Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Content
About the Author ................................................................................................... 3
Introduction to Pre-Foreclosures ........................................................................... 5
The Basics of Foreclosure .................................................................................... 9
Step 1: Organizing Your Office ........................................................................... 16
Step 2: Researching the Market and Qualifying Homeowners ............................ 20
Step 3: Selling the Homeowner on You .............................................................. 30
Step 4: Performing Due Diligence ....................................................................... 35
Step 5: Inspecting the Property ........................................................................... 43
Step 6: Estimating Property Value ...................................................................... 61
Step 7: Negotiating with Homeowners and Others ............................................. 68
Step 8: Preparing and Presenting the Purchase Agreement .............................. 75
Step 9: Closing the Sale ..................................................................................... 81
Step 10: Maximizing Property Value and Appeal ................................................ 84
Step 11: Achieving Maximum Profit .................................................................... 90
A Word on Short Sales ....................................................................................... 95
Conclusion ........................................................................................................ 100
My brother and I escaped Vietnam on a fishing boat in 1986. I was 11 years old
and my brother was 18 at the time. We spent seven days and six nights at sea
and were mugged by pirate boats. They stripped us of all our valuables, but,
luckily, didn’t kill us as happened with other unfortunate escapees. Eventually, a
Malaysian boat picked us up, and we spent six months in a refugee camp before
being transferred to a camp in the Philippines. After a short stay there, the
United States accepted us, and we ended up in Houston.
Although my brother and I were poor and dressed in clothes bought from charity
organizations, we worked hard. I graduated from high school, went to college,
and worked in the IT field for two years. I had a good job, but, in 2002, the
software company I worked for crashed and went out of business. There I was
without a job!
I’d always heard that real estate was the place to make good money, so I started
studying by taking home study courses and attending seminars to gather the
basic knowledge I needed. Then, I began knocking on the doors of homeowners
for a few months and discovered very quickly that no one wanted to talk to me!
As of this writing, I’ve bought over 340 properties, including single-family homes,
condos, town homes, and vacant lots. I specialize in wholesaling but have also
done many rehabs, subject-to’s, pre-foreclosures, and short sales.
I’ve had a lot of success, and I want to share it with you. I want you to make the
money you deserve! This book is part of that sharing. It will provide you the
fundamental and essential knowledge necessary to operate effectively in the pre-
foreclosure market.
Let me be clear. This book is designed to provide you with essential basic
knowledge, but it’s only one part of my real estate ―curriculum.‖
Foreclosures / REOS
PreForeclosure Leads - these are homeowners who just got kicked out
of bankruptcy. Chances are they’re headed into foreclosure.
Deep-discount Wholesale Deals
Bankruptcy Leads - these are homeowners who’ve just filed bankruptcy
and want to avoid foreclosure.
Motivated Sellers – these are homeowners who have unwanted
properties
In this book, my seminars and on my websites, I provide you with everything you
need to be a success in the pre-foreclosure market—and beyond! What you
need to supply is hard work, persistence, and a positive attitude that you will
succeed no matter what obstacle is placed in your path!
I wish you the very best of luck in your real estate career!
CEO DoDeals.com
Founder and President: Certified Real Estate Investors Association (CREIA)
Introduction to Pre-Foreclosures
In the real estate market, knowledge is definitely power—and the secret to
profits! Since the subject of this book is pre-foreclosures, it’s important for you to
understand exactly what pre-foreclosures are and what opportunities are
available to you. This book is dedicated to helping you build and/or improve a
career in real estate through my hard-earned experience and knowledge, so let’s
get started!
A pre-foreclosure sale takes place between the time when the lender files suit
and when the property is scheduled to be sold at a public foreclosure action or a
trustee’s sale. A pre-foreclosure is not a formal legal process; it’s an opportunity
for you to assist stressed-out home owners and make a profit at the same time.
One reason can be a poor local or national economy. When jobs are lost due to
cuts, outsourcing or other factors, homeowners lose their income and can no
longer afford the mortgage payments.
A fourth reason is the availability of loans with high loan-to-value ratios. These
days, loans are offered at 90 to 100% of the value of the property securing the
loan. This means buyers can purchase a home with little or no down payment.
Since they have little invested in the home, they may walk away at the first sign
of financial trouble.
A fifth reason is the lenient terms offered by such governmental agencies as the
Federal Housing Administration (FHA) or the Veteran’s Administration (VA). This
means lenders can be tempted to offer loans to individuals with suspect credit
and job histories. Unfortunately, the result can be foreclosure.
A seventh reason is, oddly enough, low interest rates. Low rates can tempt
buyers into purchasing more house than they can afford. Most families these
days have two income earners; however when one of the earners loses his or
her job, the family can often no longer afford the payments on an expensive
home. They fall behind in those payments, and the lender starts the legal
process of getting the property back.
As stated earlier, it’s important for you to understand all these reasons. It will
help you empathize with your customers—the home owners—and, at the same
time, avoid bad deals. Now, let’s look at the benefits of making a living in the
pre-foreclosure market.
First of all, you can buy properties at a deep discount. Discounts can range from
20% to over 40% of market value. This means you can buy a property, turn
around and sell it at under-market value, and still make a great profit.
Second, you can structure deals that will cost you very little money or, in some
cases, no money at all. This doesn’t mean you’ll be able to operate in the market
without cash reserves. That’s just plain foolish. However, it does mean you can
get creative and legally use other people’s money to finance your deals.
Third, you can buy properties quickly without all the rigamarole that goes on with
conventional transactions. This not only means that you don’t get buried in
paperwork, but you’re also able to turn relatively quick profits while moving on to
the next deal.
Sixth, you have the opportunity for financial and personal freedom. In effect,
you’re an entrepreneur, and you can set your own hours, rules, and profit goals.
You’re no longer slave to a boss and a rigid office routine. Best of all, once you
become proficient at buying and selling pre-foreclosure properties, you can
ensure a secure future for you and your family since you’re not limited to the
amount of money you can make. Also, your knowledge of the pre-foreclosure
market will transfer to other aspects of real estate, allowing you to expand your
efforts into different markets.
Of course, every field has its disadvantages as well as advantages, and it pays to
be aware of them so you’re prepared to deal with and overcome them. Let’s look
at the disadvantages next.
Finally, competition is tough in the pre-foreclosure market! After all, other buyers
will be seeking the same profit opportunities that you’re looking for. This means
you have to be up-to-date on local conditions and opportunities and stay on top
of the market at all times!
This means you’ll need to do your research and do it well. If you’re a person of
action and don’t enjoy reading all that much, think of it this way: You wouldn’t go
hunting with an empty gun. You’d just be setting yourself up for failure and
wouldn’t bag any game at all! So, consider research your ammunition. Once
you have a full load, you’ll be able to hunt down and bag the best and most
profitable bargains possible!
No doubt you’ve heard the famous saying that there are only three things
important in real estate—location, location, location. Well, in the pre-foreclosure
market, there are three other things that are very important—persistence,
persistence, persistence! Absolutely nothing beats persistence! You have to be
willing to dig and dig (in terms of research) and to deal effectively with owners
and your competitors. Remember, the race doesn’t always go to the smartest
person around; it goes to the person who never, ever gives up!
Benefits of Pre-Foreclosure
Deep discounts
Greater profits
Ability to research inspect property/more accurate value estimates
Ability to avoid the potentially expensive bidding process
Ability to structure sales agreements in a creative fashion
Less hassle from third parties (lenders, etc.)
The potential for minimum cash outlay
Of course, both mortgagors and lenders will do their utmost to work out an
agreement that will allow people to keep their homes and the lender to keep
receiving payments. In addition, neither the mortgagors nor the lenders want the
legal complications of the foreclosure process. Unfortunately for them—but
fortunately for you!—they can’t always work out an agreement, and the lenders
have to initiate foreclosure proceedings.
