Guidebook to Fighting Foreclosure

What Lies In Your Debt?

If you are like millions of Americans who are behind on their mortgage or thinking about doing a strategic walk out, behind on their credit cards, or just being harrased by debt collectors, then this system is for you. Fraud involving mortgage loans, and/or foreclosure proceedings are increasingly less tolerated by courts. In addition, some mistakes and fraud actually violate laws and your rights as a homeowner and consumer under the Tila, Respa, and by State and Federal Acts. We have even seen cases where the mortgage did not match the note. That fact alone can stop the foreclosure dead in its tracks. In other cases, the transfer of rights in the property was not properly executed in the mortgage which leaves the bank with an unsecured credit line. There are many factors which makes almost all foreclosures illegal. If you are not aware of these factors you are walking away and losing your home for no good reason. Read more here...

What Lies In Your Debt Summary


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Creating Win Win Situations in Pre Foreclosure Prior to Auction

Some of the best foreclosure investment opportunities are available in pre-foreclosure purchasing a home directly from the homeowners prior to auction. Competition from other investors is generally less fierce at this point, and the homeowners have more options. In this part, I show you how to locate properties prior to foreclosure, gather information about those properties and their owners, and assist homeowners through the foreclosure process while acquiring properties below market value.

Wrapping Your Brain around Foreclosure Investing

Taking a bird's-eye view of the foreclosure process Building a team of advisors, investors, and assistants Gathering critical data about properties and their owners Buying and taking possession of a foreclosure property Realizing your profit at the end process provides you with a context for understanding. In the case of investing in foreclosures, a general knowledge of the foreclosure process and the rules and regulations that govern it can reveal opportunities for purchasing properties below market value. In this chapter, I provide an overview of the foreclosure process, stress the necessity of building a competent investment team, introduce you to essential property research techniques and resources, briefly explain the process of buying and taking possession of properties, and touch on various options you have to cash out your profit once you own the property. In a nutshell, I give you the basic structure for investing in foreclosed properties, and as soon as you begin buying...

Investigating the Foreclosure Process from Start to Finish

A common misconception of foreclosure is that after the homeowners miss a payment or two, the lender immediately takes possession of the property and then turns around and auctions it off at a foreclosure sale. Actually, the process is more drawn out than that, following this typical scenario i After about three missed monthly payments, the lender transfers the matter over to outside counsel, which is normally handled regionally. The attorney sends an official notice, warning that foreclosure proceedings are about to begin. I Homeowners don't reply or present a solution that the lender deems unsatisfactory. At this point, the homeowners can usually stop the foreclosure by negotiating a suitable solution with the lender. I The attorney begins the foreclosure process by posting a foreclosure notice in the county's legal newspaper or in the local newspaper. The homeowners can still reinstate the mortgage at this point by catching up on the payments and paying any additional late fees and...

Bidding on properties at foreclosure auctions

Now, don't run out and start scooping up properties at foreclosure auctions just yet. Uninformed investors often get burned by diving before they learn to dog paddle. Foreclosure auctions are packed with peril, often trapping novice investors into making costly mistakes, such as these 1 Buying a junior lien thinking it's a senior lien. When you buy properties at a foreclosure sale, you're really buying mortgages. The first mortgage on a property is called the senior lien, which gives the buyer the most control over the property. Additional claims against the property are called junior liens, which often get wiped out during foreclosure. Buy a junior lien by mistake, and you may have just bought yourself a worthless piece of paper. Only a thorough research of the title, as explained in Chapter 8, can steer you clear of making this common and potentially very costly mistake. As soon as you buy a foreclosure, even if you can't take possession of it right away, call your insurance agent...

Finding foreclosures and seized properties

The first step in foreclosure investing is often the most difficult for first-time investors finding potentially profitable properties. Plenty of foreclosures and seized properties are available, but where do you look for them The answer to that question varies depending on where in the foreclosure process you choose to focus on, but here's a list of where you can expect to obtain the most valuable leads I Foreclosure notices in local papers or legal publications I Web sites that list foreclosure and government-seized properties Online foreclosure information services range from excellent to total rip-offs. Some services deliver timely information, while others deliver out-of-date information that's totally useless. In the beginning, you should do your own footwork. Word-of-mouth leads are often the best leads. Make sure everyone you know and meet knows that you purchase distressed properties and work with people who are facing foreclosure. Some investors have so many distressed...

Getting Up to Speed on the Foreclosure Process

Brushing up on the differences in how foreclosures are handled Investigating the early missed payment pre-foreclosure period Finding opportunities in the Notice of Default stage Arriving at the foreclosure auction stage Waiting out post-foreclosure, from redemption to eviction J common foreclosure myth is that it's a one-time event. Homeowners miss a mortgage payment or two, and the lender swoops in and scoops up the property. The fact is that foreclosure is typically a long, drawn-out legal process that begins with missed payments, proceeds through some sort of legal system, and often results in homeowners losing their homes. An understanding of the foreclosure process reveals the various stages at which you can purchase properties. By knowing what to expect, you can often diminish disappointment and maximize your opportunities. This chapter provides a roadmap of the foreclosure process beginning with some notice to the homeowners and the public of missed mortgage payments and...

Identifying the Foreclosure Process in Your Area

The end result of foreclosure is that the homeowners lose ownership and ultimately lose possession of their property. That's true no matter where you're buying foreclosure properties. However, different states and counties follow different foreclosure procedures. The two main procedures are i Foreclosure by trustee sale or foreclosure by advertisement i Foreclosure by judicial sale or judicial foreclosure The following sections describe these two types of foreclosure. To find out which process your state follows, check the appendix at the back of this book. Counties may also have their own local rules for how the sale is actually carried out, so visit your county courthouse (the Register of Deeds office), and ask them to explain the rules and regulations. I also recommend that you sit in on a few auctions before bidding on anything.

Foreclosure by trustee sale

If the homeowners default on the payment, the lender can notify the trustee to initiate foreclosure proceedings. The trustee can then sell the property and transfer proceeds to the lender as payment of the loan. Because the foreclosure does not need to progress through the courts, foreclosure by trustee sale is typically much faster than foreclosure by judicial sale.

Foreclosure by judicial sale

Fewer than half the states follow a judicial foreclosure process. As you've probably guessed, judicial foreclosure passes through the justice system the state (circuit court) or district court. When the homeowners default on their mortgage, the lender files a claim to recover the unpaid balance of the loan from the borrowers. The courts decide the case, which typically takes a long time to resolve typically 4 to 6 months, but sometimes up to a year. During this time, unless the homeowners work out a payment plan or some other solution with the lender, they're almost guaranteed to lose their home.

Proceeding to the Foreclosure Sale

Prior to the foreclosure sale, the homeowners can work with the lender or their attorney to delay or cancel the foreclosure sale. In other words, just because you see a foreclosure notice in the local paper doesn't mean that if you show up for the sale, that property is going to be auctioned off. Calling the attorney in charge of the foreclosure prior to the sale is a great way to find out if the property is going to be offered at the sale. The attorney's name is usually listed on the foreclosure notice. In Chapter 7, I show you how to pick out important details on the foreclosure notice. At the foreclosure sale, you have an opportunity to bid against other investors for any properties being auctioned off. As I explain in Chapter 11, some auctions have open bidding, whereas others use a sealed bid system. However your county chooses to hold its auctions, a few words of advice can assist you in acquiring properties and not losing your shirt 1 Buy only senior liens (first mortgages)....

