The Complete Guide to Locating, Negotiating, and Buying Real Estate Foreclosures: What Smart Investors Need to Know - Explained Simply

By Frankie Orlando

In every hour of each day, savvy real estate investors are accumulating vast fortunes buying foreclosed homes at bank foreclosures, pre-foreclosures, and foreclosure auctions. There is an estimated 1 million plus homes in some stage of foreclosure annually. Armed with the right knowledge and tactics, opportunities for buying low-cost real estate foreclosures are plentiful.

There are a lot of things you need to know before you get started. You need to understand how the foreclosure process works, what the borrower is going through, and the lenders role. This book will teach you everything you need to know to locate and purchase real estate bargains from banks, public auctions, and other sources. Whether you are a first-time homeowner or an experienced property investor, this is a tremendous guide for buying pre-foreclosed homes in any market.

You will learn the simple formula (developed from real-life experience) that can build massive wealth through real estate foreclosures. You will learn how to: negotiate with homeowners in distress, prepare contracts and paperwork, determine the true market value of the property, creative techniques to finance properties, learn how to flip the property, locate one-of-a-kind properties, negotiate with sellers, research, auctions, estimate repair costs, eliminate, obtain REO, use online resources, look up owners contact information, communicate with property owners, write ads, how to receive pre-foreclosure information, options, and more. The Complete Guide to Locating, Negotiating, and Buying Real Estate Foreclosures: What Smart Investors Need to Know is the resource for novices and pros alike; it will guide you through every step of the process including finding properties, negotiating, and closing on your first deal. This book gives you the proven strategies, innovative ideas, and case studies from experts to help you get more with less time and effort that you can put into practice right away.

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• Language: English
• Publisher: Atlantic Publishing Group Inc.
• Release date: Jan 1, 2008
• ISBN: 9781601384638

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Ford

The Complete Guide to Locating, Negotiating, and Buying Real Estate Foreclosures: What Smart Investors Need to Know –– Explained simply

Copyright © 2007 by Atlantic Publishing Group, Inc.

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ISBN-13: 978-0-910627-03-0

ISBN-10: 0-910627-03-7

Orlando, Frankie (Akemi Frances), 1966-

The complete guide to locating, negotiating, and buying real estate

foreclosures : what smart investors need to know explained simply /

Frankie Orlando and Marsha Ford.

p. cm.

Includes bibliographical references and index.

ISBN-13: 978-0-910627-03-0

ISBN-10: 0-910627-03-7

1. Real estate investment--United States. 2. Foreclosure--United

States. 3. House buying--United States. I. Ford, Marsha, 1969- II.

Title.

HD255.O747 2008

332.63’24--dc22

2007049101

LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or Web site is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or Web site may provide or recommendations it may make. Further, readers should be aware that Internet Web sites listed in this work may have changed or disappeared between when this work was written and when it is read.

Table of Contents

Foreword

Introduction

Section 1: Understanding Foreclosures

1: Mortgage Overview & Investment Preview

2: Focus on Foreclosures

3: Investing at Each Stage of a Foreclosure

Section 2: Locating Properties

4: Finding Foreclosures

5: Public Records and Legal Notices

6: Paying For Property Listings

7: Government Listings

8: Other Sources for Foreclosure Listings

Section 3: Getting Connected

9: Making Contact

10: Make It Easy For Them To Find You

Section 4: Looking at the Details

11: Before You Spend Your Time on a Property

12: How to Evaluate Houses

13: Calling In the Experts

14: Crunching the Numbers

Section 5: Buying Foreclosures & How to Make It All Work

15: Buying Pre-Foreclosures

16: Buying at Auctions/Trustee’s Sales

17: Buying REOs

18: Negotiating with Homeowners

19: Working with Banks

20: What About the Redemption Period?

21: What About Junior/ Second Liens?

22: Finding the Money

Section 6: What to Do Once You Own the Property

23: Looking At Repairs

24: Renting Versus Selling

25: Selling Properties

26: Renting Properties

Section 7: Building Wealth Investing in Foreclosures

27: Getting Started

28: How to make More Money

Resources

About the Authors

Glossary

Foreword

If you think you hear the word foreclosure a lot, you are not alone. One day, I wanted to see how many news stories there were on the Internet about the foreclosure crisis in this country. By noon on this particular day, there had already been more than 6,000 articles about foreclosures. Yes, I said 6,000 before 12:00!

Needless to say, foreclosures are one of the hottest topics in America right now, and will be for years to come because there is no end in sight to the foreclosure crisis. People are losing their homes and fortunes, and companies in the mortgage industry are being forced to eliminate jobs. Did you know that every one of those 6,000 articles, every family in distress, and every mortgage company that is forced to close also affects you?

Foreclosures affect your bank account, your property value, your neighborhood, and even your country. That is why buying this book might be the best thing you can do for yourself for the next several years – or at least until the market rebounds. This book will give you an opportunity to help families in distress and put profit in your pocket.