So, how is the foreclosure process begun and what’s involved in it? It’s
important for you to be aware that every state and county has different rules and
regulations that you’ll need to learn well. Otherwise, you may miss something or
make a mistake than can cost you money. However, in general, every state
within the U.S. uses one of two types of foreclosure—judicial and non-judicial.
Judicial Foreclosures
In states with this system, foreclosure can only take place through court action.
The process usually begins when the home owner falls behind on his or her
mortgage payments due to one of the several reasons described in the
Introduction (divorce, health issues, loss of job, etc.). Typically, the foreclosure
process goes like this:
Non-Judicial Foreclosures
In states with this process, the foreclosing lender makes use of the ―power of
sale‖ covenant specified in the mortgage or trust deed. This is the right of the
lender to force the sale of a property without judicial action. Typically, this is how
the process works:
1. The lender files a default notice with the appropriate office (county
recorder, public record, etc.).
2. A trustee’s sale date is set.
3. The sale is publicly advertised.
4. At auction, the property is sold to the highest bidder. Or, it’s taken back by
the lender if no bids are acceptable.
5. As with judicial foreclosures, the borrower may exercise statutory
redemption rights after the sale.
6. After statutory redemption rights have expired, the deed is given to the
highest bidder.
At this point, you may be thinking to yourself, ―I could pick up some pretty good
bargains at an auction sale.‖ And, it’s true—you can! However, an auction has
several disadvantages that make it a poor choice compared to pre-foreclosure
bargains. Here’s what they are:
No leverage—since auctions are strictly ―cash and carry,‖ you’re not able
to use the opportunity to line up a lender to finance the balance of the sale
price. If you’re new to investment and have little free cash available, this
means you’re effectively shut out of the auction process.
You may not be able to insure the title—title insurers do not like risk,
and most of them consider foreclosed properties to be an unacceptable
risk. They’ll take a very close look at such property titles and, if they find
any errors, they may well refuse to insure them. This, in turn, may leave
you with unacceptable risk.
Poor property condition—after you win a property, you may find it’s in
such poor condition that no property or casualty firms want to insure it.
Roadblock 1: Most are sold through real estate brokers. This means they’re
sold at full market value, so there’s little incentive for you to purchase one
because there’s no real profit in it.
Roadblock 2: There are many rules you have to follow. Many lender-owned
properties are HUD (Department of Housing and Urban Development) or DVA
(Department of Veterans Affairs) homes. This means you’ll need to follow a strict
set of rules, rules that are enforced by the federal government. Plus, on other
non-HUD and non-VA properties, you’ll have to follow the rules set up by the
lender. In short, you could be facing a lot of hassles, hassles that you won’t face
in the pre-foreclosure market.
Roadblock 5: REO sales are final! All these sales are ―as-is,‖ so if there are
problems with the property, you’re stuck with them. Problems can range from
environmental concerns (mold, asbestos, lead-based paint, etc.) to hidden
structural damage. They can all be expensive to correct, and, legally, you have
no opportunity to seek compensation from the seller.
From the above information, you can see why I feel the pre-foreclosure stage is
the best area to target. It offers the greatest profit potential, the fewest hassles,
and the least amount of risk.
Now, let’s take a look at foreclosure through the eyes of the property owner so
you can fully understand the options they have when facing foreclosure. This will
help you to show them the benefits of working with you in the pre-foreclosure
stage rather than undergoing the difficulties of foreclosure.
Owner Options
In general, property owners have seven options available to them when they’re in
danger of losing their home or other property to foreclosure.
Here’s a typical example: John and Janet Smith owe $9,000 in back
payments, attorneys’ fees, etc. Since the mortgage company doesn’t
want the trouble and expense of foreclosure, it may accept $4,500 now
and $750 per month for the next six months. Of course, the Smiths would
have to resume making their normal monthly payments.
*Note: “LTV” is an acronym for “loan to value” ratio. It’s the percentage of the
property's value that’s mortgaged. To get the LTV, you divide the mortgage
amount by the lesser of either the appraised value or the selling price. Different
lenders use different standards to determine whether or not a loan will be granted
with a certain LTV. Commonly, owner-occupied residences will get loans at an
LTV of 80%. Investment properties are often required to have a higher LTV.
Here’s an example of an LTV for a home: The home is appraised at $400,000,
and there’s a $320,000 mortgage on the property. So, $320,000 / $400,000 =
.80 or 80% LTV.
Sell the home on the open market--This is probably the most under-
utilized option available to owners facing the possibility of foreclosure.
The fact is, selling their home will give them the most money in their
pocket. Did you know that on FHA loans, the lender will postpone the sale
and give them 90 days to sell their house?
Sell the home to investors--If efforts to save their home have been
unsuccessful and time doesn’t permit selling their home on the open
market or they just don’t want to, but want a quick sale with no problems,
they can sell it to an investor—you!
Let the home be sold on the courthouse steps – Most of the time this is
the worst option available to property owners. To be honest, I’ve
experienced times when a house sold at auction for more than what I
could have offered the owners. However, this is not all that common.
And, as mentioned previously, owners can also face several expensive
and embarrassing actions as a result of the foreclosure process—
deficiency judgments, evictions, etc
From the information in this chapter, I hope you can see how targeting the pre-
foreclosure market is an excellent method of earning a profit and helping out
home owners at the same time. With knowledge and professionalism, you can
create a ―win-win‖ situation for everyone involved. Now that you have the
required basic knowledge, it’s time to get started on learning the eleven steps to
success in the foreclosure market. Here’s an overview of those steps:
The next chapter will cover the organization of your office. It will show you how
to set that office up in the most efficient and cost-effective manner possible.
A reliable cell phone—as you probably already know, this is one of the
most important tools you can have as an investor. A cell phone allows
you to be in contact with buyers and other individuals quickly and easily.
Basically, it’s an information-gathering device that helps you identify deals
and set them into motion. So, it’s important that your service be of high
quality and not subject to a lot of dropped calls. Check out the service
records of the cell phone providers in your area and go with the one that
has the best record of reliability at a fair price.
Those are the basics then, but we need to cover one more subject that’s vitally
important to your success—accounting and record-keeping.
You can use the Google search engine on the Internet to study and
evaluate property management software. To help you out, I’ve listed
several software package names and their URLs in alphabetical order.
I don’t recommend a particular package. I simply recommend that you
try them out and see which one works best for you and is relatively
easy to understand.
The suggestions mentioned in this chapter should get you off to a good,
organized start in the pre-foreclosure market. Now, let’s move onto Step 2:
Researching the Market and Qualifying Homeowners.
A Notice of Default is a legal notice filed in the public record to let the
public know that the mortgage or deed of trust is in default and is
scheduled to be foreclosed on at a specified time.
(Date)
My name is Jonathan Jones, and I’m a private real estate investor who
would like to help you out. I see that your property is scheduled to be
sold at auction on May 16 on the steps of county courthouse.
I’d sincerely like to help you avoid the stress of a public auction. I have
many different options available, including a quick sale that can create
a win-win situation for both of us.
I’m available at any time to help you work through the available options.
Feel free to call me at 1-800-XXX-XXX, and I’d be happy to discuss
different solutions to your problem.
Sincerely,
Jonathan Jones
HOUSES BOUGHT!
Contact me today!
1-800-XXX-XXX
Or
FACING FORECLOSURE?
We can stop it!
Call for a free consultation!
1-800-xxx-xxxx
Flyers can have similar language with more detail. For example:
I can help! I’m a private investor who can help you get out from
under your debt. I look at all properties, no matter what their
condition.
Or
Call 1-800-XXX-XXXX
taxes, then they’re not paying their mortgage payments. This means they
may be candidates for foreclosure and, thus, potential clients for you.
Qualifying Homeowners
Here’s an ironclad rule you should never ever break: Always, always verify a
homeowner’s loan information before proceeding with a deal! Never let the
excitement at the prospect of making a profit overwhelm your common sense.