Halting the Foreclosure Process

Distressed homeowners are plagued by a swarm of emotions ranging from disbelief and resentment to shame and guilt. They may have several options to stop the foreclosure process, but they're too upset and confused to think clearly or explore their options and so angry or fearful that they hesitate to contact the lender in order to work out a solution. In the following sections, I introduce various ways that homeowners in foreclosure can stop or delay the foreclosure process. Use this information not only to better assist distressed homeowners, but also to prepare yourself for the possibility that the homeowners may choose to cut you out of a promising deal by successfully negotiating with the lender or another investor.

Agreeing to a deed in lieu of foreclosure

When homeowners have very little to none or even negative equity built up in their property and they have no hope of turning the financial tide, they may offer the lender a deed in lieu of foreclosure. The homeowners agree to pass the deed and their house keys to the lender without having to go through a messy public foreclosure process. Some investors around the country make a really good living just working short sales. If you can't purchase a foreclosure property for a low enough price to make a profit, negotiating a short sale can make the deal more profitable. Keep in mind, however, that lenders won't agree to short sales if they foresee the homeowners walking away with money, and you shouldn't negotiate a lower payoff to put money in the pockets of the homeowners. See Chapter 15 for details.

Picking Your Point of Entry in the Foreclosure Process

Buying directly from homeowners in pre-auction Chasing foreclosure notices pros and cons Scoping out properties at foreclosure auctions Tracking down bank- and government-owned properties foreclosure investing encompasses much more than simply buying properties for pennies on the dollar at a foreclosure auction. The foreclosure process often takes three months to a year to run its course, and investors can step into the process at any time to scoop up a property. In fact, investors can even step in before official foreclosure proceedings begin and in some areas months after they wrap up. Although you can buy properties at numerous stages in the foreclosure process, I recommend that you become a specialist in one area first. Focus on pre-auction properties, auctions, or post-auctions, so you can become an expert in one area. You can branch out later, as you become more experienced, develop better connections, and strengthen your investment team and your financial position. In this...

Exploring the pros and cons of preauction foreclosures

Although you can certainly wait for the foreclosure auction to roll around, the pre-auction stage offers several benefits to foreclosure investors Carefully consider the pros and cons before investing in anything and honestly assess your ability to deal with the negative aspects of certain investment options. Buying foreclosure properties in the pre-auction stage isn't for everyone.

Pursuing Foreclosure Notices

Whether you buy properties directly from homeowners prior to the auction or wait until the auction stage, the weekly foreclosure notices in your area are required reading. In almost all areas of the country, the lender must post a weekly foreclosure notice or Notice of Default (NOD) in a publicly accessible publication several weeks prior to the auction. In my area, the foreclosure notice must be posted for four consecutive weeks prior to the sale in any public newspaper that serves the area. The appendix at the back of this book explains each state's requirements for posting foreclosure notices. The posting of the foreclosure notice is almost an entirely separate stage of the foreclosure process after negotiations between the homeowners and lender break down, but before the property is sold at auction. At this stage, every foreclosure investor in your area probably knows about the property, and any investors interested in buying the property prior to auction are likely in the process...

Knowing the benefits of waiting for the foreclosure notice

Many foreclosure investors don't like dealing with distressed homeowners until the official foreclosure notice is posted because until that point, homeowners may be unwilling to accept the fact that foreclosure is imminent. The posting of the foreclosure notice removes most of the lingering doubt and acts as a wakeup call for the homeowners to take action. The foreclosure notice offers several additional benefits As you learn throughout your experience as a foreclosure investor, every bit of information you have about a property is a valuable puzzle piece that clarifies the situation and enables you to put together an attractive deal that benefits all those involved. WEfl Just because the lender posts a foreclosure notice does not mean that the property is destined for the auction block. Any time prior to the sale, the homeowners can strike a deal with the lender or refinance to call off the foreclosure or strike a deal with an investor to sell the property. As soon as the foreclosure...

Weighing the drawbacks of waiting for the foreclosure notice

Although the posting of the foreclosure notice delivers some valuable benefits to foreclosure investors, it also heats up competition among area investors who are all looking for the best deals in the area. As soon as that foreclosure notice is published, every foreclosure investor working the pre-auction circuit catches the scent and heads out to research the property and contact the homeowners. When buying properties from distressed homeowners prior to auction, finding out about prospective foreclosure properties prior to the posting of the notice often gives you a competitive edge. Networking, as discussed in Chapter 6, provides the earliest leads. Reading the notices as soon as they're posted and acting quickly to contact the homeowners is the next best option.

Bidding for a Property at a Foreclosure Auction

Foreclosure investors often choose to do their bidding at auctions. A common misconception about foreclosure auctions is that investors bid on properties. The truth is that investors bid on mortgages (also called liens). What's the difference When you buy a property from homeowners, you own the property. When you buy a lien at a foreclosure sale, you may or may not eventually take possession of the property if your area has a redemption period, the homeowners or someone else who has a legal claim to the property can redeem it. Check the appendix at the back of this book and consult your county's Register of Deeds office to find out more about the redemption period in your state. For a better understanding of what you're actually buying at a foreclosure auction, brush up on the following types of liens i Junior lien The junior lien is any other loan the homeowners took out using their home as collateral. A junior lien is usually a second mortgage, but it can be a home equity loan or...

What Are Foreclosures

One way to find motivated sellers is to delve into the foreclosure market. Foreclosures happen when people can't make the payments on a debt, and the lender tells them it is going to take the property to pay off the debt. These loans are secured by real estate. Foreclosures can also happen when people don't pay their bills and a creditor gets a lien or judgment against their real estate. These people are going to lose their property. There are two ways to buy foreclosures preforeclosures and tax sales. Preforeclosures are deals from people who got a letter from the bank, saying the lender is about to foreclosure, unless they make the missing payments. That's one of the best foreclosure markets to work in because the owner still owns the house. Until the moment when the judge bangs her gavel finalizing the foreclosure, the people can still sell it. Of course, the debts have to be paid off you can be the one to pay them.

Finding Foreclosure Notices

I take the foreclosure notice as somewhat of a personal failure. I wonder, Why didn't this homeowner come to me first The foreclosure notice marks the beginning of the end the day when the lender first publicly announces that the homeowners haven't been making their payments. It's also the day when foreclosure investors ramp up their efforts to contact the homeowners and when con artists often begin crawling out from under their rocks or whatever dark place they choose to hide. Even though the foreclosure notice marks the beginning of the end for most distressed homeowners, it usually appears several weeks prior to the auction, so you still have a little time left to assist the homeowners. Also, if the house does end up on the auction block, the foreclosure notice provides you with additional information you can use to start tracking the foreclosure, so if the opportunity arises for you to purchase the property later, you can be well prepared in advance with the information you need...

Subscribing to commercial foreclosure information services or not

You can find plenty of commercial services that deliver foreclosure notices via e-mail, snail mail, or through member-only Web sites. Some of these services charge fees that are fairly reasonable you can buy notices by city, county, or zip code to keep costs down. Other services may charge 3,000 a year to mail you notices that are out of date by the time the mail carrier delivers them. Don't waste your money on high-cost foreclosure subscription services, and never rely solely on a commercial subscription service for leads. These services are no replacement for reading the weekly county legal news. Why pay more for a commercial service when your county provides the same or better information for free or for a modest subscription fee If you decide to subscribe to a service, sign up for your own zip code first and test it out. Compare the results to your own research to see if the information is timely and accurate. Most of these services offer dated material, but sometimes they provide...