Good fortune in foreclosure will not and should not happen overnight. However, if it is done the right way, over time it can be very fulfilling. Over the last three plus years, my company, Default Research, has seen foreclosure investors come and go. These investors start with a lot of energy and dreams to make a lot of money. Unfortunately, 95 percent of these companies fail after three to four months. As I have said for months on our Default Research educational Web site, the primary reason these investors fail is their lack of quality education in the foreclosure field. Many people attend or read the typical get rich quick book, which focuses on 1 percent of the deals out there – not the average foreclosure or pre-foreclosure deal.

There are many details in a foreclosure investment that need to be considered every time a deal is possible. To compound the immense amount of research, the particular details vary from state to state depending on its particular foreclosure laws. Knowing and thoroughly understanding all of these details is what separates the savvy investor from the one that fails in less than six months. There are millions of dollars to be made in this market, and there is also a unique opportunity to help homeowners in distress. But before anyone can help a homeowner, they need to help themselves and get the proper education.

Before you can profit, a book that provides the fundamental building blocks of education, finance, and marketing preparation is necessary. This is that book.

Default Research can then provide you the most up-to-date pre-foreclosure leads, complete with verified phone numbers. Why are fresh leads so important? Well, timing is everything in the foreclosure business, and as an investor, you need the freshest foreclosure leads to be the first to approach a homeowner in distress. Being at the right place at the right time before another investor will be the difference in you helping a family and somebody else completing that deal.

Enough about what you can do in the future. It is time for you to attack and absorb the quality education found in this book. Good luck and we hope to hear from you soon!

Serdar Bankaci started his real estate research company, Default Research, Inc., two years ago in Greensburg, PA. The growing company provides the most timely pre-foreclosure information to its clients offered anywhere in the country. Bankaci is also having an effect locally in his hometown. Since its creation almost two years ago, Bankaci has expanded from covering one state to seven, and more than doubled the amount of counties from eight to 30.

Education:

BSBA American University 2002 — Major in Finance

MBA University of Miami, FL 2004 — Major in Finance

MS Information Systems, University of Miami, FL 2004

Company contact information

Default Research, Inc.

P.O. Box 663

Mt. Pleasant, PA 15666

www.defaultresearch.com

[e-mail]

[phone] — voice

[phone] — fax

Table of Contents

Introduction

We have all seen the books, print ads, and infomercials from gurus, investors, and writers, all proclaiming the quick riches to be found by investing in foreclosures. These sales pitches have left many contemplating their offers for at least a little while, wondering whether the claims could possibly be true.

Fortunately, it is not all hype. Armed with knowledge, a plan, and some dedication, it is possible to amass considerable wealth by investing in foreclosures. This guide is designed to provide you with two of those three tools.

Investing in foreclosures puts you in a market where you deal with motivated sellers. The seller can be the homeowner or a bank who owns a real estate owned (REO) property. Sellers either cannot keep or do not want the property, and it isn’t hard to find homeowners who do not want to or cannot stay in their home. Please note, you will also hear real estate owned property referred to as other real estate (ORE) and other real estate owned (OREO). We will stick with the REO term.

Rarely will you find homeowners with as much time pressure as those facing foreclosure. In a matter of months, they will lose their house. Such homeowners do not have the luxury of time or money to keep their house on the market for as long as it takes to get the best offer. After foreclosing on the property, the bank does not want to keep it. It would rather sell the property at a reasonable price at auction.

Aside from not wanting to be in the business of owning real estate, banks are often under outside regulatory pressure to limit how much of their assets are in REO. Banks have a legal responsibility to their depositors to make smart investments with their money. Keeping speculative real estate holdings is not responsible. Therefore, banks are quite happy to get rid of these properties. And even with the secondary market – Freddie Mac and Fannie Mae – REO properties can still be solid investments.

Motivated sellers tip the scale in your favor. Not only do they want to deal with you, they might be willing to give you a good deal on the property in order to sell it as soon as possible. Whether this means that the property is a hot deal for you, or that you will even make money on the transaction, depends on several factors. It all begins with the property’s potential value and with your number crunching – all covered in these pages.

Using this book will help you become – and remain – a successful foreclosure real estate investor. You will learn the language of mortgages, investing, and real estate. You will also learn how to negotiate with the right people. You will understand the details that make up smart real estate investing and how to avoid the potential pitfalls. Making reliable and consistently correct decisions requires not only sufficient information gathering, but working out a decision-making process. How well you market the properties, sell them, or rent them at a profit will shape your future in the foreclosure investing world.

Not everyone understands the foreclosure process or is suited to work in the foreclosure business. With real estate, you are dealing with big-ticket items. This is an environment where you cannot return a property just because it does not work out. Newcomers need to make careful, informed decisions. Otherwise, they may make a big mistake from which they cannot recover easily.

That said, you can do this if you want to. You do not need to have a college degree, or even go through a licensing program. No entrance fee or exam forestalls you. Nothing is stopping from you from getting into the real estate business.

In this book, we cover the introductory components of successfully investing in foreclosures. In this Introduction, we include a section – Is Investing in Foreclosures for You? – with a set of true-false questions to get you thinking about whether investing in foreclosures is for you. Do not consider this a preliminary filter. Just because you answer more questions with false than true does not mean you fail. A lifetime of successful real estate investing with foreclosures can still be for you. Nevertheless, these questions should get you thinking about whether you would enjoy working with foreclosures. You will have to decide whether you are willing to compensate for your natural limitations or personal persuasions to get ahead in this business.