You need to know if a pre-foreclosure has enough equity to make a deal a good
one.
There are several ways to qualify a homeowner. First, after a homeowner has
expressed interest in working with you, get his or her written permission to
contact the foreclosing lender. Then, contact that lender as soon as possible to
find out the following information:
Ideally, the homeowner will have Internet access to his or her mortgage loan
account. This speeds things up considerably. Otherwise, you’ll have to work
with that homeowner to get the information by other means from the foreclosing
lender.
Upon your initial meeting with the homeowner, make it clear that you’re simply
gathering information at this point and want to review the necessary legal
documents (mortgage or deed of trust, promissory note, loan payment records
latest escrow analysis, etc.). To keep track of all this information, use a
worksheet or checklist. You can easily create one yourself on your computer.
I’ve provided an example of an interview form at the end of this chapter for your
use. Feel free to customize it to fit your own needs.
It’s wise to create another form to track the owner’s loan information. This will
help you keep the numbers straight to see if the deal does indeed have profit
potential. An example of such a form is also provided at the end of the chapter.
In addition to the estoppel letter, you can request that the homeowners send an
authorization letter to the foreclosing lender. Such a letter allows you to discuss
the homeowner’s loan information directly with the loan loss mitigation
department of the lender. This letter should request that the appropriate
information be sent directly to you via letter, fax, or email.
In some cases, homeowners will have obtained their mortgage financing from
private lenders. These lenders can be harder to deal with since they may prefer
to go through foreclosure proceedings. However, it’s worth a try. Have the
homeowner send an estoppel letter to the private lender requesting the pertinent
loan information.
In the next chapter, you’ll learn about Step 3—selling the homeowner on using
you and your services.
If you want to STOP FORECLOSURE before the sale of your house in April, I can help you. I not only want to stop the foreclosure
Of your house, but I also want to save your credit and put $11,000+ into your pocket. But you need to call TODAY!
If you wish to stay in your house, please contact me soon. I can help you stay there. I’ve helped many people stay in their homes,
Even when they thought it was impossible. Call me now for a FREE consultation. I want to help you.
Your situation qualifies you to receive $11,000 or more if you choose to sell your house. If you are interested in selling, please
Contact me immediately at 777-777-7777 or tim@email.com. I buy houses. Time is running out, so call now.
Are you considering bankruptcy? Often this is not the best option. Let me explain the hidden dangers of bankruptcy that lawyers
Are keeping secret.
Before I can help you, I need you to call 777-777-7777 or visit my company’s website at www.website.com. There, you will find
More information about our company and what we do. Feel free to submit an email from the website. It will be answered within 24 hours.
To get your free consultation, call me now at 281-582-8080, and I will begin to assist you immediately. This is a FREE service.
Sincerely,
Tim Mai
Foreclosure Prevention Specialist
tim@email.com
www.website.com YO HABLO ESPANOL
This often means that you need to present yourself as a problem-solver. After all
no homeowners enjoy facing foreclosure and will definitely be looking for
solutions to their predicaments. Although they may not realize it at first, you’re
the person who can provide the solution they need. So, it’s up to you to show
them the benefits of using your services. This calls for a combination of
techniques that are easy to learn and apply. This chapter will show you how to
convince homeowners of the benefits of accepting the solutions you offer them.
One of the key skills of every successful business person is the ability to create
―rapport‖ with others. Rapport means ―building a relationship of mutual
understanding or trust and agreement between people.‖ In other words, it’s
easier to convince homeowners to use your services when they like you. That’s
no secret, of course, but it’s absolutely essential to build personal connections
with homeowners whenever possible. And you can build these connections
through the following effective techniques.
Be Yourself
Be natural, easy-going and friendly. Remember, when homeowners first talk with
you, they may be suspicious due to their dealings with lenders and others, so
their first inclination may be to tell you to take a hike. However, if you’re friendly
and natural from the start, it’s more likely that you’ll be able to overcome this
barrier.
Offer Benefits
Benefits are items that tell homeowners what you’re going to do for them. In the
case of foreclosures, benefits can be similar to the following:
Elimination of the stress of foreclosure
Relief of debt
Avoidance of the embarrassment of foreclosure
The opportunity to seek options other than foreclosure
Here’s an example of how this might work either over the phone or in person.
Notice that in a few short sentences you’ve introduced yourself, stated your
purpose (help in avoiding foreclosure), offered benefits (reduce stress, get rid of
debt), and asked for a commitment to discuss the options. This is a standard
and very effective technique used by successful salespeople over the years. It
gets the point quickly and efficiently. With a little practice of this technique, you
can make it a natural part of your presentations to homeowners.
One important point to keep in mind--never lie about being involved in a sport or
hobby. If the homeowner is very knowledgeable about such activities, he or she
will want to talk about them more, and if they discover you’re faking it, you’ll be
out the door fast with no deal.
On the other hand, some homeowners are introverts; they’re quiet and don’t
open up easily. They tend to prefer a low-key approach and may want to discuss
things in a calm, objective manner. So, that approach may work well for you in
that situation. Just remember not to overdo the matching of personalities. Keep
it subtle; otherwise, homeowners may feel that you’re being false simply in order
to gain an advantage over them.
Create Empathy
Simply put, ―empathy‖ means the ability to put yourself in the homeowner’s shoes
and feel what they’re feeling. To create empathy with homeowners, you need to
get them to open up. The best way to do this is to use the technique of asking
open questions.
Open questions are ones that encourage a person to open up and expand on a
subject. Often, they begin with words like, ―What,‖ Why,‖ ―How,‖ ―In what way,‖
or ―Tell me more,‖ etc. Salespeople often use this technique because it’s so
effective. Here are some examples:
Once you’ve created empathy, you can then ask closed questions to gather the
specific information necessary to determine if the deal is a good one or not. A
closed question is one that asks for a ―Yes‖ or a ―No‖ answer as in, ―Does the
home have any liens on it?‖…‖Are you ready to sign the agreement?‖…‖Do you
understand how Chapter 11 works?‖…‖ etc. Use closed questions once you’ve
gotten beyond the initial conversation and built trust. They’ll help you analyze the
situation and decide if it’s a good deal or not.
Listen!
This can be the most important skill of all, right from the first contact through to
the closing of the deal. One reason for its importance is that homeowners don’t
expect you to really listen to them. So, when you do actually listen to their needs
and problems, they’re pleasantly surprised and more open to you. Listening
builds rapport!
A second reason for practicing good listening skills is that it allows you to pick
up clues and information as to what homeowners are thinking and how they’re
feeling. This permits you to offer them the best solutions to their foreclosure
situation and enhances your chances for closing the deal. To become a great
listener, follow these common-sense guidelines:
Focus on the person. Give your full attention to the homeowners and
maintain eye contact with them (if appropriate for the culture). Don't let
your eyes wander about. This can indicate boredom, impatience or
lack of interest to homeowners, and turn them off to your deal.
Use prompts. If you want homeowners to keep talking, nod your head
while they’re speaking or use verbal prompts like, ―I see…‖…Go
on…‖…‖Tell me more,‖ etc. The use of prompts not only keeps them
talking, but, at the same time, tells them that you’re listening closely
and value what they’re saying.
You’ll find that the basic skills discussed in this chapter will also come in handy
during the negotiating phase (covered later in Step 7). As a matter of fact, they’ll
come in handy in all aspects of your business life. To increase your knowledge, I
recommend that you get further education on selling skills and customer
management. There are many good DVDs, CDs, audiotapes, and videotapes
available for self-study. Or, if you prefer an instructor-led approach and have the
time, there are also many good seminars, workshops and classes available. In
short, my recommendation is—ALWAYS KEEP LEARNING! Go to
http://www.dodeals.com/preforeclosureprofits for more information.
Okay, let’s assume you’ve done a good job of working with the homeowners and
discovered the information you need to formulate a deal. This means it’s time to
take the next critical step—perform due diligence. That’s the subject of the next
chapter.