Deciphering a foreclosure notice

Attorneys write foreclosure notices, so you can expect them to be written in cryptic legalese that seems to discourage the average person from thinking about buying the property. In Chapter 8, I present a sample foreclosure notice that shows just how cryptic they can be, and I highlight the important pieces of information the foreclosure notice contains 1 Foreclosure attorney's name and contact information 1 Whether this is the first, second, third, or fourth posting of the foreclosure notice Hurry. The clock's ticking. You have about 30 to 90 days from the time the foreclosure notice appears in the paper before the property goes on the auction block. You also have more competition now that the foreclosure is public knowledge. Head to Chapter 8 and start gathering information about the property pronto After you find a property in which you're interested, double-check to make sure that it's going to be sold. Sometimes, the foreclosure notice is posted, and then the homeowner files for...

Meet with one of the representatives and explain that youre reading this book called Foreclosure Investing For Dummies

Beecher, highly educated and very successful in her field, attended a seminar on foreclosure investing. She purchased the books and CDs for sale at the seminar, studied them carefully, and decided to begin purchasing foreclosure properties. The system seemed straightforward enough, so she began attending auctions and purchasing properties right out of the shoot. Well, she thought she was purchasing properties. At foreclosure auctions, you actually purchase foreclosed-upon mortgages. If you buy a first mortgage, you're likely to take possession of the property after the redemption period. Second mortgages and other liens against the property are usually wiped out by the foreclosure process in most cases, they're worthless. Paul, my buyer at foreclosure auctions, observed the doctor over the course of a couple weeks. One week, Paul approached her and asked if she understood what she was doing. During the conversation, Paul realized that the doctor was following some bad advice. He...

Picking details off the foreclosure notice

When a NOD or foreclosure notice is published, like the one shown in Figure 8-1, you have a wealth of information at your fingertips. The NOD or foreclosure notice presents you with the following details that you can record on foreclosure information sheet, shown in Figure 8-2 1 Case or reference number1 Some attorneys include a case or reference number in the foreclosure notice to simplify the process of searching for information in their database. 1 Amount owed on the mortgage7 The NOD or foreclosure notice always states the exact amount the homeowners currently owe on this mortgage. They may owe additional sums on other loans. The amount owed changes between the time the notice is published and the sale occurs, so call the foreclosing attorney closer to the date of sale to determine the actual opening bid amount. 1 Length of the property's redemption period, if applicable11 If your area has a mandatory redemption period, it should appear in the NOD or foreclosure notice. Using the...

Scheduling Your Foreclosure Activities

Your schedule is generally dictated by the time span between the posting of the foreclosure notice and the sale and on the redemption period, if you have a redemption period in your area. If your area has a redemption period, you can continue to educate and work with the homeowners even after their home has been sold at auction. Planning is important, but be flexible. The foreclosure process is predictable, but the homeowners and their situation are often very unpredictable. Be prepared to ride some serious waves. In Michigan, the foreclosure notice is published four-to-six consecutive weeks before the sale and is typically subject to a redemption period of six months or more. My plan kicks into action as soon as I spot an interesting foreclosure notice and continues for four consecutive weeks. Start with the following plan and tweak it to conform to the foreclosure schedule in your area

Giving a deed in lieu of foreclosure

When the homeowner owes more on a property than what it's worth and the lender refuses to agree to a short sale, the best option for the homeowners may be to offer the lender the deed in lieu of foreclosure. When homeowners give a deed in lieu foreclosure, they relinquish ownership of the home and walk away. Offering a deed in lieu of foreclosure is better than foreclosure. It's the right thing to do, if no other options make sense and the lender agrees to go along with it. The lender may even report the mortgage as paid as agreed, but there's no guarantee. In some cases, the lender refuses to accept the deed for example, if the property is condemned or has some sort of environmental problems or if the owners have other assets that the lender wants to go after. Giving the deed in lieu of foreclosure only makes sense if the homeowners have negative equity in the home and are near the end of the foreclosure process. If the homeowners have time prior to the auction or during the...

The Foreclosure Sale the Second Stage

Eventually, when the defaulting borrowers run out of time, legal defenses, or delaying maneuvers, the foreclosure sale date arrives. At this point, the court trustee auctions the property to the highest cash bidder. On occasion, a real estate investor (a foreclosure speculator) submits the winning bid. More likely, though, the lender who has forced the foreclosure sale bids, say, one dollar more than the amount of its unpaid claims (mortgage balance, late fees, accrued interest, attorney fees, foreclosure costs) and walks away with a sheriff's deed to the property. From then on until the lender sells the property, that property remains on the lender's books as real estate owned an REO.

Why Foreclosures Sell for Less than Market Value

A typical foreclosed property does sell at a price less than its market value. Why Because foreclosure auctions don't come close to meeting the criteria of a market value transaction (see Box 10.1). Market Value Sale Foreclosure A uction Box 10.1 Characteristics of a Foreclosure Sale Box 10.1 Characteristics of a Foreclosure Sale As you can see, foreclosure auctions seem purposely designed to yield the lowest possible sales price. They take place under conditions that violate all principles of effective marketing.

Safer than Buying at the Foreclosure Sale

Several exceptions might include (1) states where the foreclosed owners may have a right of redemption (2) if the foreclosed owners still retain some legal right to challenge the validity of the foreclosure sale or (3) if a bankruptcy trustee or the Internal Revenue Service (tax lien) is entitled to bring the property within their powers. Rarely would any of these potential claims be worth losing sleep over. But prior to closing an REO purchase, you might want to run these issues by legal counsel. buy an REO much more safely than you could have bought the same property at its foreclosure sale. Depending on the lender's motivation, its internal policies and procedures, and the property loan-to-value ratio (LTV) at the time of the foreclosure sale, you might even be able to buy at a price lower than market value.

Follow Up After Foreclosure

You can easily learn of lender REOs by attending foreclosure auctions. When a lender casts a top bid for a property in which you're interested, buttonhole the bidder and start talking business. Or try to schedule an appointment to see the officer who takes charge of the management and

Buy from Foreclosure Speculators

Another way to profit from foreclosure and forced sale auctions without actually bidding is to buy from a winning bidder shortly after the foreclosure sale. Say a foreclosure speculator puts in a winning bid of 145,000 on a property that seems to have a market value of 195,000 if it were fixed up and marketed effectively. After the auction, you offer the speculator 170,000 (or whatever). To minimize risk, you attach several contingencies to your offer that permit you to get the property thoroughly inspected, evict any holdover owners or tenants, clear up title problems, seek title insurance, and arrange financing. If the property checks out, the sale closes and the speculator makes a quick 25,000 (more or less). You get the property at a discount without the costly surprises that can turn a superficially promising foreclosure buy into a big loss.

Buying Deeds in Lieu of Foreclosure

It's often easier to buy a deed in lieu of foreclosure than it is to buy a property that's already in foreclosure because it's a better way for homeowners to get out from under debt. Selling property as a deed in lieu of foreclosure doesn't ruin the seller's credit as much as going into foreclosure. In some respects, buying a deed in lieu of foreclosure is almost the same as buying a short sale because the seller is saying to prospective buyers I can't afford the property, so here, please take it off my hands. Lisa has invested in several deeds in lieu of foreclosure. For example, she bought a property in North Carolina from a man named Randy, who had a first mortgage with Wachovia Bank and a second mortgage with a finance company. Lisa first got involved when Randy was behind in his payments for his second mortgage. She negotiated with the second mortgage holder and bought the loan, which meant that Lisa made the mortgage payments on the second mortgage. Then Lisa was notified that...

Buying Properties in Foreclosure

In 2008, the number of foreclosures in the United States skyrocketed. Foreclosures are properties that have been repossessed, usually because the owner is financially unable to make the mortgage payments, is several months in arrears, and is unable to negotiate new mortgage terms with the bank holding the mortgage. These homeowners then incur fees, in addition to what they already owe to their lenders, so they lose their property. Locating a foreclosure in the current market is a lot easier than it ever has been because the number of foreclosures is on the rise. You can find foreclosed properties listed by city and state by checking out the Web sites of such government agencies as the Department of Housing and Urban Development ( and the Department of Veterans Affairs ( You can also check the Web sites for Fannie Mae ( and Freddie Mac ( Or consider banks, credit unions, real estate agents, Internet subscription services,...

