of leads to work on.
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Chapter 6
How to evaluate a potential deal
Knowing when a deal is really a deal
Okay so now you know what a foreclosure rate is and how investing
in foreclosure solves the needs of homeowners and lenders. You've
learned the types of deals that could be done on foreclosure
properties and you've learned how to find foreclosure properties.
In order to know when a deal is really a deal you have to know what
you want to do as an investor. I mentioned earlier that investment
101 teaches us that you make your money when you buy not when
you sell. For that to be true you have to know why you're buying
and what your “exit strategy” is.
Your criteria of what and where to purchase properties will be
influenced by what you plan on doing with the property once you
purchase it. If you're looking for quick flips you may buy a different
type of property than you would if you plan to develop a portfolio of
properties to collect rent on.
The 70% investor rule
If you're planning on buying and flipping for big cash paydays you
need to follow the 70% investor rule. The best way to explain the
70% investor rule is to illustrate what I mean. Let's say you find a
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property that has an after repair value (ARV) of $100,000 and that it
needs $15,000 worth of repairs.
How much should you pay for a property?
What here's how you apply the 70% rule. No matter what you pay
for a property and no matter how much you pay to fix it up and get it
ready for sale you should never pay more than 70% of the after
repair value less the amount of the cost of repairs. Take a look at this
chart
Applying the 70% rule
After Repair Value of home
Estimate of cost to repair
$100,000.00
$15,000.00
Home ARV
x70%
Less estimate of repairs
Maximum amount you can offer
$100,000.00
$70,000.00
$15,000.00
$55,000.00
The 30% difference between the after repair value and the total cost
of purchasing and repairing the property is necessary in order for you
to pay back your lender, pay any
Special Note:
holding costs associated with the
IN TODAYS ECONOMIC CLIMATE THE
property before selling it, and
70% RULE HAS NOW TURNED INTO
pay any selling costs.
THE 65% RULE. I WOULD NOT BUY
You can generally assume an
additional 5% of the ARV for
those costs with another 5%
built-in for unexpected costs.
A PROPERTY FOR MORE THAN 65%
OF THE VALUE INCLUDING REPAIRS
AND ALL COSTS. HOWEVER, AGAIN
GIVEN THE ECONOMIC CLIMATE
YOU CAN AND SHOULD BE LOOKING
AT DEALS AT 50% LTV.
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That guarantees you a profit margin of 20% or in this case $20,000.
It also helps make finding funding easier for you because many of
the types of lenders you be using in your real estate investment
business will not loan properties above the 70% of the ARV.
Getting contractor bids
When you're determining your cost for repairs it's important you get
two or three different contractors to give you an estimate. I'm not
going into great detail in this book about repairs but ask around for
reliable contractors and check out their references before working
with them.
You'll need to manage your relationship with them carefully from
the very start. You can learn more about that in my master course
where I teach my full flipping machine system to find fund fix and flip
properties including specifics on how to manage investor
relationships. I also included important contracts and documents for
your purchase, investor and contractor relationships.
Preparing your “deal” to present to investors
Is to put your whole package together to present to investors to fund
your deal. Here are a least a few of the things you'll need to make
sure our included in any package that you present to a potential
investor for funding your deal
 Any pictures of the property
 Copies of purchase agreement with seller
 Information about where the property stands in the foreclosure
process
 Copies of contractor estimates
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 The numbers on the deal showing the potential profits
 Property at tractor title search information
 Copies of any information you may have gathered at the
courthouse
 Real estate comps from the local area helping determine the
value of the property real estate
In the next chapter I'll tell you about where to find the money to do
your deals. But before you go to the investors or hard-money
lenders or any of the other sources I'm going to tell you about, you
need to do your due diligence.
In addition to finding great opportunities to buy properties at
wholesale prices you need to protect your investor and your own
financial interests. By putting together an investor deal “prospectus”
you'll be ready to address any concerns your potential investor may
have, and clearly demonstrate that you done what you need to
manage the risks of the deal.
This is especially important if you're starting off with no money or
poor credit or both. Investment is all about managing risk and your
job will be to make your investor or funding source feels comfortable
saying yes to a deal with you. If you can't do that with your assets
and credit score then you have to do it on the strength of the deal
and that takes thorough documentation of what you're presenting.
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Chapter 7
How To Fund Your Deals
The number one question that beginning or novice real estate
investors ask more than any other is where to find the money to do
deals. The answer to that question often surprises them when I tell
them that the money always follows the deals. And that the number
one thing you can do to find the money that you need to do your
deals is to develop the right money mindset.
One of the first things that you have to do in changing your money
mindset is change your understanding of where the wealthy get their
money and what it takes to get it. Another change in your money
mindset comes from understanding that as long as you have the right
information you will never lack for the funds you need to do all the
deals you wish to do.