It’s one of the most important actions you can perform to prevent yourself from
buying a dog of a property that will come back to bite you right in the wallet.
Remember, a majority of properties don’t come without some problems. Most
have minor problems that are obvious at a glance. However, other properties
can look great and still have hidden, major problems (plumbing, electrical, etc.)
that can cost you major cash for repairs.
This chapter will show you how to find and examine public records to determine if
a pre-foreclosure property is worth your time. In fact, all the information in this
chapter is handy and essential for researching any type of property. So, if you
decide to move from the pre-foreclosure market to, say, the multi-unit or
commercial markets, you’ll be ready to do due diligence in those areas as well.
In terms of public records, I want you to keep a central fact in mind—the records
are not always accurate. That’s why you need to review them closely and verify
the information contained in them. You want to make sure there are no
unpleasant surprises that crop up after you take on a pre-foreclosure property.
The Internet
The first step in using the Internet is to use the Google search engine. In many
people’s opinion, it’s the best search engine available. To find out information on
a property, it’s as simple as entering the property owner’s name into the Google
window. If they’ve broken the law in some fashion, then their name may pop up
in court records, and, thus, on your computer screen.
However, most often, it’s a matter of accessing local records and digging into the
information available there. So, once you’re on the Internet, where do you go to
find information about a specific property?
Don’t forget there are many other Internet sites you can visit to check for more
specific information on topics. Here are several:
Crime Statistics
The Disaster Center http://www.disastercenter.com/crime/
NeighborhoodScout –subscription site
http://www.neighborhoodscout.com/neighborhoods/crime-rates.jsp
These are just two examples. Many other sites on crime are available on the
Internet. Use Google to find them for you.
Demographic Information
ESRI—business information solutions http://www.esri.com/data/index.html
Property Records
Property Reports (Intelius) http://find.intelius.com/property-check.html
PublicRecordFinder.com http://www.publicrecordfinder.com/
searchsystems.net http://www.searchsystems.net/
Many more such sites are available online. Do a Google search to find them. As
a precaution, I advise that you double-check information with your local
government offices to ensure there are no code violations, tax liens,
environmental hazards, etc. Sometimes, these agencies may have up-to-date
information that hasn’t yet made it to their web sites.
So, if you live in an area where the county property records aren’t available on
the Internet, how do you find the necessary information? If this is the case, then
you’ll need to call the customer service department at your property
appraiser/assessor’s office and provide them the property’s street address. With
that information, they should be able to tell you:
Of course, if you’re a person who likes to deal directly and in person with your
county offices, then visit them and tell them politely you want to do a title search
to determine if there are liens, etc. They’ll direct you to the record books and/or
microfiche files. Also, at some point in your career, you may want to locate
owners of vacant properties, and, often, you can find this information in the
records. However, if this information is missing or incorrect (as sometimes
happens), then you can check the following governmental sources:
County
Business license records
Jail inmate records
Public library patron records
Voter registration records
State
Bar association records
Department of Motor Vehicles records
Fishing/hunting licenses
Professional license records
Prison inmate records
Vital statistic records
Federal
Prison inmate records
Social Security Administration (death index)
As part of your property records search, you’ll need to examine closely two areas
to make sure there are no problems—liens and titles. Let’s look at these areas
next.
Liens
A lien has many different definitions, but it all boils down to this in terms of real
estate: A lien is legal claim against an asset which is used to secure a loan and
which must be paid when the property is sold. Why are liens important to you?
For one very crucial reason--a lien affects the ability to transfer ownership! In
other words, if there’s a lien on a pre-foreclosure property you want to buy, the
ownership can’t be transferred until that lien is paid. So, if you buy a ―liened‖
property, you can’t do anything with it until that issue is resolved. You’re stuck
not making any money and, possibly, losing it.
Liens can be voluntary (mortgage or trust of deed lien) or involuntary (the result
of legal action). If you need to find information on liens, here are common
sources to check:
Municipal clerk’s records—examine the records for any liens for failure
to pay for municipal services like water, sewer and trash removal services.
Also, determine if there are any code enforcement fines.
United States Courts—search for any federal judgments against the title
holder. These could include federal tax liens and liens resulting from
defaults on FHA, Department of Veterans Affairs (DVA), Small Business
Administration (SBA), and student loans.
Common types of liens are shown at the end of the chapter. Study them so you
can do a thorough search of records. A final note on liens: If there are several
liens on a property, they are generally treated by the law according to
chronological order. In other words, a lien recorded on February 1 would have
priority over a lien recorded on March 1 of the same year. However, liens for
unpaid government services may have priority over other liens in several states.
It’s best to check with your local and state governments to determine what the
rules and regulations are
Titles
Obviously, you want clear and free titles to any pre-foreclosure properties you’re
considering to avoid legal entanglements and expenses. So, a title search is
extremely important. There are two common types:
Full title search—this is a very thorough search of the property’s title from
the date the current owner gained the title back into the past (up to a
maximum search of 60 days).
You can do a title search yourself, but I don’t recommend it! It’s a tricky and very
complicated area, so you’ll need to hire a professional title abstractor or title
examiner to carry out the task. The cost of professional services is cheap
compared to the cost of getting tangled up in the handling of a lien problem. To
find title companies in your area, check the Yellow Pages. Or go online to The
National Association of Land Title Examiners and Abstractors
(http://www.naltea.org/) and use their directory.
Insurance Claims
Always check the casualty and property insurance claims history of a pre-
foreclosure property (or any other kind of property) before you buy it. It does you
no good to buy a property only to find it’s uninsurable or insurance is only
available at an exorbitant rate.
There’s a good source on the Internet. It’s called CLUE (Comprehensive Loss
Underwriting Exchange), and it’s a database of consumer claims created by
ChoicePoint, ―a leading provider of decision-making information and technology
that helps reduce fraud and mitigate risk.‖
(http://www.choicepoint.com/business/pc_ins/us_3.html). CLUE’s database is
used by insurance companies (and your insurance agent) to determine a basis
for underwriting or rating an insurance policy. A CLUE report includes the
following information:
Ask your insurance agent to use CLUE to check this information to make sure
the property is insurable and insurable at prevailing rates for similar area
properties.
Environmental hazards
Legal problems (unpaid taxes, liens, etc.)
Pest control problems (termites, etc.)
Property defects (leaky roofs, etc.)
Title
Zoning problems
If such questions aren’t asked on your state form, be sure to ask them!
Common Liens
Bail bond lien—a bail bond allows a person arrested on criminal charges to be released on
bail pending his or her trial. One way to get a bond is to pledge capital in the form of real
property (a home, etc.)
Child support payment—when a property own fails to make court-ordered child support
payments, the state government places a lien against the property’s title.
Code enforcement lien—this type of lien occurs when a property owner has been fined for
failing to correct code violations and has failed to pay the resulting fine. The local
enforcement board then places a lien on the property’s title.
Corporate franchise lien—this lien can occur within states that have a corporate franchise
tax for the right to do business within those states. If a corporation fails to pay the tax, the
state places a lien against any corporate real property within the state.
Federal judgment lien—this lien concerns debtors who’ve defaulted on federally guaranteed
loans (SBA loans, student-guaranteed loans, etc.). When default occurs, a lien is placed
against the property title.
Federal tax lien—when a person fails to pay federal income tax, the Internal Revenue
Service has the statutory power to place a lien against the title of any real property belonging
to that person.
Homeowners’ association lien—this lien can occur when a member of a homeowners’
association fails to pay their dues as per the deed to the property. The lien is placed against
the property title.
Judgment lien—this type of lien occurs when lawsuits award monetary damages to the
plaintiff. In this case, a lien is placed against both personal and real property of the defendant
until the judgment is placed.
Marital support lien—when a property owner doesn’t pay court-ordered marital support, a
lien is placed against a property’s title. This can be done on the local, state and federal
levels.