What to Look Out for When Buying Foreclosures

For instance, our accountant, Haimy, bought a property in foreclosure last year. Because she had no real estate investing experience and had no idea what she was looking at, we helped her through the process. She wanted to live in a specific area outside of San Francisco. She couldn't afford to buy in 2007 because the houses were selling in the mid- 400,000s. In 2008, a house that had been on the market in 2007 for 400,000 went into foreclosure and was priced to sell at 270,000. After the property was absolutely foreclosed on and the bank had had no bites from anybody, it went into REO status and was listed with a real estate agent who handled REO properties.

Financing Foreclosures as Investments

Some lenders are willing to make loans to help people buy foreclosed properties, but others are not. Take the time and do the research necessary to find a lender willing to work with you specifically. Here are a few tips to help get financing for a foreclosure. First, get prequalified, because walking into a deal with a loan preapproved is better than walking in with nothing. Foreclosures usually have several people bidding on a property, so being prequalified could make the difference If you have equity in your current home, you can try to tap into that and take out a home equity loan to purchase a foreclosure as an investment, but we don't recommend that in the current market for two reasons. First, getting a home equity line of credit at the time of this writing is difficult. Second, we believe in being as debt free as possible or at least having a strong debt-to-equity balance. We feel that people should tap into the equity on their own property only for emergencies and not to buy...

Doing Due Diligence on Foreclosures

After a foreclosure, the homeowners always have a redemption period during which they can pay back the total fees and payments and reclaim the property. Many investors aren't aware of this they believe that they own the property free and clear after they have bought it on the courthouse steps. When you're doing your due diligence in buying a foreclosure, check for any liens that are attached to the property. You would be amazed by what you find, and the IRS trumps everyone. If the IRS puts a lien against the property, that lien must be paid off before the property can be sold. You want to have clear title, so make sure that there are no mechanic's liens or construction liens or any other issues left over from the owner prior to the foreclosure. Finally, when you're buying from distressed sellers, keep in mind that this is an emotional issue for them. Although on one hand, sellers are eager to sell the property to get out from under debt, they are typically not happy about the...

Ten Tips for Avoiding Common Foreclosure Minefields

Rnf foreclosures were risk-free, easy money, everyone with a little cash and motivation would be buying and selling foreclosures. However, the risks are very high, and one minor misstep can tip the balance from glowing success to financial failure. In this chapter, I point out the most serious and common problem areas in an attempt to steer you clear of buried mines, including get-rich-quick schemes, misleading information, the natural impulse to let emotions drive decisions, the common temptation to take advantage of distressed homeowners, and the disappointment and guilt that often paralyzes even the most empathetic foreclosure investor.

Steering Clear of Foreclosure Investment Scams

When you're first starting out in foreclosure investing, you, too, may be vulnerable to the silver-tongued promises of the slick, fast-talking con artist who promises quick, easy profits. To spot the signs of a typical real estate investment con artist, check out John T. Reed's Real Estate Detection B.S. List at

Foreclosure Rules and Regulations for the 50 States

M My hen you're playing the foreclosure investing game, you need to play by the rules. Here I provide you with the rules and regulations governing foreclosure in each of the 50 United States as well as the District of Columbia, and I offer some additional research resources where you can obtain more detailed information. For each state, we provided contact information for the Realtor in the state who contributed the foreclosure information. To locate other qualified Realtors, visit, where you can search for a Realtor by city and state. 1 Foreclosure process Judicial, nonjudicial, or both. A judicial foreclosure process is followed when no power of sale is provided in the mortgage or deed of trust lenders must file a lawsuit to obtain a court order to foreclose on a property. A nonjudicial foreclosure process occurs when a power-of-sale is pre-authorized in the mortgage or deed of trust, in which case, the lender is given the right to foreclose on the property and sell...

Before Foreclosure There Must Be A Default In The Mortgage

The language used in mortgages to describe default and to pinpoint when default occurs varies. Some mortgages provide a grace period for payments. This grace period is a length of time that comes after the actual date the payment is due, and is generally a matter of 10 to 15 days. During this time, the mortgagee allows the mortgage to enter a period during which the payment is due but actual default has not occurred. These grace periods can be long or short, or there may be none at all. Even without a grace period, a mortgagee will generally allow a reasonable time for default since notice and legal actions that precede foreclosure would take time, and if the mortgage were brought current prior to a foreclosure being filed, the matter could be mute. When there has been a breach in the contract by the mortgagor, and that breach is not remedied, the mortgagee has the right to accelerate the payments. This means that the lender calls for a full and complete repayment of the amounts due....

Foreclosure As Seen By The Lender

The majority of all foreclosures are made by institutional lenders, so let us look at foreclosure from their point of view. Once the mortgagor knows how the lender looks at this final stage of the lending cycle, he or she will have some understanding of what to expect. Most institutional lenders (as well as many nonin-stitutional lenders) divide the foreclosure action into four periods 3. The foreclosure. 2. A second letter may be sent to the borrower asking for a conference to discuss the status of the loan and to see if anything can be done to avoid foreclosure (fifth notice). 3. The lender now prepares for the possible foreclosure 4. A review of the situation is made by the proper authority and a decision is reached based on the alternatives given or proposed by the borrower. If none is offered or they are not plausible, then foreclosure is filed. The Foreclosure Period 3. The file and report are reviewed by the foreclosure panel and the top bid...

Why Lenders Avoid Foreclosure If at All Possible

In almost all states, the foreclosure process is often long and burdensome. The time element is the most costly of all, since much can happen to the value of the property while the foreclosure grinds to the eventual sale or redemption of equity. At best, it is not a simple event. At worst, years can pass before the final document is filed and title is granted to the winning bidder at the foreclosure sale. Many arguments have been made for changes in the law and a speeding up of the process. In addition, the law often seems to protect the less scrupulous mortgagor more than the one who attempts to do his or her best to pay back the monies owed. I f the property is an income producer, the mortgagor can slip behind in his payments, wait out the preforeclosure period, and prolong that by attempting to work out a settlement or payment plan. Then, in the end he or she will let the lender foreclose, knowing that without any debt service during this period of time he or she can milk the...

What If The Foreclosure Sale Does Not Cover The Total Debt

I f the property sale on the courthouse steps, or wherever it occurs, does not return to the mortgagee the amount due (principal, unpaid interest, and penalties), the lender or lender's agent may sue to collect the deficient amount of funds owed. This may become a judgment call by a judge in the end. Some states and some judges in any state look more favorably toward the borrower in this situation and do not allow a deficiency judgment. However, it is a good idea to get your own lawyer's opinion on this prior to that final sale date. No matter what happens with respect to the deficiency judgment, such events are not pleasant and can have a negative effect on your credit for many years to come. It is far better to try to have a friendly deed in lieu of foreclosure if the bottom line means more court battles over a deficiency judgment.

What A Mortgagor Should Do To Hold Off Foreclosure

When all good planning and hope fail, and the cash just is not there for the next mortgage payment, there are several things the mortgagor can do to hold off foreclosure Get to know the lenders you are dealing with. It is a good idea to be on speaking terms with them. Keep an account at all banks or savings and loans where you borrow. Drop in every now and then and talk to the officers about anything except foreclosure. If you are on friendly terms with them when you are making your payments, that rapport will carry over to a preforeclosure period if it should ever come along. This is the time for you to make the decision to hold onto the property or to attempt to make a settlement with the lender, which will allow you to back out. By now, you may have tried to sell your interest but to no avail. Many mortgagors hang on too long, even when the property is not worth the effort or aggravation. The time to settle on a deed in lieu will depend on the property of course, but you should...


