Bank foreclosures residential properties

1. Understanding the bank forclosure process

2. The methods of buying bank forclosures before the auction (pre-foreclosure)

3. The methods of buying bank forclosures at the auction (actual-foreclosure)

4. The methods of buying bank forclosures after the auction (post-foreclosure)

Every state and county in the U.S. has its own means for taking foreclosure action. However, the concept is the same everywhere. In a foreclosure, a bank might, thru legal means, reclaim title to a property if a borrower has failed to make an agreed upon number of mortgage payments within a predetermined time frame.

For instance, let's assume a mortgage agreement stipulates that a mortgage will be considered in default once the borrower is 30 days late with the monthly mortgage payment. The mortgage balance at the time of default was $100,000, and the borrower's monthly mortgage payment was set at $1000.

After not making the first monthly payment, the borrower owes the regular $1000 monthly payment plus late charges. After several months of not making payments, the mortgage's due date becomes accelerated, meaning, it is due now.

The bank is now legally entitled to require the borrower to pay off the entire principal balance otherwise lose the property at auction thru the foreclosure process. The auction is one of the three ways to acquire foreclosures. The pre-foreclosure, actual-foreclosure (Auction), and the post- foreclosure methods will now be discussed in detail.

Lets first discuss the Pre-Foreclosure method. This method involves contacting delinquent owners directly. This can allow you to obtain the property before the auction occurs. The delinquent owner knows time is running out and he or she will consider all offers.

A technique that investors use to acquire properties this way is called the deed transfer method. What happens with this method is the deed is transferred from the seller to the buyer for nominal financial consideration.

The mortgage remains under the sellers name. Please note that the mortgage remains the sellers responsibility to continue paying even after the deed or ownership transfers. It is advisable to select only one attorney that you, the investor, have control of. The attorney should have Real Estate expertise as a specialization.

Using this method, ownership can take place within only several days. What's very important ,which is key ,is ordering a complete title search. Your attorney should do this.

A title search provides information to the attorney about the owner, the mortgage holder, and other creditors who have an interest in the property. This might include a second mortgage holder, third mortgage holder, other lien holders, such as water and sewer liens, environmental control board liens, and federal and state tax liens, and property tax liens There are several ways you can find people who are delinquent with their mortgage payments and who are facing foreclosure using the pre-foreclosure approach.

One way is using the Lis Pendens lists. These lists allow you to find delinquent borrowers by informing you, the public, of pending action that a foreclosing lender's lawyer files with the court as part of the foreclosure process. You can review these lists at the county clerk' office in the county where the property is located.

It is advisable to focus in an area you're familiar with. Since this method is time consuming, another option is buying the lis pendens lists from companies that sell them. You can visit you local library and look under the reference section under Real Estate to find companies that sell these lists. There are several ways of communicating with the delinquent borrower after obtaining the lis pendens list.

First, you can mail a letter to the seller explaining your services . This letter should include how you can buy the house at a price mutually agreed upon. You have to show the seller you can close fast. In order to accomplish this, you should speak with mortgage cos. that have hard money sources. These sources allow you to close within a couple of weeks.

Understanding the seller's problem will help you with your strategies. Your letter should indicate you may be able to stop the foreclosure. Further, also point out that you can still save their credit rating. Keep in mind that there are many credit-repair companies that can accomplish this. They can be located in your local yellow pages.

The owner should understand that he will receive sufficient money to pay his bills or to use for relocating. The offer that is made on the property should be no higher 70% of the market value. You should calculate in advance whether or not you can make money after selling it to determine if the deal is worth the time and money to invest.

If the mortgage and the other liens on the property exceed the market value then another approach must be implemented. A " short sat " is a term which is defined as a discounted mortgage satisfaction. In other words, if you owe $100,000 to the bank in total (all liens), and the property is worth $90,000(Market Value), you would offer $60,000 to the bank to buy the mortgage or the property (deed). The bank might come back with a counter offer still below the market value of the property.

Understand the homeowner is probably overwhelmed with letters, phone calls, or visitors to the property on a daily basis. Therefore, your presentation or pitch must be effective. Your dress code should be appealing. You should have business cards. You have to be in a positive state of mind, especially with optimism, since you might be their last hope.