Mechanic’s lien—this is a statutory lien which allows architects, contractors, engineers,
mechanics, surveyors, etc. to take legal action against a debtor who’s failed to pay for
furnished work or material for the improvement of real property. The lien is placed against the
real property being worked on.
Mortgage and deed of trust lien—this is a voluntary lien created when real property is
pledged as security for the repayment of the debt.
Municipal lien—when a property owner fails to pay for municipal services (water, sewage,
trash removal, etc.), the local government places a lien against the property’s title.
Public defender lien—when a property owner fails to pay for a court-appointed public
defender, governments (local, state, federal) place a lien against the property title.
Real property tax lien—when a property owner fails to pay his or her property taxes, liens
are placed against the property by local authorities (usually city and county tax collectors).
State inheritance tax lien—this is a tax levied against the estates of deceased individuals. If
the tax isn’t paid, a lien is placed against the estate for the amount owed.
Welfare lien—when a property owner fraudulently collects welfare payments, the local, state
and federal governments can place a lien against the property’s title
Of course, you should do your own inspection first to get a sense of the property
as a potential investment. This is a good course to follow since some problems
may be extremely obvious (sagging ceiling, water damage, etc.) so you’ll know
right away that the property is not worth your time and money. In that case, you
don’t need the expense of a professional inspector.
So, why hire a professional at all? Because they’re experts at finding hidden
defects that can cost a fortune to repair, defects like bad wiring, defective water
pipes, dry rot, mold, rotting roofs, termites, etc! Unless you have experience at
the inspection process, it’s likely that you’ll miss these defects, and devious
owners can be quite good at covering them up.
If you do live in such a state and the seller willfully avoids mentioning the defect,
you can take him or her to court for compensation. Finally, if an owner attempts
to limit your access to or inspection of a property, walk away from the deal! He
or she is likely trying to hide problems.
I’d recommend that you select an inspector who’s a member of The American
Society of Home Inspectors (http://www.ashi.org/) or the National Association of
Home Inspectors http://www.nahi.org/.
You may want to go on the Internet and use ASHI’s ―Find a Home Inspector‖ link
to identify potential candidates in your locality. You’ll find that home inspection
rates vary by inspector, region and size of house. According to Bankrate.com,
approximately 40% of buyers pay in the range of $200 to $250. However, as I
said, rates vary, so it’s good idea to survey your local inspectors to find out what
the costs are in your area.
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Are there priorities for repairs? If so, what are those priorities?
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Of course, it’ll be necessary for you or the professional inspector to get more
specific and look closely at the following areas:
In the next chapter, we’ll look at the all-important step of estimating property
value.
Bad floors. Slanting or sloping floors can be a sign of serious problems with the foundation or
the quality of construction. Also, check for soft spots on upper floors. This can indicate
structural damage.
Cracks. Look around the foundation, walls, ceilings, windows and door frames, chimneys and
retaining walls for cracks. If a seller tells you that these are ―subsidence‖ cracks, don’t accept
this story at face value. It may or may not be true. The only way to find out is to let a
professional do an inspection. Otherwise, use this rule-of-thumb: if a crack is big enough to stick
the width of a pencil into it, then something more serious than subsidence is likely occurring.
Evidence of moisture damage and/or presence of mold. Mold can be particularly dangerous to
the health of inhabitants. It can cause allergies, infections, irritations, and toxicities. It can also
be very difficult and expensive to get rid of, so you definitely don’t want it present in any building
you’re considering. Mold has a characteristic musty smell, so check for that odor. In terms of
moisture intrusion (snow or rain), look for discoloration and stains on ceilings and walls and
around windows and door frames. These clues may indicate serious structural damage. Also,
look for sump pumps. They’re specifically designed to handle flooding in basements and lower
levels. If you find them, have the inspectors check the property out in detail.
Grounds. Some soil problems can be very expensive to fix, so look for evidence of poor
drainage, excess groundwater or cracks in the foundation. Don’t forget to check the drains.
They should all be correctly installed and maintained.
Out-of-true structure. Modern technology is a wonderful aid in determining if a structure is out-
of-true. Laser levels are available at inexpensive prices and are definitely worth the cost. Using
such a level, walk through a property looking for floors, walls, and ceilings that aren’t in plumb.
Don’t forget to open and close doors and windows as well. If they stick, you know things are not
in line.
Pest control inspection. Depending on the part of the country, pests can include termites,
carpenter ants, powder post beetles, and any other bug that likes wood as a main course.
These insects can cause very serious damage to a property. Don’t limit your to insects. Also,
look for ―dry rot‖ and other similar fungi. It’s best to bring in a professional pest control operator
to identify any of these problems.
Plumbing leaks. Internal leaks can do a considerable amount of damage, so check all potential
leak sources--sinks, faucet lines, toilets, dishwashers, washing machines, sprinklers, etc.
Special note: Avoid any property with polybutylene domestic water supply systems. Due to its
tendency to gradually deteriorate through interaction with chlorine and other chemicals in
drinking water, it’s been the subject of class-action lawsuits over the years. The most widely
known brand name was Qest (manufactured by Shell Oil Company, and it was a very popular
type of pipe used in residential and commercial installations in the '70's and the '80's. Indoors,
polybutylene pipe is gray colored and flexible. When used in a yard, it’s blue colored. In terms
of overall plumbing, it was used for both hot and cold plumbing.
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Fortunately, the computer age has made estimating property value easier than in
the past. In many counties, records of property ownership, sales and tax
assessment records are readily accessible online. However, in order to make an
informed decision, you still need to know the basics of appraisal, and this chapter
will provide you with that vital information.
What Is Equity?
Equity is defined as ―the difference between the market (or appraised) value of a
property and the claims held against it.‖ Here’s an example: Assume an owner
has a property that has a market value of $200,000 and an existing loan balance
of $150,000. This owner has $50,000 worth of equity in the home (200,000 –
150,000 = 50,000).
In plain English, USPAP sets standards for property appraisers nationwide. See
the USPAP website for more information on this organization.
http://www.appraisalfoundation.org/s_appraisal/index.asp .
―the most probable price a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently and knowledgeably, and assuming the sale price isn’t affected
by undue stimulus.‖
Also in plain English, this definition means that market value is the probable price
that a property will sell for on the date of appraisal. It also assumes the following:
The assessed value refers to tax valuation. In other words, it’s the value
established by the local tax authority for a parcel of land and the improvements
made on the land in order to collect property taxes.
Beyond the USAP website mentioned above, you can find information on
property appraisers and the appraisal process at the following websites:
The income approach determines an estimate of total real estate value based
upon the rate of return from potential net operating income from the property
(assuming it was leased to a third party). In this method, the appraiser estimates
an annual income rate for the property based upon similar rates for similar users.
For example, the appraiser might determine that a retail space might rent for a
rate of $10 per square foot per year. This rate should be comparable to other
retail spaces in the vicinity.
Once this lease rate is determined, the property’s value is estimated using a type
of multiplier known as a capitalization rate, or cap rate. Historically, cap rates are
subject to several factors including the strength of the type of tenant, the level of
landlord involvement, economic conditions and type of industry. To use a basic
example, a property with a good tenant in a good location might command a cap
rate of 12 percent in a good market.
The value of the real estate is determined by multiplying the net rental rate by the
reciprocal of the cap rate. To continue the example, the value would be
calculated by multiplying $10 per square foot by 8.3 (100 percent divided by a 12
percent cap rate). This would mean that the investment value of the real estate
would be equal to $83 per square foot. Often, these figures are further adjusted
to take into account other variables such as vacancy rates, property
management costs and other investor related factors.
It’s in common use for new properties, proposed construction or unique, or non-
income producing properties like schools, hospitals, churches, public buildings
and the like. The variables involved in estimating value are dependent upon
location, geographic region of the country, labor and material costs. Factors
considered are costs for land acquisitions, site preparation, utilities, types of
building materials, tenant improvements and ―soft‖ costs (architectural and
engineering costs, legal and brokerage fees and other similar related expenses).