The money always follows the deals
Real estate investing is not about using your own money; at least not
smart real estate investing. So it really doesn't matter whether you
have a lot of money on hand or no money at all. It doesn't matter
whether you have a high credit score or your credit score is so bad
that conventional lenders run away from you like you have a plague.
The reason is that in real estate your personal financial situation
is not nearly as important as the strength of the deal that you're
offering. So if you're starting off with a weak financial track record or
an embarrassing personal financial statement, take heart, because
I'm going to show you how to find the money anyways.
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“Hard-Money” Lenders
The epitome of smart investing is using other people's money and no
one understands that better than hard-money lenders. Conventional
banks look at the strength of your credit score to determine whether
or not to lend to you. Hard-money lenders base their lending
decision on the strength of the deal you bring them.
Who are the hard-money lenders how do you find them
Hard-money lenders can either be individuals or businesses. Their
entire focus as lenders is working with investors and lending to them
based upon the deals. The trade off is hard-money lenders generally
ask a higher percentage interest rate and usually require points or
origination fees for loans.
Finding a hard-money lender can be as simple as going online and
doing a search for hard money lenders in your area. A word of
warning though if you have credit score issues, larger regional or
nationwide hard money lenders behave more like their conventional
lending cousins and require good credit scores to do business.
Often times conventional lenders and mortgage brokers can refer you
to a hard-money lender in your area who works with investors like
you. You can also get leads by developing relationships with other
investors, title company employees, and attorneys that specialize in
real estate investment.
Another great place to find leads is to attend real estate investment
clubs or organization meetings. Hard-money lenders look for
opportunities at those meetings. Again it's a question of networking.
The more people you know who are involved in the real estate
investment business, the more access to resources you'll find.
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Equity Partners
An equity partner is someone like a family member, friend or
acquaintance that agrees to loan you money based upon the strength
of the deal for a percentage of the equity. Unlike a traditional lender
which is base their loans on a set payment plans, interest rates, and
other fees, these are investment partners. If the deal goes well they
stand to gain more if it goes poorly they also share in that risk.
Once the deal is done lets say you buy a house that has an after
repair a value of $100,000, you put another $10,000 in repairs then
sell it for $95,000. Let's say you spend another $3000 on holding
costs for a total expense of $73,000 leaving a net profit of $22,000.
If you're equity partner gets 50% you would both walk away with
$11,000. Of course every deal is negotiable and the terms of the deal
should be worked out depending on the needs and desires of the
parties involved.
A good place to find equity partners is to ask professionals you
interact with such as doctors and lawyers if they would be interested
in investing in real estate backed deals. Typically you can offer them
234 times as much as they would be making if they put their money
in a traditional money market account or the stock market.
Debt partners
Debt partners are individuals that you take on as partners in
exchange for funding a deal. In this case they agree to loan the
money for the deal based upon an agreement to a payback plan with
a negotiated interest rate and origination fees.
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Proper care and feeding of your investment partners
A word of advice of for dealing with any kind of funding partner is to
make sure that you have well-defined roles in the relationship. One
needs to be the active investor and the other one needs to be the
passive investor. There's nothing worse than having a so-called
passive investor who's isn't passive, and is constantly interjecting
themselves in your deal.
It's a good idea, if you have investment partners providing capital for
your deals, to keep them abreast of what's going on. There's a big
difference between taking the time to keep them up to date verses
having them always poking their head in to micromanage how much
is being spent for this cabinet or that bit of landscaping.
Cash advances on credit cards
Another way to get cash for deals is to take cash advances on your
credit cards. Obviously this only applies if you have credit cards, but
it's also strategy if you know someone who's interested in investing
and they have the credit cards available.
Home Equity and Convention Loans
Home equity and conventional loans are both forms of conventional
financing and dependent on factors such as down payments credit
scores and a high level of documentation. They also take a lot longer
to put together so if you're on a tight schedule this may not be ideal.
You may also run into some possible constraints, as many bank’s
policies do not allow them to make loans to individuals beyond four
properties at one time. That's not across the board, and you can
certainly find portfolio lenders that will go well beyond that.
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If you're looking to invest in a VA foreclosure property and have a
decent credit score to VA itself offers financing for investors. In
some cases they'll even loan you enough to fix the property after you
purchase it. Generally speaking they don't require much down and
interest rates are fairly low so it's something to look into.
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Chapter 9
Fixing Up Your New Property
Don’t waste time
Once you've found your deal, found the funding for it, and bought
the property now it's time to fix it up and get it ready to flip. It's
important that you act quickly to get your rehab project started.
Time is money and the holding costs in real estate eat into your
prophet like a plague of locusts.
