READY TO BUY AND YOU WANT A FORECLOSURE?

You’ve come to the right place! Read on…and get the FACTS not the FICTION on how to buy a foreclosure!

HERE ARE THE 5 MOST IMPORTANT FACTS YOU NEED TO KNOW…

FACT # 1...NOT ALL FORECLOSURES ARE THE SAME!

What does that mean, and more importantly what does that mean to you? Quite simply it means know what you are purchasing, and from whom. There are many different types of foreclosures, and many different ways they are sold. Buying property at a foreclosure sale at your courthouse is NOT the same as buying from the seller directly. Buying a foreclosure at a tax auction is NOT the same as using a realtor to negotiate a foreclosure that’s listed with a real estate office. Statistics for these different kinds of foreclosure purchases vary greatly.

Do not assume that all of them will bring you a HUGE return.

Why is it important for you to know what kind of foreclosure you are purchasing? Because the method of researching, time frame you have, and rules on negotiating change with each one. This site is dedicated to giving you the easiest, fastest and most profitable way to purchase foreclosures. Are there other ways? Sure, but we like to do things in a speedy, efficient, straight-line method. This will save you time…which will make your profit or your savings greater!

So what’s the best way to buy? Buy a foreclosure when it has been listed with a real estate office. This means that the foreclosure process is complete, title problems have been corrected, and THE PROPERTY IS READY TO PURCHASE WITHOUT ANY LIABILITY and minimal research and legwork on your part. If you are looking for foreclosures in the newspaper, be careful about who you are talking to. A professional real estate firm by law must advertise their office name in the ad. If there is no office name, be wary, this may be an investor that has already purchased a foreclosure and is “flipping” it to you. There is nothing wrong with this at all, except YOU won’t be getting that great low price because he’s just added 15k-30k onto his purchase price and that’s no deal for you!

FACT: BUY IT FROM A REALTOR who works at an office that specializes in foreclosures. Most foreclosures, even local bank owned properties, as well as FNMA and Freddie MAC, list their properties with real estate offices. Even if you contact the sellers thinking they might sell to you directly for a lower price, they will refer you to the listing office. Save yourself time, and find the office in your area that sells mostly foreclosures. They have the experience you will need to help you get the one you want. Tip: Don’t use ANY realtor, qualify them the same way they will qualify you as a buyer. If they haven’t closed more than 10 foreclosures, don’t use them. Their inexperience can cost you the property you wanted. If you want to have the advantage over other buyers...

You must have a realtor who KNOWS HOW THE PROCESS WORKS!

FACT # 2... CASH WILL GET YOU A BETTER DEAL - no, no NO!

One of the greatest fallacies about buying foreclosures is that cash will guarantee that you get the property instead of someone else, or that it will get you the property for .50 cents on the dollar. Does offering cash make your offer stronger? Absolutely! Does it mean that you just won? Nope. Because these properties are usually listed below fair market value, investors flock to them, track them, make multiple offers on them in the hopes one will go through. If you are an investor, your competition is other investors…and guess what? They are making cash offers too! As an investor, the cash won’t bring you clout…a good reasonable price and a QUICK closing will. If you are a homeowner looking for a good deal, don’t think you can’t get a foreclosure without paying cash. The majority of them are actually financed, so your offer doesn’t get put on the bottom of the pile because you want or need to get a mortgage. What’s your advantage over the investor that is making an offer on the one you want? YOU will be using it as a primary residence vs. investment. Sellers of foreclosed properties prefer to sell to someone that will live in the home. Statistically, primary homeowners protect their investment better than absentee landlords and renters.

So what will get you a better deal? FACT: a good reasonable offer, starting about 10% below asking price, the ability to close quickly (2-4 weeks), agree to buy it AS IS after a quick home inspection. Tip: Your home inspection is for your information only, so that you know what needs to be repaired if anything after you close, do not use it as a negotiating tool after you and the seller have agreed on price.