This method is often useful for estimating replacement cost.
Remember, appraisals are not an exact science. You’ll find that they’re closer to
an art form. However, as you gain experience, you’ll find it easier to accurately
estimate value so you don’t end up overpaying for properties.
Domania.com http://domaniacom.foreclosure.com/
Foreclosedfiles.com
http://www.foreclosedfiles.com/index.php?p=googlewbs
Foreclosures.com http://www.foreclosures.com/lists/?src=google247
RealtyTrac http://www.realtytrac.com/
USHUDsearch.com http://www.ushudsearch.com/
Here’s an example of how the ratio is figured: Assume a foreclosure property has
a total debt of $100,000 (principle loan balance, loan payments in arrears, late
payment charges, legal fees, subordinate liens, etc.) Now assume it has a
current market value of $125,000. Now divide the debt by the market value; i.e.
The loan value of the property’s mortgage or deed of trust loans in default
The loan payments in arrears
Accrued interest, late payment charges, and legal costs owed by the
owner
The total amount of money needed to cure the default and reinstate the
loan
All judgment liens against the property’s title
The total repair costs necessary to put the property into re-sale condition
The property’s market value (as determined by the comparable sales
method)
In order to obtain the necessary information to complete the market value form,
log onto your county appraiser/assessor web site in order to get the tax-assessed
value of the pre-foreclosure property you’re considering. Then do a comparable
sales search by looking at your county’s online property tax rolls. Look for sales
of three to six properties during the past six months. These properties should be
comparable in terms of size, condition, amenities, etc. and located close to the
pre-foreclosure property (e.g., a one-mile radius). Then, analyze those sales and
adjust prices to account for differences among the properties. Finally, calculate
the per square foot cost of replacing the improvements on the property. Be sure
to use the same building materials and method of construction.
Of course, getting the price you want is all a result of negotiation, and that’s the
subject of the next chapter—how to negotiate effectively with owners of pre-
foreclosure properties.
What I’m saying is that you have to be prepared to deal with emotional people.
The best way to do this is to adopt the attitude of being a problem-solver as I
mentioned earlier in the book. Also, adopt the attitude of empathy; i.e., put
yourself in their shoes to understand what they’re going through so you can build
a personal connection with them on some level.
Keep in mind that many people in foreclosure are good people who’ve often
suffered problems beyond their control—an unexpected illness and enormous
medical bills, loss of a job, divorce, etc. Others have simply made bad decisions
in the financial area and gotten themselves trapped in an ever downward spiral of
debt.
So, you want to do what all good salespeople do—―qualify‖ your prospects. That
is, determine quickly if the homeowners are good prospects for your services or if
they’re not worth your time and investment because of personal problems or
addictions. However qualified homeowners got into their messes, it’s important
for you—and them—to realize that you’re offering a way out.
It’s also important to remember that most property owners facing foreclosure
don’t really want to sell their properties! After all, people invest themselves and
their emotions in their home. It’s the American dream, and no one likes their
dreams shattered. So, they’re looking for any path out of the situation to prevent
the foreclosure from occurring. Again, you can offer escape from a bad situation.
The reason I mention these options again is that they provide what I call secrets
to ―CA$H‖ profits. That is, you can help out homeowners in two ways.
First of all, let’s assume they want to save their home, not sell it. In that case,
you can offer several services to help them.
You can charge to help them get forbearance on their mortgage ($300-
$1,000 range.)
You can charge a referral fee if they qualify for a refinance with a private
or hard money lender ($500-$1,000). Every lender is different so you
might want to check with your local hard money lenders.
Compared to losing a home, these fees are inexpensive, and you can relieve a
lot of tension and stress for the homeowners in the process.
Now, let’s assume you’re working with homeowners who want to sell their home.
In this case, you can offer them the following options:
If the home owners don’t have enough equity, you can ―short-sale‖ the
loan. In a short sale, a lender allows the property to be sold for less than
the existing loan balance. (For more information on short sales, see the
chapter “A Word on Short Sales” later in the book.)
You can put on option on the property and then do a 5-day auction on the
house by using a ―round-robin‖ bidding technique. That is, you take the
current high bid and then call interested parties in turn to see if they’re
willing to beat that price. You don’t need an auctioneer’s license for this
sale. Think of it as being similar to an eBay auction! For more information
on this technique, check out Bill Effros’ How To Sell Your Home in 5 Days.
You can buy the home subject to existing financing, and then reinstate the
loan.
You can pay off the loan completely, fix up the property and retail it.
Now let’s cover some common-sense guidelines that can help smooth
negotiations with homeowners and allow you to make a good deal.
Guideline 1: Be Professional
Be honest and straightforward in all your transactions. It’s not only the right thing
to do, but it can help keep you out of lawsuits filed by dishonest and disgruntled
homeowners who may claim they were fooled into selling their homes for less
than they were worth. To protect yourself, document every step of the
transaction so you have a ―paper trail‖ that’s transparent and proof that you acted
ethically. Also, remember that honesty is an investment in your future as a real
estate investor.
It’s an investment for two reasons. One, when you treat people well, your
reputation spreads by word-of-mouth—the best advertising possible. It brings in
more business. Two, reputation is everything in the community of real estate
investors. So, if you decide to expand your efforts beyond pre-foreclosures into
other property investments (multi-unit dwellings, commercial, etc.), you’d better
have a spotless reputation. Banks, lenders, and other investors—they’re not
going to grant money to someone they view as an unacceptable risk.
financial ―experts,‖ they may be uneasy in dealing with you because they’ll be
afraid they’ll be cheated somehow. The best way to handle this attitude is to
keep everything clear and simple. This will build trust. So, explain the
foreclosure process, the options available to them, and the services you can offer
in simple straightforward manner.
Guideline 5: Listen
I covered this skill earlier in the book, but it’s so important I’ll repeat it here. The
investors who get the best deals are often the quiet listeners. They encourage
homeowners to talk first and listen patiently to what they have to say. Good
listening has two benefits. One, it builds rapport and trust with homeowners.
Two, it gives you good information that can be very useful when it comes time to
negotiate.
Okay, those are the general guidelines for negotiating. Below are some specific
skills for selling homeowners on your deals. I recommend that you learn them as
a starting point and then, as you gain experience, adapt them to your own style.
The second part is often the most important; homeowners have to know what
you can do for them. A presentation doesn’t have to be anything fancy. It just
has to be clear and emphasize benefits. A presentation might go something like
this:
Notice in the above opening statement that benefits are stressed throughout; i.e.,
avoid the possibility of foreclosure…get rid of stress…get rid of debt…the
freedom to move on, etc. Also, in the final sentence, our investor asks for a
commitment to do an inspection.
My rule is to use the following formula to determine the price I want to pay:
ARV $100,000
Margin x.70
= $ 70, 000
Minus Repairs $ 10,000
Sale Price = $ 60,000
Here’s an example:
“George, you’ve said that you don’t your property to go on the foreclosure
auction block and you definitely want to get all this stress out of your life.
With the deal I’m offering you, you’ll get rid of that stress, have the
possibility of foreclosure off your back, and be free to get on with your life.
To my mind, this is a win-win situation for both us. Shall we close the
deal?”
In the above example, the investor summarized needs (need to get rid of stress
and foreclosure possibility), then summarized the benefits that meet those needs
(elimination of stress, avoidance of foreclosure, freedom to get on with life).
Then, the speaker asked for a commitment to close the deal.
“I understand how you might feel that way. However, remember with my
deal, you’ll not only be free of foreclosure headaches, but I’ll be paying
your closing costs* and keeping foreclosure off your credit record as well
as offering you debt relief. Plus, I’ll be giving you a relocation allowance.*
When you look at all those benefits, doesn’t my deal look pretty good to
you now?
*If appropriate to the deal
In the above statement, you acknowledged the objection without agreeing with it.
