Foreclosure Investing For Dummies E-Book

Ralph R. Roberts

• Herausgeber: John Wiley & Sons
• Kategorie: Ratgeber
• Sprache: Englisch
• Veröffentlichungsjahr: 2011

Seitenzahl: 581

Beschreibung

With the housing bubble of the past few years bursting and interestrates on the rise, there has been an upsurge in the number offoreclosures across the country, creating many opportunities forprofit. But investing in real estate foreclosure[s?] can be a toughjob, especially when a negative stigma is attached. How do you makemoney while preserving your morals and trust? Foreclosure Investing For Dummies shows you how to investin foreclosures ethically without being accused of stealing homesfrom "little old ladies." This step-by-step guide helpsyou thoroughly research property, find the best opportunities,purchase foreclosures, and avoid misleading distressed homeowners.This book doesn't promise quick profits through minimal work,but it will provide you with invaluable information to become asuccessful investor, including: * Identifying opportunities and understanding risks * Obtaining information, tools, support, and resources * Locating properties prior to foreclosure * Assisting homeowners through the foreclosure process * Acquiring properties below market value prior to theauction * Buying property at an auction, from lending institutions, andgovernment agencies * Repairing, renovating, and selling or leasing property This book provides tips and strategies for refinancing yourproperty and maximizing your profits. It also gives you advice onhow to assist homeowners, have them work with you, and commonmistakes you should avoid. It's time to go out and make themost of foreclosure investing, and with Foreclosure InvestingFor Dummies by your side, your hard work and devotion willbring tons of success!

Leseprobe

Foreclosure Investing For Dummies®

by Ralph R. Roberts with Joe Kraynak

Financing Real Estate Investments For Dummies®

Published byWiley Publishing, Inc.111 River St.Hoboken, NJ 07030-5774www.wiley.com

Copyright © 2007 by Wiley Publishing, Inc., Indianapolis, Indiana

Published simultaneously in Canada

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Library of Congress Control Number: 2007925990

ISBN: 978-0-470-12218-1

Manufactured in the United States of America

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About the Authors

Ralph R. Roberts’ success in real estate sales is legendary. He has been profiled by the Associated Press, CNN, and Time magazine, and has done hundreds of radio interviews. Ralph is a seasoned professional in all areas of house flipping, including buying homes, rehabbing, and reselling them quickly and at a handsome profit. He has penned several successful titles, including Flipping Houses For Dummies (Wiley), Sell It Yourself: Sell Your Home Faster and for More Money Without Using a Broker (Adams Media Corporation), Walk Like a Giant, Sell Like a Madman: America’s #1 Salesman Shows You How To Sell Anything (Collins), 52 Weeks of Sales Success: America’s #1 Salesman Shows You How To Close Every Deal! (Collins), REAL WEALTH by Investing in REAL ESTATE (Prentice Hall), and Protect Yourself Against Real Estate and Mortgage Fraud (Kaplan).

Foreclosure investing is one of Ralph’s many specialties. For over 25 years, he has personally worked in the foreclosure arena, purchasing preforeclosures directly from homeowners, buying foreclosure properties at auction, and often helping homeowners dodge the foreclosure bullet and retain possession of their homes. In Foreclosure Investing For Dummies, Ralph reveals his unique win-win approach to investing in foreclosures.

Ralph also serves as Official Spokesman for Guthy-Renker Home, a company dedicated to equipping home buyers, sellers, and real estate professionals with the tools, information, and community setting they need to achieve mutual success. Visit www.HurryHome.com and www.GuthyRenkerHome.com to experience the exciting innovations that Guthy-Renker Home offers now and is planning for the future.

To find out more about Ralph Roberts, visit www.AboutRalph.com.

Joe Kraynak is a freelance author who has written and co-authored dozens of books on topics ranging from slam poetry to computer basics. Joe teamed up with Dr. Candida Fink to write his first book in the For Dummies series, Bipolar Disorder For Dummies, where he showcased his talent for translating the complexities of a topic into plain-spoken practical advice. He then teamed up with Ralph to write the ultimate guide to flipping houses — Flipping Houses For Dummies. In Foreclosure Investing For Dummies, Joe and Ralph join forces once again to deliver the definitive guide to profitably investing in foreclosures . . . without selling your soul.

Dedication

From Ralph: To the many investors and Realtors I’ve worked with, trained, consulted, and coached who have made investing in foreclosures both successful and rewarding.

From Joe: To the investors who use our book not only to build wealth in real estate, but also to assist distressed homeowners and build stronger communities.

Special thanks to Paul Doroh, sheriff-sale and cash buyer for Ralph Roberts Realty, whose priceless insights and real-world experiences transformed our silver into pure platinum. Paul is a mighty fine writer, even by Joe’s standards, and without his late inning relief, this book would not have been possible.

Authors’ Acknowledgments

Although we wrote the book, dozens of other talented individuals contributed to its conception, development, and perfection. Special thanks go to acquisitions editor Lindsay Lefevere, who chose us to author this book and guided us through the tough part of getting started. Jennifer Connolly, our project editor, deserves a loud cheer for acting as a very patient collaborator and gifted editor — shuffling chapters back and forth, shepherding the text and photos through production, making sure any technical issues were properly resolved, and serving as unofficial quality control manager. We also tip our hats to the production crew for doing such an outstanding job of transforming a loose collection of text and illustrations into such an attractive bound book.