You should be at least 10% different from the competition. For instance, offer advances to the borrower after they go in to contract with you. They can use the money for some immediate day-to-day expenses they incur. Second, offer to pay all of their closing costs. Third, have an attorney present at the initial meeting. His legal expertise will calm many of the fears the delinquent borrower might have.

Overcoming the delinquent borrower's objections will increase your income dramatically. There are several ways these homeowners will utilize to avoid you .

The most common way is the owner trying to sell the house for much more that what you are offering. Quite often, with inadequate experience of most home owners, they risk losing everything if they can't sell it in time to keep it from going to auction. Some banks will delay the auction if there is a contract with a qualified buyer. Stress the point that you can close quickly and are willing to sign a contract as soon as possible. You should leave your attorney's information with the seller.

Some owner's will try to obtain financing to avoid foreclosure. Because of the bad credit the delinquency creates, they would have to resort to non-conforming mortgage products. These type of mortgages have guidelines that are very lenient. In other words, bad credit is acceptable. Also, insufficient income will be considered. Some of these products allow the property to have to have no equity. Keep in mind you can close within several weeks. The down side of these types of mortgages is the rates can be as high as 16% and the number of points can range from as low as 2 to as high as 10.

Another way an owner tries saving their home from foreclosure is by filing for bankruptcy. If the owner chooses to file for bankruptcy in order to save their home, they are not excused from paying their monthly mortgage payments to their bank. Furthermore, some types of bankruptcy require a reorganization plan for debt consolidation and may be denied by courts because the owner doesn't have enough consistent income to repay their debts. Therefore, give a card to the owner and call him weekly. If the bankruptcy doesn't materialize, they may decide to sell the property to you.

Playing detective is essential in finding out who the owner is . The owner might have an unlisted phone number. The property might be an investment property, meaning the owner might not live there. Visit the property to see if there are tenants living there. Explain to them you need to speak to the owner concerning the property. Since a majority of tenants are secretive, you have to create value for the tenants to cooperate. Tell them you are in the business of repairing defects in properties and ask the tenant if there are any problems in the house. Further, you need to obtain the phone number of the owner to fix these problems . By showing the tenant you are on their side, they will most likely cooperate with you.

If the property is vacant, then other approaches are necessary. Visit the nearby post office see if the owner has a new mailing address. TRW REDI DATA is a Real Estate service that you can buy on a computer disc that provides complete information on properties ,including phone numbers, mailing addresses, and other pertinent information on the property. Speaking with the neighbors can provide clues as to the whereabouts of the owner.

There are basics to buying foreclosures at auction, which is the second way of finding foreclosures. We will go over a day at the auction and how to be best prepared.

First, you have an opening bid amount. This is also referred to as the upset price. This is the amount that begins the auction bidding. This opening bid includes the mortgage balance, interest and back taxes, legal fees, court fees, and the various liens and judgments levied against the property before the default, and also while the delinquent borrower owned the property afterwards. Whatever debts exist are usually satisfied at the closing from the money paid by the highest winning bidder.

When the auction starts, the referee will explain the bidding procedure that must be adhered to, and the referee will identify which properties will be up for bid. The referee will give a legal description of the property and any existing relevant tax map designations.

There are different methods utilized for bidding on properties at auction. Several auctions are done by verbal bidding, where the bidder calls out the amount desired as his or her offer on the property to be bought. Another method that is used for bidding at auctions involves using sealed written offers. This is where the offers are given to a designated authority that opens them and announces the highest bidder's name and bid amount. At other auctions, there are certain procedures that require you to register before bidding and provide proof that you have the resources necessary for your down payment.

If you are the highest bidder, then you are awarded the contract for the premises at the bank auction . You must then come up with the required down payment immediately. It is usually 10 percent of the bid amount and it must be in the form of a money order, bank check, or certified funds, as required by the referee. The referee will then issue the certificate of sale, which is the contract of sale that is executed and delivered to you as the successful high bidder.