Then, you offered counterbalancing benefits (payment of closing costs, debt
relief, relocation allowance) and finally asked for acceptance of those benefits.
Of course, people being people, you’ll find that this technique doesn’t work every
time, but it does work on a consistent basis! It works especially well if you
practice it on a regular basis and adapt it to your own unique style.
In real estate, a sales contract is called a ―purchase agreement.‖ It’s the legal
document that outlines the specifics for the purchase of the pre-foreclosure
property (or any other kind of property).
Here are two central facts to keep in mind. First, all states have different terms
for purchase agreements (sales contract, offer to purchase, a contract of
purchase and sale, an earnest money agreement, deposit receipt, etc.) so be
familiar with the term used in your state.
Second, and even more important, all states have different rules and regulations
regarding purchase agreements. This means you can’t use generic forms
downloaded off the Internet. They simply won’t be specific enough for your
needs and can cause you a lot of financial and other headaches if you use them.
If sellers decide, for whatever reason, that they haven’t been treated fairly, they
can launch lawsuits and possibly win if the purchase agreement isn’t considered
legal in your state.
So, study this subject closely and make sure any purchase agreement you draw
up meets state legal requirements in terms of foreclosure and real estate laws.
Also, it shouldn’t include any clauses that the courts can decide are unfair and
unenforceable. Of course, make sure it fully protects your interests in the
transaction.
Key Stipulations
I’ve listed key stipulations below in alphabetical order. All of these stipulations
should be included in your purchase agreements in order to clearly define the
rights and responsibilities of both the buyer and the seller.
In your search for attorneys, look for ones who are very experienced in dealing
with your state’s pre-foreclosure laws. Then, check qualifications and
references. You can do this by first contacting your local or state bar association
referral service for information. Then, search online for your state bar
association membership to find out if the attorney is licensed to practice law in
the state. Finally, check to see if there are any disciplinary actions or misconduct
actions cited against the lawyer. If you need to look nationwide for attorneys, use
one of the following sites to search for information on them.
As I stated earlier, you want an attorney who can speak and write in plain
English, so talk to several to find out which ones can explain foreclosure
purchase agreements in language you can understand easily. This means they
communicate well, and you’ll be able to work easily with them.
Your lawyer can help you draw up the specific language of these questions.
To end this chapter, I’ve provided you with a sample purchase agreement to give
you an idea of what one looks like. It’s shown on the next page.
Once the purchase agreement is signed and witnessed, it’s time to enjoy the
fruits of all your hard work by closing the sale. That’s the subject of the next
chapter.
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Closing the sale can be the most exciting part of the entire process of a pre-
foreclosure sale. However, it can also be the most frustrating since unexpected
obstacles can pop up (unrevealed law suits, etc.).
Also, title and escrow agents are looking out for their interests, not yours, and
may not be used to dealing with private investors. Since they normally work with
banks and conventional lenders, they may regard you with some suspicion. In
addition, they may simply not understand an ―unconventional‖ transaction outside
their experience.
So, to keep them under control, just remember their clearly defined role in the
closing process; their only responsibilities are to make sure that all closing
documents are properly signed and that the proceeds from the sale are
distributed. Legally, they can’t provide advice in the accounting, financial, and
legal areas. They also can’t act as negotiators or mediators between the
transaction parties. In effect, during the closing process, treat them with courtesy
but don’t let them treat you badly.
Of course, a good way to make sure the closing process is handled smoothly and
effectively is to have your board-certified attorney present. This is an absolute
necessity. Unless you’re an attorney experienced in real estate law, never
attempt to do a closing by yourself! As I stated earlier, the attorney should be
experienced and knowledgeable about your state real estate laws and
regulations. He or she should also understand specific foreclosure laws as well
as the subject of liens, judgment liens, and other legal actions that can affect the
closing process.
In addition, RESPA allows buyers and sellers to review their HUD I Settlement
Statement twenty-four hours in advance of the scheduled closing date. So, be
sure to review the statement carefully to check for any errors or overcharges.
If you were the buyer of this property, you would be responsible for the remaining
amount of property taxes for that year or:
And now that you have possession of the pre-foreclosure property, it’s time for
the next step—fixing it up so it has maximum appeal for potential buyers. That’s
the subject of the next chapter.
Once you’ve closed the deal, your job isn’t done. It’s time for ―beautification‖ of
the property so you can make it appealing to potential buyers. After all, you want
to make a maximum profit, and an unappealing property definitely won’t do that
for you!
―Curb appeal‖ is the term used in real estate for an attractive property. In other
words, when potential buyers first see the property, you want them to think
―Wow! (or as close to ―Wow!‖ as possible). You want them to say to themselves,
―This is a property I could live in.‖
Another benefit of curb appeal is that, in the case of vacant properties, it lessens
the chance that vandals will damage or, in the case of arsonists, destroy it
completely. It’s a cheap deterrent!
A third benefit is that good curb appeal increases the resale value of the
property--and the return on your investment! So, maximizing curb appeal is a
cost-effective means of turning a bigger profit.
At the end of the chapter, I’ve provided you with a basic checklist of items to be
accomplished in order to maximize a property’s appeal. Feel free to use it as-is
or modify it meet your specific needs.
In order to keep your costs to a minimum, I recommend that you budget right
from the beginning. Also, keep a checklist of expenses so you have a clear and
definite idea of the outlay of your money. You can make up your own form easily
or use the example I’ve provided at the end of the chapter.
If you’re a person who’d rather spend time acquiring properties than cleaning
them up, I recommend you hire the services of a semi-professional to do the
clean up. It’s often the case that you can find a local, retired person who’s
looking for part-time work. Of course, ask around first to find out which
individuals have great reputations for doing quality work at cost-effective prices.
As you gain experience and knowledge, you’ll be able to select the best and use
their services on a regular basis, creating a win-win situation for both of you.
Verify with the local Better Business Bureau that there is no history of
complaints against the contractor.
*In most states, any service provider who provides a service, labor or materials for
the improvement of real property has a right to file a lien against the property’s title
for non-payment. Moreover, you’re still financially responsible if even you do pay a
contractor for a job and he or she fails to pay the subcontractors who supplied the
labor and the materials. So, if you lack legal proof that everyone involved was paid
in full, you could end up with the short end of the financial stick. Therefore, always,
always have legal proof that everyone has been paid in full.
More Tips
Use the following tips to make sure your ―curb appeal‖ efforts are on time, on
target, and within cost estimates.
Establish a budget and stick to it. Before you begin any clean-up,
repairs, etc., work up a budget to make sure you don’t spend too much
and cut into your profit potential. Use the budget to figure your total cost
and try to stay as close to that figure as possible. You can use the web
sites I mentioned earlier in the book to estimate costs:
Supervise the work. In the beginning, it’s cheaper and better for you to
supervise the work done by contractors to make sure you get quality
results. However, as you grow and gain multiple properties, then you’ll
need to hire a trusted person to do the supervision for you. At that level,
your goal should be to focus on the big picture of increasing overall
income, not spending time and energy on supervision.
Get rid of any odors in the property—a bad smell in a home will turn
potential buyers off fast so be sure to eliminate odors in any pre-
foreclosure property you obtain. A simple way to eliminate mild odors is to
open the house up (depending on the weather) and let nature do the work.
With stronger smells, you’ll need to use an industrial-strength odor
eliminator. There are many such products on the market.
As you can see from this chapter, maximizing the appeal of a property is
mainly a matter of common sense—common sense that can often result in
increased profit on a deal. So, my advice is to pay careful attention to this
area and then enjoy the rewards!
In the next chapter, we’ll look at another way of increasing the return on
investment—how to market and re-sell pre-foreclosure properties in order to
achieve maximum profits.
Other:
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Your name, telephone number, e-mail address, web site address, etc.
The address of the property
A good photograph of the property, if possible.