Throughout the writing of this book, we relied heavily on a knowledgeable and dedicated support staff, who provided expert advice, tips, and research, so we could deliver the most comprehensive and useful information. Lois Maljak proved invaluable not only as a resource person but also as the communications hub for the flurry of files and e-mail messages flying back and forth on a daily basis. Thanks also to Ralph’s number-one virtual assistant Kandra Hamric, who helped us tie up all the loose ends and put the appendix together.

We owe special thanks to our technical editor, accomplished real estate pro Blanche Evans, for ferreting out technical errors in the manuscript, helping guide its content, and offering her own tips and tricks.

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

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Contents

Title

Introduction

About This Book

Conventions Used in This Book

What You’re Not to Read

Foolish Assumptions

How This Book Is Organized

Icons Used in This Book

Where to Go from Here

Part I : Prepping Yourself for Foreclosure Success

Chapter 1: Wrapping Your Brain around Foreclosure Investing

Investigating the Foreclosure Process from Start to Finish

Picking Your Point of Entry

Assembling a Team of Experts and Advisors

Getting Your Financial Ducks in a Row

Doing a Little Detective Work

Setting and Sticking To Your Maximum Bid

Taking Possession of the Property

Cashing Out: Realizing Your Profit

Chapter 2: Getting Up to Speed on the Foreclosure Process

Identifying the Foreclosure Process in Your Area

Exploring the Missed-Payment Notice Stage

Getting Serious: The Notice of Default

Proceeding to the Foreclosure Sale

Halting the Foreclosure Process

Finalizing the Foreclosure: Ushering the Previous Owners Out the Door

Chapter 3: Picking Your Point of Entry in the Foreclosure Process

Dipping In at the Pre-Auction Stage

Pursuing Foreclosure Notices

Bidding for a Property at a Foreclosure Auction

Acquiring Properties after the Auction

Waiting Out the Redemption Period — If Necessary

Part II : Laying the Groundwork for Maximized Profit and Minimized Risk

Chapter 4: Building a Powerful Foreclosure Investment Team

Lawyering Up with a Real Estate Attorney

Teaming Up with a Good Moneyman — or Woman

Consulting a Title Company to Cover Your Back

Hiring a Tax-Savvy Accountant

Lining Up a Home Inspector

Contacting Contractors and Subcontractors

Selling Your Property for Top Dollar through a Seller’s Agent

Assessing the Pros and Cons of Partnerships

Chapter 5: Filling Your Foreclosure Tank with Financial Fuel

Estimating Your Cash Needs

Finding a Cash Stash: Knowing Your Financing Options

Borrowing Against the House You’re Buying

Shaking Your Piggybank: Tapping Your Own Resources

Financing Your Venture with Conventional Loans

Comparison Shopping for Low-Cost Loans

Chapter 6: Networking Your Way to Foreclosure Success

Grasping the Power of Networking

Realizing the Importance of Being Good

Marketing Yourself

Managing Contact Information

Rewarding Good Deeds and Good Leads

Part III : Creating Win-Win Situations in Pre-Foreclosure (Prior to Auction)