One of the most popular sources of income in real estate is foreclosures. When a house is foreclosed on, it means that a homeowner has borrowed money that he or she cannot repay. The lender takes possession of the property, but in most cases the lender is really interested in recouping the loan's principal balance and expenses incurred. If a property is worth 100,000 and the principal balance plus expenses due the lender is 100,000, stay away from that deal However, if that property is worth 162,000 and the lender only wants 100,000 to cover costs, I suggest that you get control of that foreclosure and find out how to profit from it. You can go to a number of places to find out about foreclosure deals banks, mortgage companies, government agencies, private lenders, and tax agencies. Remember, though, real estate investors are not out to take advantage of anyone. If you cannot help the person being foreclosed, you do not want to get involved. You are not in the business to get people...

What Is Foreclosure

Foreclosure is the legal process of the mortgage holder taking the collateral for a promissory note in default. The process is slightly different from state to state, but there are basically two types of foreclosure judicial and nonjudicial. In mortgage states, judicial foreclosure is used most often, whereas in deed of trust states, nonjudicial (called power of sale) foreclosure is used. Most states permit both types of proceedings, but it is common practice in most states to exclusively use one method or the other. A complete state-by-state list of foreclosure proceedings can be found in Appendix B.

Judicial Foreclosure

Judicial foreclosure is a lawsuit that the lender (mortgagee) brings against the borrower (mortgagor) to force the sale of the property. About one-third of the states use judicial foreclosure. Like all lawsuits, a judicial foreclosure starts with a summons (a legal notice of the lawsuit) served on the borrower and any other parties with inferior rights in the property. (Remember, all junior liens, including ten ancies, are wiped out by the foreclosure, so they all need to be given legal notice of the proceeding.)

Foreclosure Sales

When you go to a foreclosure sale, who else is there Buyers, sellers, and people with money. Network and get to know these people. They buy deals, they sell deals, and they can pass deals on. You might even find a deal at the sale. Let me tell you a secret about foreclosures. When you go to the courthouse, you'll see 100 people on the downtown courthouse steps. The same 5 or 10 people are always buying the properties, like a little insider club (which you should get into there's always room for one more). Let's say you looked at a house that appeared to be a good deal. You think it's worth 200,000. It's being foreclosed on, and somebody bids 190,000 on it. You'll find out it's usually the bank who bids that high because they lent 190,000. Everyone else at the foreclosure sale will probably shrug their shoulders, get upset, and go home. You're always networking, always finding buyers. Most great deals come from networking someone you met at a foreclosure, someone you met at a real...

Foreclosure Rules

Foreclosure procedures change drastically from state to state, so it's important that you learn the technical details before investing in foreclosure deals. Many novice investors get burned because they didn't understand the technical details of their state's foreclosure process. Many states are implementing laws designed to protect homeowners from scam artists, such as requiring a right of rescission on a sale involving a property in foreclosure. Failing to comply with the required disclosures can result in a transaction being voided and a loss of thousands of dollars. In some states, you can end up in jail for noncompli-ance, so make sure you review your real estate practices with a good local attorney who is familiar with the law. A good state summary can be found at

Conventions Used in This Book

Compared to other foreclosure investing programs and books, Foreclosure Investing For Dummies is anything but conventional, but I do use some conventions to call your attention to certain items. For example In addition, even though you see two author names on the cover of this book Ralph and Joe you see I throughout the book when I, Ralph, am describing my personal experiences with foreclosure investing and offering my expert advice. Joe's the wordsmith the guy responsible for keeping you engaged and entertained and making sure I've explained everything as clearly and thoroughly as possible.

What Youre Not to Read

Although I encourage you to read this book from cover to cover to maximize the return on your investment, Foreclosure Investing For Dummies facilitates a skip and dip approach. It presents the information in easily digestible chunks, so you can skip to the chapter or section that grabs your attention or meets your current needs, master it, and then skip to another section or simply set the book aside for later reference.

Laying the Groundwork for Maximized Profit and Minimized Risk

Some people invest more time and energy planning for a two-week vacation than they spend planning for a foreclosure investment. By skipping the preparation steps, they almost guarantee failure. In this part, I show you how to obtain the information, tools, support, and resources you need to improve your chances of success. You find out how to assemble a team of talented professionals and other key players qualified to deal with issues that you may not be prepared to handle. You discover sources of investment capital you may not have considered. And you pick up a few networking strategies that can lead you to the best deals before other investors pick up the scent.

Where to Go from Here

Foreclosure Investing For Dummies is constructed in a way that's similar to the foreclosure process itself. It presents you with opportunities and with information to capitalize on those opportunities in three key entry points in the foreclosure process pre-foreclosure, foreclosure, and post-foreclosure. For a quick course on foreclosure investing, check out Chapter 1, which provides an overview of the foreclosure process along with some tidbits on how to profit from the various stages of the process. Skip to Chapter 3, where I guide you in selecting your preferred entry point. The chapters in Part II are indispensable in preparing you for a successful investment venture. If you choose to invest in pre-foreclosures, skip to Part III, were you discover how to research properties and deal directly with homeowners. (Part III also contains a chapter Chapter 8 that's essential for all foreclosure investors properly researching a property.) If you're interested in purchasing properties at...

Scooping other investors during the preauction stage

Your goal during the pre-foreclosure stage is to present the distressed homeowners with all of options and enable them to make well-informed decisions. See Chapter 9 for a complete list of options. Stepping into the foreclosure process during the pre-auction stage provides you with some of the best opportunities to assist the homeowners and purchase a property at an attractive price. In Part III, I show you exactly how to research and buy homes before homeowners lose them in foreclosure.

Getting Your Financial Ducks in a

In foreclosure investing, cash is the grand, high-exalted mystic ruler. Investment capital enables you to step in at any stage of the foreclosure process and buy out anyone who has a claim on or an interest in the property. Creativity Putting together a foreclosure deal that satisfies all parties often requires a great deal of creativity. With sufficient capital, you liberate your imagination from financial limitations. Don't let a lack of investment capital discourage you. In Chapter 5, I show you how to estimate just how much money you need to get started, and then I steer you toward sources of capital to fuel your foreclosure investments. At first, the cost of investment capital may chip away at your profits, but as you develop a stronger financial position, the cost of money gradually decreases.

Doing a Little Detective Work

When you decide to invest in foreclosure properties, you take on the role of private detective. To protect yourself from the many inherent risks of foreclosure investing, dig up the essential facts and figures, so you know what you're buying, what it's worth, and your options for purchasing the property for less to maximize your profit.

Inspecting the property with your own eyes

This cursory inspection offers you only a glimpse of the property, and in foreclosure investing, sometimes that's all you get, especially if you're purchasing the property at an auction. When buying a property prior to auction directly from the homeowners, make your offer conditional upon a satisfactory inspection, and then have the property professionally inspected before closing to uncover any costly defects and provide a ballpark estimate of the cost of repairs and renovations needed to bring the property up to market value. If the property requires repairs, try to negotiate a price reduction, instead of canceling the deal for example, if the repair costs 2,500 try to get a reduction of 3,500.

Investgating the situation and the homeowners

The more you know about the homeowners and their situation, the better able you are to assist them in extricating themselves from their current predicament. Unfortunately, homeowners who are facing foreclosure often feel isolated, ashamed, resentful, and defensive. They may not be very forthcoming about the details that landed them in their current situation, and they may see you as merely an opportunist who is trying to sell their property out from under them.

