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Foreclosures 101

Foreclosures 101

**Disclaimer – This is not legal advice. Please consult an attorney or tax professional for the appropriate legal advisement. Furthermore, you can expect to find many typos, improper English and made-up words. Author Ryan Paliukaitis (RyanPal)

Foreclosure vs. Other Investing Strategies
It’s important to understand that foreclosures are a very different animal…mostly from the homeowner’s perspective. Many times the homeowner’s aren’t selling by choice; there’s a lot of emotions involved. In many situations, they really DON’T want to sell. When a homeowner is facing foreclosure, there are usually a number of factors involved that led to their current situation, not just missing a mortgage payment. The many scenarios are almost endless. Here’s just one of the many situations I’ve come across:

A homeowner purchases a home at the height of the market before the real estate bubble. They get laid off from their job and divorced shortly after. With a large monthly mortgage payment, no job, and no significant other to help assist with the payments, they fall further and further behind. Without any income, and all their funds drained, they simply cannot pay off any debts. At this point they are too far behind to catch up on their mortgage payments and ultimately are faced with a pending foreclosure.

As you can see, this goes beyond just missing a mortgage payment. The homeowner’s lives are almost in shambles and in a downward spiral.
With this in mind, you can see how an investor may not be greeted so kindly. It’s important to remember that these are not bad people. They are undergoing a tremendous amount of stress and most likely not acting as themselves. If you decide to target these types of homeowner’s, you might be viewed as the big bad wolf trying to steal their house (ask me how I know).

Therefore it’s important to be compassionate and truly find out how you can help these people. An investor out west put it best for me, “Take the dollar signs out of your eyes”. Sure we make money buying and selling houses, but it’s extremely important to help these unfortunate homeowner’s in the process. Having worked in computers for five years before entering into the real estate world, I can tell you it’s a lot more rewarding to have someone tell you that you helped changed their life and you were a god send, than getting a pat on the back for putting in an extra 20 hours of work that week.

Am I Taking Advantage Of These People?

To paraphrase a part of Utah 300 posts (you’ve downloaded a copy right?), if you ever think that you’re taking advantage of someone in this situation, just sit back and watch. That’s right, watch these people go through the foreclosure process and DO NOTHING. You’ll see what it feels like to watch these people go through hardships, while you stand by the sidelines having the ability to help them. Think about that when you feel that you’re taking advantage of these homeowner’s.

Where Do I Find Leads?

Title companies – Some title companies have lists of foreclosures. I’ve never obtained a list from a title company, but I’ve come across this quite a few times. Your mileage may vary.

County Clerk’s office (free) – This is my favorite place to find foreclosure leads. Best part of all is that they are provided FREE to the public. In some cases these are provided online if the county has an online website. In other cases, you will have to go to the county clerk in person and obtain these records. In New Jersey, you’re looking for Lis Pendens records for sellers that have defaulted on their mortgage. These records will give you the owner’s name and the property addresses.

List providers (pay service) – These can be a good option if you don’t have the time to obtain the leads yourself. The problem I’ve seen is that these might not be complete lists and not up to date. Furthermore I’ve heard of some companies that withhold certain leads for themselves Lips sealed

Vacant homes – These are another great source of foreclosure leads. Please note, not all vacant homes are foreclosures, however, a good portion in today’s market fall under this category.

I Have Leads...Now What?

The next step is to figure out how you’re going to approach the homeowner’s. Some people prefer direct mail, while others prefer phone calls, and are a select few who choose door knocking. I personally have done them all and found that door knocking (jumping into the lion’s den) is the most intimidating, but also the most effective if done properly.

What Do I Say To Sellers?

You can choose an opening pitch that comes most naturally to you, but remember t’s most important to be compassionate. For more information on “What to Say” when door knocking, you can refer to this informative board post: click here

If you choose to make phone calls, I would use a similar pitch but perhaps keep it shorter. Lastly, if you’re doing mailers, be prepared for a lower response rate. These homeowner’s are getting bombarded with mail every day and many times your letter/postcard will get thrown in the trash. Therefore it’s important to do multiple mailings and perhaps experiment with different types of marketing to have yours stand out from the rest. The letters I have used were pretty basic. I don’t believe they are a magic bullet by any means, but it’s a starting point for some. Here’s the link to the forum with the download link: vacant mailer letter. If you’re feeling experimental, you can gather some ideas from our ongoing discussion here: click here

How Do I Find Property Values?

This is covered in a blog post I made here: http://www.ryanpal.com/blog/wholesaling-101-2/

Choosing An Exit Strategy

You need to figure out your exit strategy. Are you planning on rehabbing and selling retail? Wholesaling the property? Or maybe you want to become a landlord and rent out the property? Your exit strategy will determine how you will proceed. If you’re planning on wholesaling the property you’ll need a list of prospects to offer the property to. Have you built your buyers list yet?

Making The Offer

This topic can be discussed for pages on end. When making your offers, you’ll have to be prepared for a lot of rejection. Remember, not everyone needs to sell their home, and those that are motivated, might not be motivated enough to sell it at the price point at which we need to purchase.

Offer Accepted...Now What?

Once you have an offer accepted, you’ll have to send a contract to the seller for signing. This can be done via snail mail, fax, or email.

Building Your Buyers List

For all of you wholesalers, this should be done first. It’s easier to sell properties when you have a large buyer’s database begging you for properties versus shopping a property around. Building a buyer’s database is as simple as networking and getting the word out that you’re a property finder. Get the contact information from as many cash buyer’s as possible and put them into your database (email is a must and a phone number is good to have as well). Here are plenty of resources for an abundance of cash buyers:

-REIA groups
-Checked sold properties in the MLS that sold CASH
-Contractors in the area (many of them are looking for properties)
-Advertising on social media
-Advertising on free classified ads sites (www.backpage.com, www.craigslist.org, etc.)
-Realtors
-Other wholesalers
-Foreclosure Auctions
-And lastly the REIunite forum

Where Can I Get These Contracts?

There are a few sources where you can obtain these contracts:

-Staples should have a standard contract
-Investors/Wholesalers in your local REIA might be willing to share the docs they use
-Purchase a wholesaling course and have your attorney make sure it’s state compliant
-Pay an attorney to draft one up
-Search online and have your attorney make modifications so it’s state compliant
-Download those available from REIunite’s Contract Forum Board

Contract Signed...Now What?

-At this point, I would order title (some people do it before, but I typically choose to do it upon obtaining the contract. To each their own)
-If you don’t know of any investor friendly title companies, you can access a growing list here: Real Estate Investor Friendly Title Co’s

How Do I Market The Property?

This is also covered in a blog post I made here: http://www.ryanpal.com/blog/wholesaling-101-2/

Where Do I Send The Coconut Water??

You can bring this to our club meetings 🙂