Chapter 7: Discovering Homeowners Facing Foreclosure

Networking Your Way to Promising Properties

Scoping Out the Neighborhood for Dontwanners

Searching for FSBO Properties

Finding Foreclosure Notices

Chapter 8: Building a Property Dossier

Collecting Essential Information about the Property

Doing Your Fieldwork: Inspecting the Property

Assembling Your Dossier: A Checklist

Chapter 9: Contacting the Homeowners and Lenders

Scheduling Your Foreclosure Activities

Contacting the Homeowners Directly

Adding the Homeowners’ Profile to Your Property Dossier

Laying Out All Available Options

Getting Inside to Take a Look Around

Contacting the Lenders

Chapter 10: Analyzing the Deal and Presenting Your Offer

Completing the Deal Analysis Worksheet

Assessing the Homeowners’ Options

Presenting Your Offer: The Purchase Agreement

Closing Time

Part IV : Finding and Buying Foreclosure and Bankruptcy Properties

Chapter 11: Bidding for Properties at a Foreclosure Sale

Tracking Down Auction Dates, Times, and Places

Preparing Your Maximum Bid

Bidding at a Foreclosure Auction

Following Up . . . After the Auction

Chapter 12: Buying Repos: Bank Foreclosures and REO Properties

Acknowledging the Drawbacks of REO Opportunities

Getting Up to Speed on the REO Process

Shaking the Bushes for REO Properties

Inspecting the Property

Timing Your Offer for Optimum Results

Pitching an Attractive Offer

Chapter 13: Finding and Buying Government Repos

Bargain Hunting for HUD (Housing and Urban Development) Homes

Finding and Buying VA Repos

Profiting from Fannie Mae and Freddie Mac Properties

Finding and Buying Government-Seized Properties

Chapter 14: Banking on Bankruptcies

Brushing Up on Bankruptcy Laws

Knowing When to Purchase

Tracking Down Houses in Bankruptcy

Dealing with the Gatekeepers

Dealing with Bankruptcy Delays on a House You Bought

Chapter 15: Sampling Some Other Foreclosure Strategies

Negotiating Short Sales

Buying and Selling Junior Liens

Profiting from Property Tax Sales

Part V : Cashing Out Your Profit . . . after the Sale

Chapter 16: Assisting the Previous Homeowners Out the Door

Tying Up the Loose Ends after the Purchase

Protecting Your Investment through Redemption

Planning Repairs and Renovations

Evicting the Residents when Time Runs Out

Chapter 17: Repairing and Renovating Your Investment Property

Choosing a Renovation Strategy

Planning Repairs and Renovations

Giving Your Property a Quick Makeover

Investing in High-Profile Rooms: Kitchens and Baths

Adding Valuable Features

Chapter 18: Cashing Out: Selling or Leasing Your Property

Selling Through a Qualified Real Estate Agent

Staging Your House for a Successful Showing

Generating Interest Through Savvy Marketing

Negotiating Offers and Counteroffers

Closing the Deal

Becoming a Landlord

Chapter 19: Checking Out Other Cash-Out Strategies

Refinancing to Cash Out the Equity

Reselling the Property to the Previous Owners . . . Or Their Family

Leasing the Property to the Foreclosed-Upon Homeowners

Offering a Lease-Option Agreement

Assigning Your Position to a Junior Lien Holder

Part VI : The Part of Tens

Chapter 20: Ten Common Beginner Blunders

Having Insufficient Funds on Hand

Overestimating a Property’s Value

Underestimating Your Holding Costs

Overbidding in the Heat of Battle

Failing to Investigate the Title

Failing to Inspect the Property with Your Own Eyes

Bidding on a Second Mortgage or Junior Lien

Renovating a Property before You Own It

Trusting What the Homeowners Tell You

Getting Greedy

Chapter 21: Ten Ways to Maximize Future Leads by Acting with Integrity

Stopping the Bleeding: Providing Basic Financial Advice

Assisting Homeowners in Their Job Search

Suggesting That the Homeowner Seek Help from Family and Friends

Encouraging the Homeowners to Contact Their Lenders . . . and Soon

Suggesting Short Sales and Other Debt Negotiations

Assisting Homeowners in Assessing Their Refinance Options

Suggesting the Option of Selling the House before Foreclosure

Bringing Up the Bankruptcy Option

Offering a Helping Hand

Revealing the Option to Walk Away

Chapter 22: Ten Tips for Avoiding Common Foreclosure Minefields

Steering Clear of Foreclosure Investment Scams

Researching the Title Yourself

Inspecting the Property with Your Own Eyes

Knowing What You’re Bidding On

Setting Realistic Goals

Muffling Your Emotions

Investing with Integrity

Anticipating Delays

Foreseeing Unforeseen Expenses

Dealing with the Blame and Guilt

Appendix: Foreclosure Rules and Regulations for the 50 States

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

District of Columbia

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

: Further Reading

: Ralph Roberts

Introduction

To the average homeowner, people who buy and sell foreclosures are greedy opportunists at best and scum of the earth at their very worst. Foreclosure investors prey on unfortunate homeowners — families who, through no fault of their own, can’t afford to make their next house payment. Investors swoop in, scoop up properties for pennies on the dollar, and then turn around and sell those properties for huge profits, laughing all the way to the bank.

That’s the stereotype of foreclosure investors, and many “investors” certainly fit that stereotype, but real investors, the ones who operate with integrity, compassion, and a sense of fairness, the ones who are most successful as long-term investors, don’t play that game. They know that homeowners are not facing foreclosure because they enjoy being hassled by bill collectors and threatened with eviction. Distressed homeowners have reached this point due to some financial setback or oversight, a job loss or layoff, health issues or the death of a family member, human foibles, or a host of other causes that happen to be a natural part of life. Most of these homeowners are so humiliated that they won’t even ask loved ones for help.

Sure, foreclosure investors want to make a profit. Unless they were self- less philanthropists, they wouldn’t even consider investing their time and money without having some profit motive to do so. Investors with integrity, however, strive toward developing solutions that are fair and less painful for all parties involved. Some investors are actually in the game to improve their communities — some are churches reinvesting in their neighborhood. Without these investors, homeowners would have fewer options, actually only two options — come up with the cash or be forcefully evicted. Many would be forced out of their homes with nothing to show for it. Lenders would have to play hardball. Governments would face the increased burden of picking up the pieces.

I don’t want you to become a stereotypical foreclosure investor. I want you to join the ranks of successful, fair-minded investors who present homeowners with a menu of options from which to choose and offer to purchase their home at a reasonable price that earns you a reasonable profit. I want you to assist distressed homeowners in assessing their options, choosing the option that’s in their best interest, and then taking the necessary steps to put an unfortunate incident behind them and move on with their lives.