Exploring the Missed Payment Notice Stage

Some lenders initiate foreclosure proceedings as soon as the homeowners miss one or two payments. Other lenders start sending reminder notices, often following a predictable timeline 1 90-day limit If the homeowners still have not contacted the lender or shown any commitment to make good on the loan, the lender typically initiates formal foreclosure proceedings. At this point, the lender transfers the matter to outside legal counsel (an attorney), and the attorney in charge has a foreclosure notice (sometimes referred to as an NOD or Notice of Default) posted. Once the attorney starts foreclosure by advertisement, these legal notices or advertisements attract the investors. The missed-payment notice stage, prior to the start of foreclosure proceedings, is the best time for homeowners to act and the best time for you to step in to assist them. In 90 percent or more of the foreclosures I've been involved in, the homeowners' best option is to sell the property, cut their losses, and find...

Getting Serious The Notice of Default

For investors, the foreclosure process officially kicks off with the posting of the Notice of Default (NOD) or foreclosure notice in the county's legal newspaper or the local newspaper private, for-profit publications that get the word out to prospective bidders. At this point, the distressed homeowners usually realize the inevitability of losing their property. Some remain in denial while others become resigned to the fact, even though they may have several options to abort the foreclosure process and regain control of their property . . . and their finances. If you plan on purchasing properties prior to the foreclosure sale, your best chance is to contact the homeowners before the NOD is posted. After the NOD appears in the papers or in legal publications, competition for the property begins to heat up. The only way to find distressed homeowners before the NOD is posted is through word-of-mouth networking. See Chapter 3 for additional guidance on choosing the stage of the...

Filing for bankruptcy

Filing for bankruptcy sounds like a permanent solution to any significant financial predicament like foreclosure, but it's not the ideal solution. It destroys the homeowner's credit rating for seven years or so and doesn't exactly wipe all debt off the books. Bankruptcy simply relieves some of the debt burden and provides homeowners some extra time to restructure their remaining debt. Bankruptcy, however, is one more option for distressed homeowners, and it's certainly something you should know about as an investor in foreclosures. By filing for bankruptcy, at least a couple of days before the auction date, a homeowner can delay the foreclosure process and leave a property you already purchased in limbo at least until the foreclosure trustee and the courts sort out all the legal issues.

Dipping In at the Pre Auction Stage

Homeowners often feel reluctant to take action when they first get an inkling of financial foreboding. Instead of contacting their lenders, an attorney, or a real estate agent who specializes in foreclosures to seek advice and try to work out a solution, they often stick their heads in the sand and hope the problem goes away. By the time they act, they're usually too late. Behind on their house payments, drowning in credit card debt, and unable to pay back taxes, their fate is sealed months before the bank initiates foreclosure proceedings. When the bank finally moves forward to foreclose, the homeowners are often in a panic. They don't know what to do or where to go for reliable information. As a foreclosure investor, you can step into the process, provide homeowners with options to cut their losses, and perhaps even assist in enabling the homeowners to retain possession of their property. You may think that doing everything you can to enable homeowners to retain possession of their...

Guiding homeowners to good decisions

When helping homeowners, you can't try to pass yourself off as an attorney, accountant, financial advisor, or therapist, unless you really are one. However, you're often called on to play some of these roles. Like a therapist, you have to learn to listen to the homeowners. Like an accountant, you need to be able to look at the homeowners' finances to assess their options. And, like an attorney, you need to know the foreclosure and redemption laws in your area. inform homeowners of their options and recommend professionals who can help. If the homeowners can refinance their way out of a foreclosure, you may be able to steer them to a loan officer or financial advisor who can provide additional assistance. In Chapter 4, I show you how to assemble a team of experts to assist you in buying and selling foreclosure properties, so you should have plenty of experts on hand to recommend to the homeowners. A typical day in the foreclosure office As a real estate broker, I once met with a couple...

Dealing with anger and angst

Understandably, when people are in a financial bind, they're often upset, anxious, and angry. Parents have the daunting task of facing their kids and telling them, We can no longer afford to live here. They're embarrassed about what their neighbors, friends, and family may think. They may be angry at their boss for laying them off or firing them. In many cases, the husband or wife has just found out about the pending foreclosure from their significant other who spent the family into the poorhouse. When you show up at the home of a couple or individual facing foreclosure, and you tell the homeowners that you want to help them by buying their property, all that rage is likely to get unleashed on you. Even if you can manage to avoid direct conflict, you may very well end up refereeing a domestic dispute or witnessing emotional outpourings that you're just not used to seeing. You can often relieve some of the pain of foreclosure by letting the homeowners know that they're not alone. Know...

Assessing your ability to deal with preauction scenarios

The most successful pre-auction investors are people who are well versed on local foreclosure laws and procedures and who can quickly and accurately assess the average homeowner's financial predicament. To determine if you have the qualities to successfully invest in properties in the pre-auction stage, place a checkmark next to any of the following statements that you feel are true Having every single one of these qualities is not essential for success in investing in pre-auction properties, but if you checked only two or three items, you may want to consider stepping into the foreclosure process at the auction or post-auction stage. The more of these qualities you have, the more successful you may be in dealing directly with the homeowners.

Weighing the pros and cons of buying at auctions

The foreclosure auction provides you with an opportunity to purchase a controlling interest in the property without having to deal directly with the homeowners in often emotional and ugly situations. In a way, the auction simplifies the process of acquiring properties. You show up, submit the winning bid, and walk away with the sheriff's deed.

Putting on your poker face

Bidding on a property at foreclosure is a bit like sitting around a poker table and trying to figure out why a particular investor is bidding on a specific property for a certain amount of money. In some cases, the other investor may know more about the property than you do. In other cases, the investor knows less. The person may be bidding on instinct to drive up bidding or simply to toy with other investors. The comparison of bidding on foreclosure properties to playing poker, however, ends there. Bidding on properties is a high-stakes game in which you stand to lose as much or even more than you stand to gain. You may never know why a particular investor bids a specific amount on the property, but you always need to know why you're bidding a specific amount, what you're bidding on, and how high you're willing to bid.

Finding and buying government properties

1 HUD and VA repos When homeowners default on a HUD or VA home loan, like any lender, the government can choose to foreclose on the property. These are not always the best deals for investors, because HUD and VA homes are commonly listed at or just below market value, but by being persistent, you can often find some pretty good deals.

Buying properties from other investors

Some foreclosure investors are more interested in discovering and acquiring foreclosure properties than they are in fixing them up and reselling them. They consider themselves foreclosure wholesalers finding and buying properties and then selling them to other investors. jflNG Generally, I advise against buying properties from foreclosure wholesalers or whatever they call themselves. Whenever someone tries to sell you on some great investment opportunity, ask yourself this question If the property were as profitable as this person wants me to think, then why doesn't she fix it up and sell it herself Another reason not to buy from other investors, is because by doing so, you're usually paying a markup or finder's fee. Plenty of foreclosure properties are available, and they're not that difficult to track down, so pocket the markup and use that money for renovations or to purchase your next property. Of course, if you've done your research, as explained in Chapter 8, and the price is...