FACT # 3 FORECLOSURES ARE NOT SOLD FOR WHAT THE PAYOFF WAS ON THE OLD MORTGAGE…

A house sits in a $150,000 neighborhood. The owner purchased 12 months ago and put $50,000 down when he bought it. His bank forecloses for $100,000. The house is in mint condition in a hot area where property is selling in about 30 days because of the demand. The house gets listed with a real estate office for $142,000. You find out the old mortgage was only $100,000 so you offer $112,000, figuring in the real estate fee and a few extra thousand for the seller. BUYER BEWARE of starting your investing career with this line of thinking! You WILL NOT get the property, and your chances of ever getting foreclosures like this are very, very slim. If the house is not worth more than $112,000 to you, then offer $112,000. If the house is worth every penny of $142,000 then offer in the low-mid 130’s if you want a chance of getting it!

Banks are in the business to make money, and it is okay for them to make money…the same as it’s okay for you to save large amounts on a purchase.

Take a look at the next scenario…

A manufactured home is purchased and set up on a .5 acre lot in a subdivision. The homeowners were given 100% financing and felt like they got a really good deal at $138,000. The high interest rate, and high monthly payments became too much to handle and they were foreclosed on 12 months later for $137,500. The process took 12 months, and in that time there were 6 other homes in the subdivision that went into foreclosure which brought down everyone’s property values. When the house went on the market with a real estate office, fair market resale value was down to $80,000, and the comparable foreclosures were being sold in the $60-70k range. Obviously in this case the seller looses, not a little, but a lot!

If you apply the method of offering in the first scenario to this case, based on the balance of the first mortgage you would offer 137,500 plus realtor fee, plus a little extra for the seller…the seller would be very happy to accept an offer of $150,000!!!! I think you see what we mean here! The point is this:

The balance of the mortgage that was foreclosed on really is irrelevant when it comes to purchasing.

Tip: The value of real estate is set by you, the consumer. It is not determined by the seller, your realtor, your next door neighbor…What matters is what it’s worth to YOU and that price will be different for each of you. One investor may be willing to pay $50k for a property, another $85k for the same house. So what is the real value? Is it worth $85, or is it only worth $50k? The answer…It’s worth $50 to the one investor, and it’s worth $85k to the other. That’s it. (…of course we all know that third party that steps up and offers “Your both crazy! I wouldn’t give them ten dollars for that place!)

FACT # 4 EVERY SELLER IS DIFFERENT AND EVERY SITUATION IS DIFFERENT!

Just as you buy each property in a different way, for a different reason, and sell in a different way for a different reason, so to does the seller of a foreclosure. The only thing that remains a constant is that the foreclosing bank takes back possession of a property and then hires a real estate office to market it for them. Many times the bank will hire an Asset Management company to process all of their foreclosures; They in turn hire a real estate office to market them. The similarities stop here.

For simplicity the term “Seller” will include all asset management companies, local banks and government backers such as HUD, FNMA, VA and FRMC. Each seller, and there are thousands, have there own policies on how to market their foreclosures, how to negotiate, how to close on them, some even require the purchaser use the sellers attorney. Some sellers allow repairs, some don’t, some charge a daily fine (per diem) if you don’t or can’t close on time, some don’t charge, some will negotiate that fine. Some sellers won’t even look at offers until the property has been listed with a real estate office for a minimum of 14 days.

Even an extremely proficient real estate office can have a difficult time keeping up with all the information specific to each seller because of the sheer volume of regulations, policies, procedures and chains of command.