Following the advice I offer in this book won’t guarantee a profit on every investment opportunity that comes your way. You’ll encounter many homeowners who shun your advice. You’ll miss a few golden opportunities to score some quick cash. You may even lose opportunities to less ethical investors who offer the homeowners empty promises. You’ll soon discover, however, that by treating distressed homeowners with compassion and a sense of fairness, you have more opportunities than you have time and resources to pursue. Through your hard work and integrity, you will achieve a higher level of personal and financial success than the less ethical investors in your neighborhood who are simply conforming to the age-old stereotype.

About This Book

This book is no quick-cash, no-risk, no-work guide to building wealth through foreclosure investing. People who want that sort of thing can stay up late at night and listen to the real estate investment gurus peddle their products, or they can attend any of the readily available “free” foreclosure investment seminars that make their rounds.

This book guides you in the methods of making money the old-fashioned way — earning it fairly. I’ve been investing in foreclosures and assisting distressed homeowners for more than 30 years. I have achieved great success and have experienced my fair share of failures. I’ve had homeowners provide glowing testimonials of how much I’ve helped them, I’ve been accused of trying to steal homes from “little old ladies,” and I’ve assisted homeowners when con artists have actually tried to steal their homes. Sad to say, I have even lost property in foreclosure myself.

In Foreclosure Investing For Dummies, I show you how to invest in foreclosures the right way. I steer you clear of the many pitfalls inherent in foreclosure investing. I show you how to properly and thoroughly research properties, so you know what you’re getting into before you buy or bid on a property. I step you through the process of finding the best opportunities with the maximum potential profit and lowest risk. I lead you through the process of buying foreclosures prior to auction, bidding for them at auction, and purchasing them after the auction from the lenders that have foreclosed on them. I present various ways to cash out and realize your profit after the sale. And I show you how to do it without misleading and cheating distressed homeowners.

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:

Italics highlight new, somewhat technical terms, such as redemption period, and emphasize words when I’m driving home a point.

Boldface text indicates key words in bulleted and numbered lists.

Monofont highlights Web addresses.

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 You’re 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.

I do, however, consider Chapter 8required reading. All too often, investors fail to properly research a property, and they really get burned. Chapter 8 shows you how to collect key information about a property, so you know what you’re buying before you invest tens or hundreds of thousands of dollars in it.

If you read my book Flipping Houses For Dummies (Wiley), you can safely skip Chapter 17 because Flipping Houses For Dummies covers the process of repairing, renovating, and preparing a home for sale in much greater detail and even includes plenty of before and after photos.

You can also safely skip anything you see in a gray shaded box. I stuck it in a box for the same reason that most people stick stuff in boxes — to get it out of the way, so you wouldn’t trip over it. However, you may find the stories and brief asides uproariously funny and perhaps even mildly informative (or vice versa).

Foolish Assumptions

In some books that cover advanced topics, authors must assume that their readers already understand some basic topics or have acquired beginning-level skills. For example, if this were a book about molecular biology, you’d have to know what a molecule was.

The biggest foolish assumption I make in this book is that you own the home you live in. You’ve been involved in at least one closing and signed the documents that the closing agent passed around. When you own a home, you instantly become a real estate investor. You begin to grasp the value of real estate as an investment. You gain first-hand knowledge of the benefits of owning a home, understand the challenges of maintaining it, and take on the responsibility of making mortgage payments. You can empathize with homeowners who are about to lose their homes in foreclosure.

If you’re not a homeowner, sell this book and put the proceeds toward a down payment on a house. If you live in the Detroit metropolitan area, gimme a call, and I’ll find the perfect house for you and your family. I’ll even give you credit on the purchase of the book, or stop by the office, and I will personally sign your copy. Once you’ve purchased a house and have lived in it for a few months, pick up the book. I’ll be waiting for you.

Other foolish assumptions I make include but are not limited to the following:

You’re committed to success. Investing in foreclosures is hard work and requires sticktoitism (pronounced stik-to-it-izm) — a word I’ve been using since the 1970s to describe the determination and dogged perseverance required to build wealth in real estate. I could use “stick-to-itiveness,” which happens to appear in the dictionary, but I like my word better.

You can talk to people. You don’t need to be a social butterfly (although that helps), but you do need to be able to network, ask questions, and haggle with people. If you don’t have some basic people skills, you should team up with someone who does. Effective word-of-mouth networking leads to the best opportunities, and in almost every situation you’ll need to talk with homeowners, county clerks, sheriffs, lenders, and a host of others involved in the foreclosure process.

You’re dedicated to developing mutually beneficial solutions. I hate to see “investors” ripping off homeowners, and I would really hate to see anyone use the information in this book to take advantage of distressed homeowners. You can make plenty of money investing in foreclosures by acting with integrity and presenting reasonable solutions that meet the needs of all parties involved.

You can treat foreclosure investing as business. Understand that you are not the cause of the homeowners’ distress. More than likely, you cant’ solve their problems. Very likely, many others have tried to help the homeowners solve the root cause of the problem (and failed) before you came along. What you can offer is truth and useful information. You must be empathetic without jumping in to save a drowning family that may drag you under both financially and emotionally.