Finding And Working With Reliable Contractors
Finding a reliable contractor can be challenging but once you do hang
onto them as long as you can. When you're starting a relationship
with her contractor you have to be purposeful and making sure they
understand that you’ll be in charge of the relationship, and that you
have certain expectations that must be met.
Never except for their first bid without countering with at least a 10%
discount off of their asking price. They expect it and if you pay them
full price you'll be paying them more than they thought they were
going to get.
You can find good contractors by driving around and looking for work
sites and then asking around for contractors that do rehab for
investors. You can also go to places like Home Depot and ask for a
list of contractors they know. Usually there is a counter with a list of
cards and names that you can check out.
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Always ask contractors for references from other jobs that
they've done and definitely check them out. Be very clear in your
expectations and only pay them as the work is done. I use a system
that penalizes them if they dragged their feet on the job and don't
get it done on time. I have a whole system for managing contractors
included in my master course
Never ever do the rehab work yourself
What's your time worth? It's probably worth more than you think. If
you’re doing a real estate deal that will earn you $20,000, why would
you spend your time doing work that someone would be happy to do
for $10 or $15 an hour. Think about for a second. Is it smart to try
to save a few hundred dollars when you could be out finding another
deal to make tens of thousands of dollars on?
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Chapter 10
Flipping Or Renting Your property
Working with a real estate agent
Once your property is fixed up and ready to be sold, it’s a good idea
to work with a real estate agent to help get it sold for you. Many
novice investors get greedy at this point and think they’re being
smart by trying to sell it themselves. Let me tell you it's not a good
idea.
Professional real estate agents dedicate themselves to finding buyers
for your property. Like doing rehab yourself it makes more sense for
you to be out looking for another investment deal than to be
standing around waiting to show your property to people who may or
may not show up.
You may spend a few thousand more to have a real estate agent
working for you to find a buyer, but if you budgeted right you
accounted for that expense when you made the deal and got your
funding in the first place.
Pricing your property to sell
Smart real estate investors know that it's much better to sell quickly
than it is to hold out for the highest price. If you discount the price
significantly below the fair market value more people will notice and
it’ll be much easier to sell. Not doing this is being penny-wise and
pound-foolish.
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Renting verses selling
Your strategy may not be to flip properties for lump-sum profits. You
may want to build a portfolio of properties that bring in a constant
stream of rental income and there are certainly advantages to doing
that. It's really a personal preference and it also has to do with
where you're at financially speaking.
If you're struggling financially now and don't have a healthy cash
reserve I would recommend buying and flipping properties for a while
before building up your portfolio of rentals. If you do decide to hold
properties as rentals than you want to look into cash out options.
Cashing out your properties
If you're going to hold onto a property is a rental, you'll want to get
as much of the equity out of it is possible to use for additional deals.
You’ll need to look into “cash-out” loans for your properties. Cashout loans are offered by lenders who specialize in working with real
estate investors.
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Chapter 11
Developing Your Systems
Building A Flipping Machine
Once you get started in foreclosure real estate investing you want to
build what I call a flipping machine. In order to have a well running
flipping machine, you will need to have systems in place to manage
the work that needs to be done.
Ultimately the purpose of building a business for yourself is freedom.
The only way that you're going to be free is if your business doesn't
need you on a daily basis. The only way you can do that is by having
systems that manage all aspects of your business for you. You'll need
systems that:
 Bring a constant stream of new deals to you
 Help you find funding whenever you need it
 Manage contractors working on rehabbing your properties
 Purchasing materials
 Managing employees
 Managing renters
 Dealing with realtors, title companies, and lenders
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Protecting your assets
A word of advice about doing business; Real estate investing is a
serious business and before you start your investment career I would
advise that you seek the advice of an attorney about forming a
business entity to protect you. There are many reasons why you
should do this, from serious tax advantages, to protecting your
assets from legal risks.
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Chapter 12
Finding and working with a mentor
Before you go I would like to talk to you a bit about working with a
mentor. I told you earlier that no one is ever successful without
helping other people and being helped by other people. Every
successful real estate investor I know had a mentor that helped them
figure out the ropes of investing.
You could go it on your own if you want to, but you’ll suffer a lot
more than you need to by doing that. Hopefully you won't suffer so
many losses that you quit before you achieve the success that you're
hoping for. But I can tell you for sure that your odds of reaching
those goals and being as successful as you want to increase
dramatically when you take on a mentor to help you.
Of course I can help you and I would like to help you. I have books
I've written, DVDs and CDs I've created, as well as a master course
that captured my entire system for those that wish to learn it. I
know what I'm talking about and I want to share with you.
Even if you decide not to work with me I urge you to find a mentor,
or an older businessperson who know something about what you're
trying to do. There are always setbacks in life and there'll be times
when you're not sure what to do next. It's times like that having
someone that you can talk to that knows what they're talking about
will make all the difference.
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