Lawyering Up with a Real Estate Attorney

Real estate deals are primarily legal and financial transactions. Buying foreclosures involves even more legal complexities, so you should never move forward on a deal without competent legal assistance or sign any purchase agreements without the benefit of an attorney's legal eagle eye. 1 Specialty in foreclosures Foreclosure laws can be tricky. Choose a real estate attorney who has plenty of experience working the foreclosure circuit. 1 Efficient and affordable For a lot of foreclosure-action services, look to pay a flat fee, not by the hour or (gasp) minute. For example, an attorney may quote 600 for an eviction action, more if it turns out to be complicated . . . they'll let you know. Look for affordable, not necessarily cheap you often get what you pay for. 1 Experienced A real estate attorney who owns real estate and rentals or even buys foreclosures is better than one who doesn't. If your friends, relatives, real estate agent, title company, or other people you know can't...

Teaming Up with a Good Moneyman or Woman

Money not only makes the world go 'round, it also moves houses. You need money to purchase a property. Your foreclosure clients may need financing to take action on one of the options you present. And people buying property from you often require financing to close on the deal. 1 An understanding of foreclosures, because you need to borrow money based on the future value of the property, not the purchase price. By borrowing on the future value (or repaired value) of the property, you gain access to more cash for repairs, renovations, and other investment properties. 1 No conflicting relationships. A mortgage broker who works in the foreclosure arena my have relationships with homeowners in foreclosure or other investors that may create a conflict of interest. To obtain assistance from a mortgage broker, consider writing a letter of introduction, like the letter shown in Figure 4-1. Let the broker know that you're going to be investing in foreclosures and you may run into clients who...

Consulting a Title Company to Cover Your Back

I Further educate you concerning foreclosure laws and regulations in your area. I Provide additional leads on foreclosure opportunities. Try to hook up with a title company that provides title insurance for the foreclosing attorneys in your area. A company that handles foreclosures regularly knows the common problems to look for in the title. Reputation and location are your two other main considerations. Pick a company that's nearby and has the best reputation for smooth closings. Your real estate attorney or agent can recommend a title company that has a solid reputation in the area. Smaller towns may have only one title company. Meet with one of the title company's representatives to explain that you're going to be investing in foreclosure policies. The company may provide you with free title commitments on a few properties in the hopes of gaining your business when you close on a property and need title insurance. i NG One of the first questions to ask a title company...

Contacting Contractors and Subcontractors

When homeowners are facing foreclosure, they don't have a whole lot of money in the cookie jar to maintain their home. In some cases, the homeowners trash the place and even gut the house as a final act of retribution. You usually end up with a property that requires a moderate to major overhaul.

Picking an agent with the right stuff

For assistance in finding a qualified real estate agent who can work with you to track down pre-foreclosure or foreclosure properties, visit www.Hurry You can sign up for access to insider information and unlisted properties, and the service can put you in touch with a qualified real estate agent who specializes in the types of properties that fit your investment strategy. Also check out, where you can also find some excellent articles on real estate topics.

Examining the pros and cons of using your own money

If you're single or you and your significant other are on the same page about this foreclosure investing thing, cracking into your nest egg to finance your investments may be the quickest way to get your fingers on some investment capital. Be aware, however, of the potential benefits and drawbacks of using your own money

Tapping into your retirement savings

Consult your financial advisor and accountant for details about using a self-directed IRA to finance your foreclosure investments. If a self-directed IRA is not a viable option, you may be able to borrow money against your retirement account. Keep in mind, however, that borrowing against your retirement savings places that savings at risk, as does any other investment.

Planning for contingencies

For every plan you have to buy a foreclosure property, have a plan B. Your plan B should cover contingencies in the event that the deal doesn't quite proceed according to plan A. Your contingency plan should cover the following unexpected events Hope for the best, but plan for the worst. Without an effective contingency plan in place and a sufficient financial buffer, you may end up in foreclosure.

Grasping the Power of Networking

I owe much of my success as a real estate investor to the advice, assistance, and resources of thousands of people. These individuals generously donate their time and expertise to provide me with the financing and high-quality leads I need to succeed at investing in foreclosures and other real estate. Without the guidance and support of thousands of people, I would never have experienced the level of success I now enjoy. I strongly encourage you to take the same approach when you're first starting out and for however long you continue to invest in real estate. In the following sections, I reveal the benefits of networking in all aspects of foreclosure investing.

Generating leads on profitable preauction properties

The earlier you step into the foreclosure process, the greater your chances are of eventually taking possession of a property, and the earliest you can find out about a foreclosure is through word-of-mouth leads. Distressed homeowners, knowing that you buy foreclosures and have a reputation for being fair, may call you out of the blue to buy their property. Maybe someone you know knows someone who knows someone who's currently facing a financial crisis. Or perhaps another investor you know is too busy or doesn't have the funds available to follow up on a golden opportunity. For details on how to network effectively to find foreclosure properties, skip ahead to Chapter 7, where I provide a list of the top people to contact for leads. Another way to profit is to negotiate a short sale with the divorce attorney. Say the wife receives the home as part of the divorce settlement and starts missing mortgage payments, so the bank initiates foreclosure proceedings and posts a foreclosure...

Selling your house for more money in less time

In Chapter 19, I strongly recommend that if you decide to sell your foreclosure property, you work through an agent who has access to all of the multiple listing services in your area. Using the MLS enables you to tap the power the most powerful networking tool for selling the property quickly and for top dollar.

Realizing the Importance of Being Good

Every foreclosure property you buy, renovate, and sell is a reflection of you and how you do business. Build a strong reputation by treating everyone you meet fairly and with respect. When you renovate a property, make the house a home you would be proud to put your name on. Work to improve the housing in the community where you do business. I usually have more opportunities to acquire properties than I can reasonably follow up on, so I have to rule out some prospects. I ask myself, After I get the place all fixed up, could I envision myself living here If the answer is No, I cross it off the list.

Investing in quality craftsmanship

When repairing and renovating a home, your goal should be to bring the home up to market standards. I'm not saying that you need to transform a Quonset hut into the Taj Mahal. If you're renovating a foreclosure property in a low-rent district, using builder's grade materials instead of top-of-the-line stuff may be sufficient. Hiding defects in a property, however, can come back to bite you in the seat of your pants. Once the homeowners discover the defect, they're liable to come back to you, and if you don't immediately rectify the situation, you may be dragged into court or worse they may start telling all their friends, family, and neighbors that you ripped them off

Buying yourself a cell phone

Homeowners facing foreclosure are usually in desperate situations, and they need help yesterday. You want to be the person they can contact in their hour of need, so if you don't have a cell phone, buy one now and carry it with you 24 7. Every missed call is a missed opportunity. You can usually get by with a single cell phone for both business and personal use, but if you have to carry a cell phone for work, and your boss is paying the phone bill, I discourage you from using that cell phone to moonlight as a foreclosure investor. Unless your boss is okay with it, buy a separate cell phone. The same goes for doing research when you're supposed to be working and using your boss's computer to do it.

Equipping yourself with a computer

Nowadays, a computer is a necessity in all areas of real estate. Before you venture out into the world of foreclosures, equip yourself with a decent computer, an Internet connection with e-mail, and a printer. Your computer is an essential tool for performing the following foreclosure investing tasks i Researching state and county foreclosure laws and regulations i Finding and researching foreclosure properties i Keeping in touch with contacts via e-mail i Designing and printing your own marketing materials i Establishing a Web presence for additional leads i Shopping and applying for loans

Networking Your Way to Promising Properties

Before the foreclosure notice is posted and the foreclosure becomes public knowledge, you have only two ways of finding out that the homeowners are in a jam and need to sell their home in a hurry In Chapter 6, I reveal some basic networking strategies to obtain the assistance you need and to get the word out about what you do. In the following sections, I go into more depth, as I list the people who are often the source of the best leads on foreclosure properties.

Identifying your personal lead generators

If the distressed homeowners remain uncommunicative, you have no chance of finding out about the situation until the foreclosure notice In the following sections, I list the human lead generators you can often rely on to identify foreclosure opportunities in your market.