A problem is something that money can’t fix, such as an untreatable illness or a death in the family. Most families, if they choose to, can move on after experiencing a financial calamity. Foreclosure is not the end of the world, although, at the time, they may perceive it to be.

How This Book Is Organized

I wrote this book so you could approach it in either of two ways. You can pick up the book and flip to any chapter for a quick, stand-alone mini-course on a specific foreclosure-investing topic, or you can read the book from cover to cover. To help you navigate, I took the 22 chapters that make up the book and divvied them up into six parts plus an appendix. Here, I provide a quick overview of what I cover in each part and in the appendix.

Part I: Prepping Yourself for Foreclosure Success

Before you can successfully invest in foreclosures, you have to wrap your brain around the foreclosure process, be able to identify where the opportunities lie, and understand the risks. In this part, I bring you up to speed in a hurry on the foreclosure process, assist you in picking your point of entry, and offer tips on how to avoid the most common pitfalls.

Part II: 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.

Part III: 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.

Part IV: Finding and Buying Foreclosure and Bankruptcy Properties

Many investors prefer not to deal directly with distressed homeowners in pre-foreclosure. They’d rather purchase the property at auction and then work on their end game. In this part, I show you how to find and buy properties at auction, from banks and other lending institutions that repossess properties, from trustees during bankruptcy, and from various government agencies and government-sponsored programs.

Part V: Cashing Out Your Profit . . . after the Sale

You make your money when you buy a property — by purchasing it below market value — but you realize that profit when you sell, lease, or refinance the property. In this part, I reveal various ways to cash out on your investment. I offer strategies for encouraging the previous homeowners to vacate the premises voluntarily, and I show you how to initiate eviction, if the homeowners refuse to leave. You discover how to maximize your profit by repairing, renovating, and either selling or leasing the property, and you pick up tips on various other strategies for profiting from your investment.

Part VI: The Part of Tens

The Part of Tens is the highlight of every For Dummies title, offering quick strategies, tips, and insights on whatever subject the book covers. The chapters in this Part of Tens show you how to avoid the ten most common beginning blunders and offer ten ways to assist homeowners in navigating the foreclosure process in a way that convinces the homeowners to work with you rather than with some other investor.

Icons Used in This Book

Throughout this book, I’ve sprinkled icons in the margins to cue you in on different types of information that call out for your attention. Here are the icons you’ll see and a brief description of each.

I want you to remember everything you read in this book, but if you can’t quite do that, then remember the important points I flag with this icon.

Tips provide insider insight from behind the scenes. When you’re looking for a better, faster, cheaper way to do something, check out these tips.

“Whoa!” This icon appears when you need to be extra vigilant or seek professional help before moving forward.

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 auction or after they’ve been repossessed, Part IV provides all the information you need to know. And when you’re ready to cash out on your investment, skip to Part IV.

In a few chapters I include fill-in-the-blank forms and worksheets you can scribble on. Although you can fill out these forms and worksheets in the book, you may want to make copies to write on. These forms and worksheets are indispensable in gathering research data, evaluating properties, and presenting options to homeowners facing foreclosure.

Part I

Prepping Yourself for Foreclosure Success

In this part . . .

A chieving financial success by investing in foreclosures requires a good deal of preparation. You need to understand the foreclosure process in your area, pick a stage in the foreclosure process as your area of expertise, and become well aware of the pitfalls to avoid. Only with the proper preparation can you minimize your risk and maximize your potential profit.

The chapters in this part bring you up to speed on the foreclosure process, assist you in picking a point of entry you want to focus on, and steer you clear of some of the major and common pitfalls that trap novice foreclosure investors.

Chapter 1

Wrapping Your Brain around Foreclosure Investing

In This Chapter

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

Whenever you’re developing a new skill, having an overview of the 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.

Understanding the necessity of having a strong investment team in place enables you to begin thinking about the people who would be best qualified to assist you. And realizing the benefits of thorough research can prevent you from buying a property that’s destined to send you to the poorhouse.

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 foreclosure properties, you can start plugging in the details — attention to detail is the key to success.

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:

Homeowners stop making mortgage payments.

After about 15 to 30 days, lender sends a payment reminder.

If the homeowners still don’t respond, the lender continues to send notices and call the homeowners.

If the homeowners still don’t contact the lender, the lender turns the matter over to its collection and harassment department, who continues to pester the homeowners with letters and phone calls.

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.

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.

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 penalties, which occurs quite often. See Chapter 9 for details on how to track foreclosure notices. (The county legal newspaper serves the public and provides the legal community with an automated system, but these are private, for-profit publications, not freebies that the county publishes.)

The property arrives at the civil division of the sheriff’s office, which is assigned the task of handling the sale. The trustee or attorney handling the foreclosure sets the opening bid and typically advertises it in the foreclosure notice. The opening bid is the balance of the mortgage plus penalties, unpaid interest, attorney fees, and other costs that the lender has incurred during the process.

The sheriff or his representative may visit the house prior to the sale to post a foreclosure notice and inspect the property, because sometimes redemption rights change if the homeowners abandon the property. (Some states have a redemption period, after the sale, during which time the homeowners can buy back the property by paying the full amount of the loan along with taxes, interest, and penalties. This period can last up to a year.)