What are Foreclosures?

We discuss foreclosures in detail in Chapter 2, but we will introduce them here. The term foreclosure refers to a process rather than a property. Foreclosures occur when borrowers fail to make payments as promised in the loans they obtained from lenders (lien holders). When borrowers default, lenders have the legal right to reclaim the properties. It is this process of reclaiming properties that is referred to as foreclosure. You, as the investor, have the opportunity to move in on properties in the foreclosure process. This process spans the entire time that a house is going through foreclosure. The schedule includes the pre-foreclosure, the auction, and the time afterward when a house is a bank REO property. Commercial and residential properties can go under foreclosure, as can land lots.

Why Invest in Foreclosures?

Think of an amusement park. Concessions may charge $7.99 for large drinks. Not only do people buy them, they stand in line to buy them. This works because the alternative is less appealing.

Park visitors could leave the park and walk all the way to their cars, then drive for ten minutes to the nearest convenience or grocery store to purchase a cold soda. After saving $6 on the drink, visitors would have to drive back to the park, walk through the parking lot, and enter lines once again.

Instead of taking the one-hour trip for a drink, most people simply grumble about the prices and wait their turn in line. In this situation, they are highly motivated buyers.

This type of time versus money decision is made all the time. Do you make at home or buy pre-prepared? Wash the car by hand or go through a car wash? Read the entire book or just pick up a summarized version? Something similar happens when a house is in foreclosure. In this case, you are dealing not with motivated buyers, but with motivated sellers. The sellers of the property – homeowner-borrowers or the bank-lending agent – cannot or do not want to keep the property, and the law sets the timeline that everyone must abide by.

State laws dictate how banks manage the foreclosure process. The homeowner-borrower has already defaulted. They are overdue in making their mortgage payments by two or three months. The bank, understandably, wants its money. The foreclosure is how it collects.

The homeowner-borrower has no control over the schedule, other than maybe filing for an extension or two. Many ways to circumvent a foreclosure exist, but people faced with foreclosure may find themselves in crisis mode. As such, you may find yourself dealing with a highly motivated seller.

In the case of bank lending agents, they do not want to spend the time and energy to manage the property since they are not in that business. Not only are the banks not interested in owning REO property, statistics show that lenders lose money on foreclosures every time. In a Pioneer Press article from 2006, Keenan Raverty, president of Mortgage Association of Minnesota, says banks lose an average of $50,000 per property that is foreclosed (Bjorhus and Sylwester).

Waiting for the best offer to come through is not an option for homeowners facing foreclosure. You have motivated sellers facing a time versus money trade-off. If you make them a good enough offer, they may just bite.

Compare this to a circumstance where two empty nesters plan to move into a vacation condominium in Florida. Their children have grown up and left home. The couple is retired so there is no job transfer requirement. Aside from a desire to wake up to warmer weather, the older couple has no compelling reason to leave their house any time soon. They will stay as long as they need to in order to secure that sweet price point. They are just not that motivated to sell. They will pack up and move when they get the right price for their house.

I have this situation going on right now across my street. A nice couple (grandparents) has a gorgeous home and yard. With no kids in the house, they have had no problem keeping the house maintained and making repairs. Their yard looks immaculate. They put their single-family ranch-style home on the market about three weeks ago. They want just over $500,000 for the property. This price is reasonable for the Northern Virginia area. The price is also not bad for a house they picked up back in 1987 for about $130,000. The house has been sitting on the market for the last month with open houses occurring on the weekends. A constant parade of perspective buyers go in for their tour and come out with their complimentary soda or bottle of water.

According to a July 2006 article by Merv and Pam Forney of the Northern Virginia Real Estate Guide, houses in the Northern Virginia area stayed on the market an average of 70 days in July 2006, compared to about 25 days in July 2005. If the couple across the street had to move before the new school year started or due to a job transfer, we might have a different story. With outside time pressures, perhaps we would see price cuts indicating their willingness to deal.

In a working paper published in 2004 by the National Reserve Bank of St. Louis, Anthony Pennington-Cross reports that foreclosures sell at 22 to 24 percent lower than their counterparts. He also cites four other studies that also found foreclosed properties sell at 22 to 24 percent less than similar, nearby properties. A 20 percent discount leads to a nice profit once you start dealing with six figures. Consider picking up a $200,000 home for only $160,000, or finding a $300,000 property for $240,000. If the property were not facing foreclosure, you would have a hard time convincing the homeowners to give you such a discount.

If the notion of investing in foreclosures makes you uncomfortable, consider for a moment that whether you get involved or not, that property is already heading for foreclosure. What happens to the homeowner is not your responsibility. I list some of the common reasons why foreclosures happen in Chapter 2. People who excel in the foreclosure real estate investing business understand that they are remedying a tight situation to everyone’s advantage.

If you do not take advantage of the situation, somebody else will. In fact, if you are not well prepared when you hunt foreclosures, somebody will most likely beat you.

How