IF YOU WANT TO GET THE HOUSE YOU MUST FOLLOW the sellers requests and policies EVEN IF THEY DON’T MAKE ANY SENSE TO YOU. Just like any other business, policies and procedures are in place for a reason. You will see, and will sign, what may seem like a mountain of paperwork, be asked to come in and sign another 2 weeks later, and another 1 week later. DON’T GET FRUSTRATED. Anger and frustration at an invisible conglomerate won’t make you money. Following through in a timely manner, and staying focused on your profit will. The seller may respond to your offer in 2 days, it may be 2 weeks. Either way, if you are patient, it’s okay. In our world of immediate gratification we NOW. That works for fast food. You can drive down the road and demand a burger, and get it NOW. It actually seems to make sense. You are talking about a $1.50 piece of consumable beef that you can’t turn around the next day and sell for $5.00. Put your foreclosure in perspective, $60,000 worth of real estate that will increase in value, that you may be able to sell the next day for $75,000...legalities, liabilities, possible government regulations, a dozen or so people that may be working on that one property to get it sold and transferred properly…point is;

It’s okay if it takes 2 weeks for the seller to get back to you…THIS ISN’T A HAMBURGER!

Price setting, price reductions and negotiating are also very different according to the policies of each of the sellers AND ALSO THE PROPERTY! Some start at fair market, some below, some way below…Some negotiate better than others, some will reduce prices by 20k, others only in 3k increments. Some sellers list it and let it sit (those ones usually sit for a long time too!). Your realtor can’t tell you who negotiates better than others, or which seller is likely to take a lot less because EACH PROPERTY IS BEING SOLD UNDER DIFFERENT CIRCUMSTANCES. Take the thousands of different sellers and multiply that by the hundred thousand or so foreclosures nationwide…it’s an impossibility to figure out which one of those is going to sell at 50% of list price, although that sounds like a fun weekend with a calculator!

FACT: Being PATIENT, PATIENT, PATIENT will get you the property because many other buyers will get frustrated, angry and drop out of the game. Don’t force the seller to respond to your offer in 24 hours. Don’t walk away from your offer because the seller after 12 days still hasn’t responded…You will loose, and someone else will get that deal because they were willing to be patient and follow the rules.

FACT # 5 BE READY TO BUY IT WHEN YOU SEE IT - FINANCIALLY AND EMOTIONALLY!

If you know you will be financing your foreclosure, GO GET IT NOW! Don’t bother driving around looking at them, researching the one down the street, hanging out at the auction…Sellers will NOT RESPOND to any offer that does not come with a pre-approval letter from a bank or mortgage broker - PERIOD! Make your shopping easy on yourself and less stressful, get an approval now, then start looking. A pre-approval is typically good for 90 days. Make sure you let your lender knows BEFORE YOU APPLY that you will be purchasing a foreclosure, this is very important! If the property needs any work, even if it is very minor work such as a window pane being replaced, or a hand railing being replaced MOST SELLERS WILL NOT ALLOW THE WORK TO BE DONE BEFORE CLOSING. This can cause a problem if the lender won’t release funds until the repairs are made. This is not something that is negotiable on the sellers side, so make sure your bank understands that you purchase AS IS, and repair after closing. If they can’t says thanks, and go find another, there are plenty that will!

You want to avoid getting a “false” pre-approval because the lender doesn’t have all the information they need to give you a loan.

If you are a cash buyer, you MUST include with your offer a letter from your bank stating you have cash funds available for the amount of your offer. Don’t be offended! This is standard practice and applies to ALL cash investors. The seller doesn’t want to know how much is in your account, just that you have your purchase money available to you.

Bring your checkbook with you when you go to look at the foreclosure with your realtor. This is part of being prepared. If the house is what you want, and the numbers work for you as an investor, make an offer right then and give an earnest money deposit. Believe it or not, property is lost overnight! You might be looking on a Monday at 9am. The 3 other people that looked at it over the weekend might be sitting in an office signing offers…or they might not. Either way, you want the advantage without any competition. Speed is the name of the game when it comes to winning and that includes foreclosures! If you came prepared, your realtor came prepared with all the paperwork needed to offer, you can get it signed, presented and possibly accepted while those other 3 people are still “thinking about it”, or frantically rushing around trying to get a mortgage in one day.

They lost, YOU won... because you were prepared to buy it!