Contacting friends family and neighbors

When you're shopping for a car, you ask a dealer or a mechanic for advice. When you're in the market for a diamond ring, you ask a jeweler. In the same way, when you're looking for foreclosure properties, your best leads often come from real estate professionals, because they specialize in the housing market where you invest. In the case of foreclosures, however, real estate professionals are not your only lead generators. Family members, friends, and neighbors often know about homeowners who are having financial problems long before word reaches the real estate community. Tell family members, friends, and neighbors that you provide assistance to distressed homeowners. If the people closest to you don't know that you provide services to help homeowners in crises, they won't even think of telling you or referring their friends to you.

Building on your church affiliations

When an entire area suffers a serious financial blow, such as mass layoffs or a major employer moving out of the area, consider holding a meeting at the church to inform homeowners in the congregation of their options and foreclosure rights. You may do more good than you could ever imagine.

Tracking down local publications

When a lender initiates foreclosure proceedings, the lender posts a foreclosure notice or Notice of Default (NOD) in the county's legal newspaper or the local newspaper. Contact your county's Register of Deeds office and ask where they post foreclosure notices. If you live in a county that sees a fair share of foreclosures, the foreclosure listings can seem overwhelming at first. You skim page after page of listings written in legalistic gobbledygook. The trick to making the listings less cumbersome is to know what you're looking for and then weed out any listings that raise red flags. For example, if you find a property on Main Street with a mortgage of 200,000, and you know of no property on Main Street that you'd pay more than 150,000 for, you know that property isn't for you. If the same property is listed for 75,000, it may be worth investigating.

Getting on the mailing list

Whoever publishes your county's legal news is likely to have a subscription service, so you can have the publication delivered to your door or sent to you electronically via e-mail. In some counties, you can view foreclosure notices online at the Register of Deeds Web site for free. Your county's legal news is not recommended reading it's required reading. Carefully read through the foreclosure listings every single week, and keep track of every property that catches your eye. You may notice that a notice for a property one week does not appear the following week, indicating that the owners may have worked out a forbearance with the lender or received an adjournment. Keep following the property to see if it appears again. Properties often disappear from the radar only to reappear weeks or months down the road. In Chapter 8, I explain how to create a database for tracking properties.

Collecting Essential Information about the Property

Every property has some vital statistics that must find their way into your property dossier. You can collect most of the data you need through the Notice of Default (NOD) or foreclosure notice (if one has been posted) and from your county's courthouse and city or town offices. Chapters 7 and 9 point you in the direction of foreclosure notices. Later in this chapter, I show you how to pick essential details off of the foreclosure notice and dig up additional information at the county courthouse. If you're working with the homeowners prior to the start of foreclosure proceedings, gather as much information as you can from the homeowners first, as explained in Chapter 9. You need to know as much as possible about their situation in order to be of assistance and minimize your own risk as an investor.

Honing your title acquisition and reading skills

To hone your skills at gathering data related to foreclosure properties, consider practicing on your own home first. Of course, unless you're currently in foreclosure, you won't have access to a foreclosure notice (lucky you), but you can practice researching your title, mortgage, and other documentation relating to your property. You may have several of the documents you need to practice on in the closing packet you received when you purchased your home, but don't cheat by referring to those documents. Go out in the field and see what sorts of publicly accessible data you can gather on your own

Digging up details at the register of deeds office

The NOD or foreclosure notice describes the location of the property through a legal description rather than simply providing a mailing address. Isn't that just like lawyers Fortunately, you can use the property description to track down the mailing address, by employing one of the following strategies When buying foreclosure properties, however, inspect the title before you decide to pursue a property. If anything about the title smells fishy, then you may want to do a little extra research or simply cross the property off your list. Inspect the title work and deed for the following critical pieces of data and record them in the corresponding spaces on the foreclosure information sheet, shown in Figure 8-2 The mortgage and note are also recorded along with the title when someone purchases a property. These documents include important details about the senior lien, so be sure to record these details on your foreclosure information sheet On your foreclosure information sheet, record...

Getting your hands on the property worksheet

Every town, city, or county in the United States keeps a worksheet on every property showing when it was built, any building permits issued on the property, code violations, inspection reports, and so on. Find out who keeps the property worksheets and obtain a copy of the worksheet for any home you are considering buying. On your foreclosure information sheet, record the following data from the property worksheet I Other interesting tidbits The property worksheet may include additional information about health code violations that warn you to inspect the property more closely before purchasing it. For tips on physically inspecting a foreclosure property, see Doing Your Fieldwork Inspecting the Property, later in this chapter.

Gathering additional information

To complete the foreclosure information sheet, do a little extra detective work to gather the following additional details i Opening bid If you found out about the property through a NOD or foreclosure notice, call the attorney listed in the notice to find out the opening bid.

Contacting the Homeowners and Lenders

Drawing up a foreclosure activity schedule Establishing a solid relationship with distressed homeowners Gathering key information from the homeowners M My hen you choose to deal directly with homeowners facing foreclosure, As a foreclosure rescue worker, you must first contact the homeowners and obtain detailed information about their situation. This requires an empa-thetic ear and the ability to jot down the most important details. With this information and the details about the property (see Chapter 7), you can then assess the situation and lay the homeowners' options on the table. Perform your job well, and you earn the homeowners' trust and place yourself in a better position to obtain the property should they choose to sell it.

If the notice does not appear send a congratulations letter to the homeowners

Send your second foreclosure letter. 1. Find the third foreclosure notice. 6. Send your third foreclosure letter. 1. Find fourth (probably final) foreclosure notice. 5. Send your fourth foreclosure letter. Prior to contacting the homeowners directly, brush up on the legal and ethical rules of the foreclosure game, so you don't get slapped with a lawsuit and you can look yourself in the mirror every morning and know that you're not ripping off distressed homeowners. Here are the do's and don'ts you must follow to work foreclosures ethically and legally Anyone with a bad attitude and a hundred bucks can file a lawsuit. My company was dealing with a couple who were facing foreclosure. The wife never told the husband that she had not made the payments until they lost the house. We told her that she needed to come to the office to find out more about their options. The last week of the redemption period was the beginning of hunting season, and the husband was out of town, so they never...

Contacting the Homeowners Directly

To purchase properties directly from homeowners prior to auction, you have two big challenges ahead of you tracking down the homeowners and getting them to sit down with you at the kitchen table to discuss their situation. Rarely do homeowners who are facing foreclosure seek help. Most often, in an attempt to avoid the situation, they do everything they can to avoid lenders, collectors, attorneys, and investors . . . yeah, people like you. Many real estate investors avoid foreclosures, because the homeowners can be so difficult to track down and deal with, so this reduces some of the competition for foreclosure properties. With stamina, determination, people skills, and this book, you have everything you need to tap into this open market.

Laying Out All Available Options

Once you've completed the foreclosure information sheet (Chapter 7) and the homeowner information sheet (Figure 9-7) and have a first-hand account of the situation, the homeowners' situation becomes much clearer. You begin to get a sense of what the owners want to do, what options they can realistically accomplish, and which is the best course of action for them to take, whether it's refinancing, selling, downsizing, renting or, in the worst cases, filing for bankruptcy. What made you decide to contact me Why are you in foreclosure Foreclosure Sale Date Redemption Period Do you have any Second mortgages Tax liens Mechanic's liens Been in foreclosure before Yes No

Refinancing the mortgage

Refinancing is usually a poor choice for people with lower incomes, because even if they qualify for a nonconforming loan, they may end up having higher monthly mortgage payments than what they previously had. Refinancing simply sets them up for another round of foreclosure.

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