The day before the auction, the lender may adjust the price up or down, but may not artificially inflate it. Frequently, lenders reduce the opening bid to make the property more appealing to investors and rid themselves of it.

Property goes on the auction block for sale to the highest bidder or is turned over to a trustee to liquidate the property and pay the lender.

An investor purchases the property at auction or from the trustee, or the lender buys the property. If nobody bids higher than the opening bid, which the foreclosing lender submits, control is handed over to the lender, who can then take possession of the property following any redemption period as explained next.

In some states, the high bidder (or lender, if nobody bids more than the opening bid) takes immediate possession of the property. In states with a redemption period, the new “owner” must wait until the redemption period expires and a final court hearing with the homeowners before they can do anything with the property. If the lender takes possession of the property, the lender transfers the property to its REO (Real Estate Owned) department, which prepares it for sale.

Previous owners move out or are evicted.

The foreclosure process is a lose-lose situation for both the homeowners and the lender. The homeowners lose the property, and the lender takes a loss on the loan and often pays additional costs to resell the property to recoup a portion of its loss.

If you or a loved one is ever facing a foreclosure, contact the lender immediately to explore your options. Seek help sooner rather than later. Shame, anger, and denial may discourage you from seeking assistance, but the longer you wait, the fewer your options. Educate yourself and communicate with your lender. Homeowners who panic become very vulnerable to foreclosure rescue schemes. Do your research, know your options, and don’t deal with someone who’s claiming to be your friend. A good place to seek help is Freddie Mac’s Don’t Borrow Trouble Web site at www.dontborrowtrouble.com.

For more in-depth coverage of the foreclosure process, including variations in different areas of the country, skip to Chapter 2.

Picking Your Point of Entry

As a real estate investor, you can step in at any stage of the foreclosure process to acquire properties and enact other profitable transactions:

Pre-sale: Before the property is auctioned or transferred to the trustee.

Sale (or auction): When the sheriff or the court auctions the property or after control of the property is placed in the hands of the trustee.

Post-sale: After the lender repossesses the property, you can purchase the property from the lender or from its REO broker.

In the following sections, I describe these three entry points. For more advice on how to select an entry point that’s right for you, refer to Chapter 3.

Begin tracking properties early in the process, even if you choose to buy properties later in the process. By tracking properties early, you pick up on the history of what’s going on and develop a clearer idea of how much to pay for the property.

Scooping other investors during the pre-auction stage

As soon as homeowners realize that they can’t make their payments, you can mediate between the homeowners and their lenders to work out a mutually acceptable solution. In a few cases, you can help the homeowners keep the property; for example, by negotiating a forbearance with the lender that provides the homeowners extra time to catch up on their payments.

Did I just say “help the homeowners keep the property?” Yes, your long- term best interest is best served by doing what’s best for the homeowners. Sometimes that means you receive no profit from your efforts. In a huge percentage of cases, however, the homeowners’ best option is to sell the property and find more affordable housing arrangements. By being sincerely concerned with their best interests, you place yourself in a position to acquire the property if the homeowners can’t or won’t take the action necessary to keep it.

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.

Bidding on properties at foreclosure auctions

Some investors prefer to step into the process at the auction stage, because they’re uncomfortable dealing with distressed homeowners who are often in a state of denial and unwilling to sit down with an investor to discuss their options. At the auction stage, you buy the property in a less emotional atmosphere. In most cases, however, you still have to deal with the homeowners when the time comes to take possession of the property.

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:

Buying a property without researching the title. A title history reveals who really owns the property and the amount currently owed on the property, and the priority of the mortgages — tax lien (top priority), first mortgage (next in line), second mortgage, and so on. Do your research, as explained in “Doing a Little Detective Work,” later in this chapter and in Chapter 8.

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.

Buying a property without inspecting it. A house may look valuable on paper, but until you see it with your own eyes, you don’t know for sure. The house may have significant fire damage, toxic materials, foundation problems, or a host of other defects. Check out Chapter 8 for details.

Paying more for a property than what it’s worth. In the heat of an auction, your enthusiasm to outbid fellow bidders often leads novice investors into paying more for a property than what it’s worth. This almost guarantees that you’ll end up taking a loss on the property.

Failing to account for the redemption period. Most states have a mandatory redemption period, during which time the homeowners retain possession of the property and can redeem the title by paying off the mortgage in full along with any penalties and back taxes. You need to have enough cash reserves on hand to pay the property taxes on the property and to insure the property during this time. If you don’t pay the property taxes, another investor may be able to purchase a tax lien or deed at a tax sale and take control of the property — tax liens have priority. You also need to insure the property, because you’re not covered by the homeowner’s insurance policy (if they have one).

Never bid on a property at auction until you’ve done your homework. Reading this book from cover to cover is a start. Brush up on the foreclosure rules and regulations in your area, and always research a property thoroughly before bidding — research the title and inspect the house as closely as possible with your own two eyes, as shown in Chapter 8.

Don’t forget the insurance

As soon as you buy a foreclosure, even if you can’t take possession of it right away, call your insurance agent and buy a homeowner’s insurance policy for the property.

