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The Truth about Foreclosures
With many self appointed “Foreclosure Experts” telling buyers they can get a 30% discount when buying OC foreclosures…it’s time to learn the truth.
The So Cal Market is not “Kansas”….
So throw out the Get Rich Quick Books and Tapes…
Roll up your Sleeves and …
Prepare to work hard and build relationships.
The foreclosure process in Orange County is a simple and methodical process. Once understood, it can be a highly profitable venture.
Consider this: If you are able to buy the avg. priced OC home ($650k) 10% under market price, you’ve made a FORTUNE.
The following explanation is an overview of the process.
The process begins after 3-6 months of missed payments.
The lender will file a foreclosure notice (Notice of Default …i.e. NOD) at the County Recorder’s office. Notices are filed and recorded daily.
Once the lender has filed the NOD, the property owner has a 90 day period to either reinstate the loan or sell the property.
During this time the homeowners will engage in one or more delaying tactics.
1) Debt Re- negotiation:
Homeowners, who owe less than 50% of their homes value, can typically get on a repayment plan thru their current lender. It is important to remember that institutional lenders will make ALL reasonable efforts to avoid foreclosing.
2) Refinancing/Adding a hard money second trust deed:
Homeowners who owe 60% (or less) of their homes value are usually able to get a (high interest rate) “private party” second trust deed to “cure” the back payments.
3) Listing the home for Sale:
Many lenders hold out the possibility of delaying the sale while the homeowner attempts to market the property. This is an internal lending decision done on a case by case basis.
4) Bankruptcy: Please see “buying during the trustee sale period”.
If the 3 month default period elapses without resolution, the lender schedules a Trustee’s Sale (public auction).
The owner has a 21 day period to resolve the payment problems before the property goes to auction.
Seven days later the house is sold at public auction.
Once a homeowner has run out delaying tactics they’ll be forced to choose between “Sale” and Bankruptcy.
As of October 17th 2005, filing BK does little to resolve a distressed homeowner’s situation; however, it will delay the inevitable sale for up to 6 months.
A prospective buyer is at a huge bargaining advantage - knowing when a foreclosure is pending & time is running out.
Finding the Property
"If you are determined to proceed without an agent....here's what you need to know".
The key to finding a property is to use a foreclosure information service that is ACCURATE, TIMELY, AND SPECIFIC to the region that you wish to purchase a home.
Here’s how these factors affect your ability to search for properties.
If you have the wrong data you'll lose time, money and risk a physical confrontation.
Imagine for a moment ---your own personal response if when opening the front door, you meet an (ill informed) stranger that proclaims that your home is in foreclosure.
And proceeds to write a "low ball" offer (based on his avid reading of "Buying Foreclosures - 30% below market price").
At this point you would want to introduce this "well meaning individual" to your size 12 foot and it‘s Air Jordan insoles.
Followed by a call to the family pit-bull for added effect.
This will be your experience if you engage in this "close-up and personal" tactic.
Never approach a desperate owner at their doorstep.
As a beginning investor you'll be competing against other more experienced investors for the most profitable properties.
You must be able to receive your data within 48 hours of the lender...filing the legal notices.
CRR has been selling local market data to So Cal investors for over 20 years. Their data presents real time information that feature dates, times and contact phone numbers.
There’s nothing like a feeling of futility ...caused by outdated data...leading to your 42 cent, hand written - hand stamped - self-licked envelopes --being returned via your mailbox.
3) Specific Data:
Buying property from desperate homeowners who have already lost their credit, possibly their family and soon their place in the community...comes with implicit risks.
You must be able to determine which lender(s) is in default, if there are property taxes due and HOA dues pending and more.
Calling the “trustee” listed by your data service is only partially effective.
Tracking the Property- Contacting the owner
“Timing is everything. Don't waste time chasing properties that won't be sold."
The first step: Determine which properties to pursue, and call the trustee to confirm the property is still in foreclosure.
The trustee has the most up-to-date information.
Creating a dialogue with the homeowner is crucial to success.
1) Phone calling will not work. Deadbeat owners change phone numbers or at the very least-will route calls to voice mail or answering machine.
2) Pre-printed generic post cards only convey (in the owner’s mind) that you are a "bottom feeding vulture."
3) Registered mail will not work because the owner will not sign for anything, fearing being served a legal notice.
4) Statistically, the only effective contact is through mailing generic envelopes that are hand addressed & stamped (do not use electronic postage).
Controlling the Negotiations and Closing the Sale.
"You can't act arrogant or behave like a vulture."
Are you an attorney?
Have you purchased a dozen or more properties?
Are you a building industry professional?
Do you feel comfortable haggling over a price of a new car?
If not, you may not be comfortable negotiating with the desperate individuals you're about to meet.
Studies indicate foreclosure commonly occur for the following reasons:
Divorce
Drug Addiction
Mental Illness (i.e. depression)
Economic Displacement
Death of a spouse
Catastrophic health care costs
Many homeowners remain “in denial” about their situation until the home is auctioned at the court house steps.
Unless the homeowner can be convinced, it is in their best interest to cut their losses or they will lose everything.
If you believe the old adage “desperate people commit desperate acts” then you will quickly realize negotiating with these home owners quickly turns into an angry & ugly situation of deception.
Because of the impending foreclosure, what were formerly good citizens, attentive parents & loving spouses are now in a desperate situation.
You must be prepared to listen to the home owner’s drama but don't become a participant in their situation.
Keep conversations short & focused on the issues at hand.
Don’t provide life tips, bible verses or legal counseling.
Do set performance deadlines. If the buyer is stalling (for whatever reason is irrelevant), you must set incremental deadlines to judge their willingness to complete the sale.
Control the escrow process by choosing your own (loyal) escrow officer to keep track of the deadline & performance goals.
The buyer must be able to perform as well.
Can you literally close your loan in 15 days?
If not, the seller may experience remorse or other reasons (mood swings –addiction relapses etc.) and kill the deal.
This results in valuable time being lost. Monies spent on appraisal and inspections are squandered.
And a sense of discouragement will follow you each time a sale that falls out of escrow at the very last minute.
At some point (after the anger and denial subside) ---many homeowners accept that they are going to lose their home.
THAT'S WHEN....a buyer must know “WHEN TO MAKE THE OFFER” for “HOW MUCH.”
At that point they will sell their home to whomever:
a) Ends their misery by closing escrow the fastest and at the highest price;
b) Is the most flexible in giving terms; and,
c) Eases their transition into the next phase of their life.
Loan Signing and Closing Escrow
“Pre-qualified” and “Pre-approved" loan applications are useless. If you haven’t progressed past these points in the process…all of your efforts will have been wasted.
Your loan application should be completely underwritten (valid for 90 days) BEFORE making offers to buy property.
Your lender must be in receipt of your current tax returns, current bank statements, etc.
Present the listing agent with the completed underwriting sheet attached to the initial purchase offer.
To view a sample "loan approval" click on the link at the top of this page.
Within thirty days you must complete the following:
1) Complete and the receive the appraisal
2) Complete and the receive the title report
3) Complete the Home Inspection
4) Sign final Escrow Instructions
5) Deposit funds in escrow
6) Order a Home Warranty Policy
7) Obtain Hazard Insurance
Each day of delay exponentially increases the chance of the seller “backing out” at the last minute and tying up your money in escrow until the bankruptcy is final.
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