Why invest in the foreclosure scene?
With solid benefits, it’s worth considering the foreclosure market as a form of property acquisitions. But what do you need to know before you jump in?
Here are my top strategies for assuring a smooth and prosperous process in the foreclosure market.
I love that investing in foreclosure properties at a trustee sale or sheriff’s auction means that–in most markets–you BUY TODAY, you OWN TODAY. That’s fast money.
In your market, you need to make sure that you check to determine that if you buy today, you own today.
In some markets, homeowners have a redemption period. Some states may have a right of redemption as long as six to 12 months, or like in my state, it’s 21 days. So make sure you’re careful. You may buy and not be able to do anything with that property for several months, and though this may still make the process a good deal, depending on the property and the price, you need to understand the process before you jump in or you could end up disappointed or tied-up.
Know what you’re doing before you go to the auction. This begins by researching the property at the County Recorder’s Office.
Before we go any further, I will give you a word of caution about some of these online resources that will provide you with the notices of default, the notices of share of sale, or the lis pendens filings. Don’t use them unless they are pulling data in real time and directly out of the county courthouse.
Whenever you use one of these other aggregators of data who are reselling that content, you may find an eight to a 28-day lag in information. You don’t need that large of a delay from when information becomes public record to the time that it shows up on your dashboard!
The best way to get the data is to go direct, be the first person there, and get it as it’s being recorded. Success in foreclosure, as well as pre-foreclosure, is to be the first person there.
You must have the freshest data.
But you must also research the PROPERTY:
Before attending an auction, drive by the ones you’re interested in to get a good look at them and their context. Make sure you check the property condition and neighborhood. Check whether the property is vacant or occupied. Is it located on a major street or intersection? Kick the tires here, walk the perimeter, do your due diligence. It’s worth the small investment of time to make sure you’re not bidding on something that could sink you.
Also, find out whatever you can about the property. Knock on a neighbor’s door and ask a few questions. Pull the numbers on the property and the comps in the area. Arm yourself with as much knowledge as possible before you put your money where your mouth is.
Because of the power of sale clause in the mortgage document, the lender is able to foreclose on their property without going through court proceedings. This is in the western states and the non-judicial foreclosure filing which begins with a notice of default.
If you are in an eastern state, you are dealing in a judicial foreclosure process, with the lis pendens filing.
Auctions are held by the sheriff at a sheriff’s sale. The lender initiates a lawsuit by filing the complaint with the court. This is called a lis pendens, or Latin for lien pending, and the court then determines that the lender can foreclose on the property.
Once the loan is 30 days delinquent, the bank is going to begin to send a series of collection letters. The first collection letter is pretty nice because they are giving the homeowner the benefit of the doubt. It says things like, “You must have forgotten or perhaps you’ve been on vacation, but we have not yet seen your payment for this month.”
If the homeowner goes 60 days, the language of the letter gets a little more intense, “We have been attempting to contact you now for several days. We’ve called you, emailed you, texted you, sent you letters and we’ve heard nothing back. We’re growing concerned. Please contact us and let us know your intentions.”
By day 90, the language becomes intimidating. They say, “You have not contacted us and now we’re going to hire an attorney and go through the foreclosure process.” At 90 days, it will be referred to a foreclosure attorney and the foreclosure action will begin.
So, in a non-judicial foreclosure state, you typically have 90 days from the point that you missed your first payment to the foreclosure action being filed.
The foreclosure action then takes 90 days, which is what’s called the “Right of Redemption.” In this 90-day period of time, the homeowner can simply reinstate your loan with the bank by paying the amount that you are behind on.
On day 91, the property goes into a notice of sale. The property will be advertised for three consecutive weeks, at which point the homeowner can only bring the full amount owed–the total mortgage plus the arrears–to own the property again.
Otherwise, it will be set for sale and sold one to two weeks after the three-week period. So, you’re looking at 90 days non-payment and another four and a half months before the actual sale, or about seven-and-a-half to eight months before a bank can foreclose and take back possession of real property.
A property lien is “a legal claim on a tract of real estate granting the holder a specified amount of money upon the sale of the property. Such liens are often used to ensure the payment of a debt, with the property acting as collateral against the amount owed. A mortgage is the best example of a property lien.” (Definition according to Investopedia.)
Have you ever been to an auction where a “property” goes for as little as a few thousand dollars? There are markets where this happens, but the more likely reason is the bid is actually on a second or third lien against the property.
There’s money to be made in having a second or third lien position, but this can be an incredibly costly mistake if you don’t know what you’re doing. You do not want to inherit all the other liens on top of your bid if you can’t afford to buy them and the numbers don’t make sense for you to finance it.
Let’s say you purchase a 2nd lien and inherit the first lien, which is of a substantial amount. You would need to pay that loan off, too, including any past due interest and foreclosure fees and any past due property taxes. The first lien could still foreclose on the property if the loan is not paid off on time to stop the sale. If the first is foreclosed, then anyone who purchased the 2nd could then be wiped out.
Know what lien you’re bidding on by doing your research first. If you want to attempt bidding on a 2nd lien because the property is oh so tempting, know what you’re doing first. In fact, I recommend having an expert on your side. Let us know if you need help with that! Call us at (800) 473-6051.
Once you own a property purchased at auction, and you are clear of any “Redemption Rights,” move quickly to secure the property. If the property is occupied, call your real estate attorney to start processing an eviction. Call your general contractor to discuss the work and estimates. Start changing locks, boarding up windows and cleaning up. Do a walk through to assess what needs to be repaired and build a budget. Don’t sit on a property, push forward ASAP. Time is money, especially if you have any amount of financing on the property.
Like anything else, you want to prepare yourself before you start spending money. If you aren’t “there” yet, let us help you. Have you attended a Funding Tour to learn the basics and tour houses that need to be rehabbed? Have you worked with a coach to understand what you’re fully capable of and how to take the next steps toward success?
Remember my motto, “We get more of what we want by helping you get more of what you want.”
What do you want and how can we help? Let us know! (800) 473-6051
To Your Success;
Lee A. Arnold
The Lee Arnold System of Real Estate Investing
Have a deal under contract that you would like a quote on? Let us know. You can fill out a quick questionnaire at CogoCapital.com to receive a rate quote via email or you can call us anytime at (800) 747-1104 to talk to a loan officer. With millions deployed and millions to deploy, we want you to get the capital you need for your real estate investing.