I purchased a house for $75,000 that was worth $150,000. By the time I took possession of the property, the previous owner had taken the carpeting, the entire kitchen including the kitchen sink, the bathroom fixtures, the furnace the central air conditioning unit, the doors, and anything else they could carry out hoping to cause harm to the next owner. I turned it into my insurance carrier, received $25,000, and sold the house for $100,000 to another investor. After expenses and holding costs, I walked away with about $35,000.

The investor who bought the property decided to rent it out instead of selling right away. He refinanced to pull about $50,000 equity out of the property, used the equity to cover repair and renovation costs, and still had a little money left over. He then rented out the property to cover his mortgage payments.

Buying properties after the sale

Working with homeowners prior to auction and waging bidding battles against other investors during an auction may not appeal to you, but you can still profit from investing in foreclosures after the foreclosure sale.

If nobody at the auction offers the minimum acceptable bid, the lender buys back the mortgage. If the state has a mandatory redemption period, the lender waits until the period expires and then passes the property to its REO (Real Estate Owned) department (sometimes referred to as the OREO or Other Real Estate Owned department, not to be confused with the cookie), which prepares the property for resale and typically hires a mortgage broker to place it back on the market. By dealing with a lender’s REO department or its mortgage broker, you may be able to purchase the property at a price that’s discounted far enough below market value to turn a profit of 20 percent or more.

The chapters in Part IV show you how to find and buy REO properties and other properties that government institutions and law enforcement agencies take possession of and then often sell at deep discounts:

Properties seized due to nonpayment of taxes

Properties seized by customs and law enforcement agencies because the properties were paid for with profits from illicit activities

HUD (Housing and Urban Development) and VA (Veterans Administration) houses that were repossessed when homeowners defaulted on HUD or VA loans

Fannie Mae and Freddie Mac properties that were repossessed and then turned over to these government-sponsored loan programs

Bankruptcy properties that are being liquidated to pay off loans

Properties that the Department of Transportation purchased for road improvements and then must dispose of after completing the improvements

When buying a property from the government or a bank, don’t assume that you’re getting a good deal. Homes are typically sold in their “as is” condition. You must still research the title carefully and inspect the property with your own two eyes. If you see ads or late-night infomercials selling lists of bank-owned properties, don’t fall for the hype — these lists are usually outdated long before they arrive in your mailbox.

Assembling a Team of Experts and Advisors

Flying solo on foreclosures may seem like a good idea. After all, if you get other people involved, they may become rivals and pick up on your carefully guarded secrets. Flying solo, however, is a good way to go bust or at least limit your potential profit. Developing synergistic relationships with top performing specialists has been a key to my success and the success of almost all of the top real estate investors around the world.

In addition to providing expert guidance and advice for seizing opportunities and avoiding common pitfalls, experts deliver leads to potentially profitable properties, affordable financing, and quality contractors. They can assist you in managing your finances and in renovating and selling your property for top dollar after you purchase it. And, by delegating some of the workload to others who are better equipped to handle it, you free up time and resources for finding the most profitable opportunities.

In Chapter 4, I show you how to assemble a solid foreclosure investment team consisting of the following members:

Real estate agent

Real estate attorney

Mortgage broker

Accountant

Title company

Home inspector

Contractors

In Chapter 5, I lead you to sources of financial capital to fuel your investments, and in Chapter 6, I lead you through the process of developing a strong support network that virtually ensures that you’ll never run out of leads to profitable foreclosure properties.

With a solid team in place, you take on the role of manager and major decision maker and can create an efficient system that minimizes risk while maximizing profit.

Stand by your man — or woman

Tell your spouse or significant other about your plans to invest in foreclosure properties and ask for help. If your spouse is a couch potato and would prefer to remain anchored to a lounge chair over helping you work nights and weekends, then you’re likely to find yourself swimming upstream — right into a concrete dam.

Your better half needs to know that you’re planning on earning tens of thousands of dollars per deal, and since he is surely going to want to spend some of that money with you, he’d better dig his potato out of that chair and help.

I strongly recommend against any attempts to invest in foreclosures without the full consent and eager assistance of your spouse. I would hate to hear that after reading this book, you and your better half stopped calling each other “honey” and “sweetie pie” and started calling each other “plaintiff” and “defendant.”

Getting Your Financial Ducks in a Row

In real estate, cash is king. 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.

When I say “cash,” I’m not just talking about the money you have stuffed in your mattress. I’m talking about borrowing certified funds from a bank or other lending institution. See Chapter 5 for details.

Cash gives you the upper hand with the four Cs:

Credibility: With cash, you have instant credibility that you can deliver on your promises without hesitation. In most cases, homeowners need cash to escape their current financial crisis. Lenders need cash to cut their losses. With cash on hand, you can give homeowners and lenders enough to achieve their goals, while you take possession of a profitable property.

Confidence: Cash provides you with the confidence you need to pitch offers to both homeowners and lien holders, knowing that you can deliver in a timely manner.

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.