As the winning bidder, you will be expected to consummate the deal by coming up with the balance of 90% within 30 days of contract signing. Under certain conditions, you may be granted an extension which basically means you are given extra time to close. Auction authorities can be rather strict in their condition that winning bidders close within 30 days of contract, since it is a common practice for winning bidders to try stalling the closing date so that they can use that extra time to find the necessary financing. Keep in mind, however, you can risk losing the 10% that you put down if you fail to obtain financing It is unlike a normal transaction, where an attorney can include a mortgage stipulation in the contract, which allows you to get your down payment back with a mortgage denial letter.

Remember, as an auction buyer, you should carefully research the property prior to the sale date. You should make sure the property can be bought at wholesale by calculating values and potential profits.

When inspecting an auction property, you should have a competent contractor present. Make sure the contractor has his proposal of what will be done in the form of a contract which should be reviewed by your attorney. Keep in mind a contractor is profit conscious and can easily change the terms. This is done by doing less work than initially agreed upon for the same price or paying more money than initially agreed upon.

When calculating values of properties there are several things you should do. First, talk to your local realtor to see what houses have sold for in the neighborhood you're interested in . The real estate broker should be a well known franchise that's been around for many years. Another way to value property is thru sales recorded at the county clerks office for the area of interest to you. Thru practice, the values will come to you like clock work.

Some of the disadvantages of auctions include auctions being postponed. Inspections can sometimes be impossible to do. To be on the safe side, a title search should performed prior to the auction date to insure that there are no liens against the property or owner . However, the problem with ordering a title is it can be expensive and is non-refundable if you do not purchase the property .

The third and final way to acquire foreclosures is thru buying post-foreclosures or REOs ("real estate owned"). This is perhaps the easiest way to buy foreclosures. An REO is created when a lender takes back a property that couldn't be sold at auction for an acceptable price to the bank. The bank takes back the property to gain possession and minimize their losses. Banks don't like acting as landlords since they are not in the real estate business and would rather prefer discarding the property as quickly as possible. Bank-owned property is a burden to a lending institution. Many banks do not have the management capabilities to hold onto these properties for long periods of time. The lender has to bear the expenses of carrying the property and other taxes along with the costs of repairs and the threat of vandalism .Keep in mind these lenders are truly motivated sellers which creates prime opportunities at wholesale prices to buyers

The bank is usually the primary lien holder, thereby wiping out all other liens at the auction. In other words, the REO will always have clear title, meaning free of all liens, encumbrances, or any other form of judgments. The property taxes are usually paid up to date. The bank usually repairs the house or offers it at a discount to when is sold "as is". Most banks offer financing on their properties at competitive rates. There are certain guidelines to follow to have your offer accepted by the bank and approved for their financing.

One of the major differences between buying a foreclosure at a bank auction as oppose to buying an REO is most REO's have clear title at closing. The bank will usually satisfy the outstanding liens and judgments attached to the property when they take the property into their inventory.

On the other hand, if you buy a property at an auction, the property might or might not have other liens and judgments attached to it, making you , the buyer, responsible to satisfy them.

Another difference concerns the purchase price of the real estate. A bank will base the asking price of an REO on the current market value or close to it. On the other hand, a property offered at a bank auction is usually set at a reduced price since it is based on the mortgage balance as well as back taxes, court costs, and legal fees .

Another difference between the two is that most lending institutions will have the premises delivered vacant when it is an REO. This would eliminate the cost of eviction proceedings that you would have to pay for if the property was bought at an auction. When you buy at an auction, the buyer is responsible for evicting the existing tenants after you become the new owner.

Last, many banks offer financing for buyers of REO's. The terms of the financing are usually very favorable in order to expedite the sale to a qualified buyer. On the other hand, when you acquire a property at an auction , the property has to be bought "all cash", meaning you have put up the money yourself or find a source of financing elsewhere that can close in 30 days. Remember, there is no more mortgage contingency allowed in the contract, meaning that if you cannot obtain financing from your selected bank ,you will risk losing the down payment, which is commonly 10%.

Finally, remember, if you generate around 4 deals a month with a net profit margin of $20,000 per deal, that's around one million dollars a year in income for you.

Good Luck!