A description of the property (i.e., the year it was built, architectural style,
construction type, square footage, number of bedrooms and bathrooms,
garage, basement, etc.)
A description of the HVAC system
A description of any of the ―amenities‖ (e.g., swimming pool, patios, decks,
great landscaping, fences, etc.)
Asking price, sales terms, loan information
Create a web page—you can create your own ―properties for sale‖ web
page if you have the knowledge. If you don’t, hire a professional to create
one for you. Just make sure that it loads fast. Slow-loading web pages
cause viewers to get impatient and move on quickly to other sites, and
that could mean business lost. The pages should include photographs
(interior and exterior) of the property, its location, directions to the
property, the site plan, features (and benefits!), the sale price, terms,
appointment information, etc. Maps for your web pages can be found at
online mapping services like:
o Google (http://maps.google.com/)
o MapQuest (http://maps.google.com/)
o Yahoo (http://maps.yahoo.com/)
Use online ads—there are many web sites on which you can advertise
your properties. Do a Google search to find out which ones fit your
objectives and budget best. I recommend two sites:
o Craigslist.com
o Backpage.com
Classified Ads
You can place ads in your local daily and weekly newspapers to reach a larger
local audience. Depending on the particular situation, you can include
information beyond the phone number and email address; e.g., if you’re willing to
finance, the amount of money required for a down payment, total down payment,
etc. A reader will be able to quickly read the ad and know if they’re qualified or
not qualified. So, in effect, your ad pre-qualifies buyers and reduces calls from
non-qualified buyers. Finally, don’t forget to have your ad placed in the
newspaper’s online classification section as well.
Hi, you’ve reached John Smith, Inc. Thanks for calling. We have a great
home for sale at 12345 Maple Street in Jordan, (state). It’s a two-story
Tudor-style home with durable, low-maintenance stucco construction. It
has two bedrooms and two thorough modern bathrooms. The total living
space is 1,800 square feet. All appliances and HVAC are modern as well,
so utility costs are low. Fully carpeted. Two-car garage and big lot—90 ft.
by 130 ft. with a fenced-in back yard and garden and tool shed…..This
home is priced low for a quick sale at $150,000. If you have pre-approval
for a mortgage loan by a state-approved lender in the $130,000 range,
then call (xxx) xxx-xxxx and leave a message to arrange a viewing….
Now that I’ve covered the basic guidelines for marketing, let’s turn to the subject
of pre-qualifying buyers. This is an extremely important part of your sales effort
because you don’t want to waste value time and money on people who can’t
afford the property.
Another way to pre-qualify buyers is work with lenders. Build good relationships
with several local lenders so you have a variety of loan programs to work with.
That way, when you run into potential buyers who need financing, you can send
them to one of the lenders. He or she will then let you know if these buyers are
qualified or not.
such properties for profit. Often, these are professionals (doctors, lawyers, etc.)
who work with wholesalers to find investment properties.
For you, this strategy can mean quick turnarounds and quick profits. It also
means low startup capital as well as less risk since you’ll be limiting your
investment to the earnest money deposit and the charge for a title report. Of
course, work only with honest individuals who have the financial wherewithal and
good credit ratings to ensure that the deal will go through.
Additional Information
I’ve saved the unpleasant fact of taxes for the last. Here’s what you need to
know about taxes on the sale of pre-foreclosure properties: Follow the Internal
Revenue Service (IRS) guidelines to minimize those taxes. It’s best to hire a tax
professional to handle the IRS’ complicated rules and to avoid being labeled as a
real estate dealer rather than an investor.
In general, you should know that if you re-sell a pre-foreclosure property within
one year (12 months) of the purchase date, your profit will be taxed as ordinary
income. Of course, you can reduce that tax by deducting many costs—repair
costs, cost of purchasing the property, insurance costs, real estate taxes paid,
cost of reselling the property, mortgage interest paid, etc.
To gain knowledge on IRS rules and regulations and download forms, go to their
web site at http://www.irs.gov/app/picklist/list/publicationsNoticesPdf.html. On
that site, the IRS lists all publications, and you can scroll through that list to find
the ones you need. I recommend Publication 537: Installment Sales; Publication
550: Investment Income and Expenses; and Publication 946: How to Depreciate
Property. To navigate through other tax information, go the IRS’ home page at
http://www.irs.gov/index.html.
Since lenders aren’t in business to lose money, you can imagine that they’re
reluctant to do short sales and will often only do them as a last resort. It can
make more financial sense for them to go through with a foreclosure.
Keep in mind that short sales cannot be made to relatives, family members, or
close friends of the homeowner. In real estate terms, this is called an ―arm’s
length transaction.‖ If a short sale transaction is completed and a lender later
finds out that, say, the homeowner’s brother bought the property, then that lender
can file a lawsuit to have the sale overturned.
Another obstacle to a short sale is the property owners themselves. They can’t
receive any of the money from a short payoff sale. After all, why should they be
rewarded for financial irresponsibility? So, there’s little incentive for them to do a
short sale. There’s also another negative; the debt that’s canceled by the short
sale payoff of a mortgage or deed of trust is subject to federal income tax as
ordinary earned income. This is not true of a bankruptcy or insolvency.
If both financial and property condition are suitable, ask the homeowner to
give you written authorization to communicate with the loan loss mitigation
department of the appropriate lender.
Call the decision-maker to discuss the short sale and ask the decision-
maker to send the appropriate short-sale documents to the homeowner.
If you accept the counteroffer, you close on the transaction within 30 days.
You can get the latest information on HUD pre-foreclosure sales at the following
website: http://www.hudclips.org/sub_nonhud/html/pdfforms/05-18ml.doc.
If your property cannot be sold for an amount which is equal to or greater than
the amount owed, VA may pay a "compromise claim" for the difference in order
to help you go through with the sale. Compromise sales are approved if the
sales contract meets several criteria and results in a savings to the agency, over
the costs of foreclosure. An additional advantage is that the property is not
acquired by the VA and the owner avoids a foreclosure and resultant damage to
their credit rating. If a compromise contract is accepted, you may be released
from all further liability or you may, in some instances, be asked to repay the
Government for the loss.
In order to be considered for our compromise sale program you must submit a
signed contract equal to fair market value. Any contract should state the words
"pending VA approval of a compromise sale." All closing costs should be
reasonable and customary. You should submit this contract along with the
appropriate forms to VA, if your lender is not already pre-qualified to review these
contracts on our behalf…. You may also contact your lenders Loss Mitigation
Department or the VA, regarding this program
You can find out more information at the DVA’s web page at
http://www.vba.va.gov/ro/Roanoke/rlc/lsc.html.
Date
Enclosed please find my proposal for a short sale payoff for Loan Number
(number, name of property owner, address of property).
My proposal is as follows:
The as-is sale price for the property is between $100,000 and $103,000.
This price is based on the recent sale of comparable properties within the
same area as the property in foreclosure. See attached listing of
comparable properties.
I estimate it will cost between $15,000 and $23,000 to restore the property
to a marketable resale condition. This estimate is based on repair cost
estimates from three licensed home repair contractors.
The borrower is in insolvency.
Within the past three years, property values in the neighborhood
surrounding the foreclosure property have fallen by over 15%.
I have the funds on hand to close on the property purchase within twenty-four
hours’ notice.
I would enjoy talking with you regarding this proposal. Please call me at (xxx)
xxx-xxxx) or email me at investor@hotmail.com. I’d be happy to answer any
questions you have.
Sincerely,
(Name)
Conclusion
The biggest difference between my successful students and 97% of other
investors out there is that my students take the first step and ―just do it.‖ They
then make necessary tweaks as they go along. Most investors never take their
first step.
So, my advice is to take all the information and tools I’ve provided you in this
book and then just…
There’s no substitute for getting out in the field and applying the techniques I’ve
shown you. Action is the key! And action leads to great profits!
So, don’t delay--take that first step and success will be yours. To enhance that
success, I recommend you log on to the Internet and go to the following sites.