Competitiveness: Multiple real estate investors often compete for the same property. Cash gives you a competitive edge, because it enables you to execute a deal much more quickly. Both homeowners and lenders are eager to put the current crisis behind them. An ability to act quickly often separates the successful investor from the wannabes.

The question of “Where am I going to get the money?” often derails the novice investor before the train leaves the station, but many of the most successful investors started out with only a few bucks in their pockets, including yours truly.

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.

Thorough research requires that you dig up the following essential information:

Names of the homeowners

Amount owed on the property

Lien-holder names and contact information

Physical condition of the property

Homeowners’ current situation and motivations

Market value of the property

The following sections introduce you to the types of research to perform as part of your due diligence, but proper research requires much more than I can cover in this short chapter. For additional details, see Chapters 8 and 9.

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:

The neighborhood grapevine, including neighbors, churches, local cafes, clubs, and even people contacting you directly for assistance when they know that you buy distressed properties

Foreclosure notices in local papers or legal publications

Bankruptcy notices in local papers or legal publications

Divorce filings and decrees in publicly accessible court documents

Web sites that list foreclosure and government-seized properties

Real estate agents

Attorneys, particularly bankruptcy, divorce, and probate attorneys

Lenders

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 homeowners contacting them for assistance in foreclosure that they don’t even have to look for properties. See Chapter 6 for networking tips.

Investigating the property’s title and other documentation

Before you commit to purchasing a property, you have to know who really owns it, how much the current owners owe on it, to whom they owe the money, how much they owe (if anything) in back taxes, and whether the property has any encumbrances (liens, judgments, or zoning restrictions) on it. In short, you need to know what you’re getting yourself into before you get yourself into it.

Fortunately, most of the critical documentation about a property is accessible to the general public and the title company you use:

Title: The title shows the names of the property owners and lien holders and any legal judgments on the property. I once purchased a property from a mother and daughter, only to discover later that the daughter I bought the property from wasn’t the daughter who owned it. The right daughter eventually took possession of the property, and I was left with some nasty, time-consuming legal battles. By checking the title, you can avoid similar mistakes.

Title history: A title company can provide you with a title history that shows the change of ownership over the years. In some cases, this history reveals gaps in the transfer of the property from one homeowner to the next. A gap in the history may be a warning that someone else can lay claim to the property later and take you to court.

Property history: Your town or city keeps a history of every property, which includes all building permits issued on the property. If the property has an additional structure that was built without a permit, it may not have been built to code. Any information you can gather about the history of the property can assist you later in evaluating its market value.

Never purchase a property without fully researching its title and any other public documents recorded on that property. In Chapter 8, I guide you through the process of researching a property and assembling a detailed dossier, which is essential for making sound investment decisions.

Inspecting the property with your own eyes

Tattoo the following message on your forehead: my eyes or no buys. You can look at the title work and other property documents until your eyes cross, but you don’t know the condition of the property unless you see it for yourself:

Visit the property and the neighborhood it’s in. Never try to assess the value of a property in a vacuum. The condition of the neighborhood affects the sale price.

Walk around the property and inspect it from all four sides. The front of the house can look like the Taj Mahal, while the back or sides look more like a bombed out bunker.

If possible, get inside to take a look around. You don’t want to get picked up for voyeurism or run off by an angry homeowner, but if the homeowner invites you in, accept the invitation. See Chapter 8 for additional suggestions on doing drive-by and walk-around inspections.

If the house is currently listed with a broker, make an appointment to view the house. This is an excellent way to get the inside scoop without being accused of being a peeping Tom! You don’t have to tell the broker what you know about the property or why you’re interested in it.

See Chapter 8 for more tips on inspecting the property with your own two 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.

Guesstimating a property’s true value

An essential component of successful real estate investing is developing an exit strategy or end game. Before you agree to pay a certain price for a property, you must have a fairly accurate estimate of what you can sell it for. Otherwise, you risk overpaying and losing money on your investment.

Estimating the market value of a house is easiest with the assistance of a real estate agent who’s knowledgeable about property values in the area. A qualified agent can pull up MLS (Multiple Listing Service) sheets on comparable homes that have recently sold in the same neighborhood and quickly provide you with a good idea of how much you can sell the property for, assuming it’s in marketable condition and the market remains relatively stable.

Don’t let your agent or the word on the street pump up your expectations or estimates. Tell your agent that you want an estimated sales price based on what the agent is sure she can get, not what she hopes she can get. Provide your agent with as many details as possible about the property, so she can look up similar properties that are truly comparable to the one you’re thinking of buying.

Never enter into a real estate deal unless you have at least two exits — a plan A, typically for selling the property at a profit, and a plan B just in case plan A doesn’t pan out. Your plan B may be to lease the property, live in it, or sell it for slightly less than you planned to sell it, but you should always have a plan B, because real estate transactions and markets are not always predictable.

Investigating 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.

In a way, they’re right. You probably do want the property, and you want to make a profit. But that doesn’t change the fact that the homeowners are trapped and need to explore their options. Your job at this stage is to convince the homeowners that they will see better results working with you than working with someone who’s not quite on the level. In Chapter 9, I show you how to approach distressed homeowners and explain their options.