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Article of the Month for August 2004 Printer friendly version

Foreclosure Profit Opportunities

by Ward Hanigan

The following list is meant to be a cursory survey (rather than a comprehensive detailed analysis or "how to" treatise) into the main ways of profiting from a foreclosure situation. We leave to the reader the essential task of determining which area suits them best . . . given their money, knowledge and time available.

Broadly speaking, there are three distinct phases to a foreclosure and three different potential parties you can buy from. You can deal before the trustee's sale, at the trustee's sale, or after the trustee's sale.

  • Before The Sale
    1. Deal with the trustor/owner.
      1. As a real estate agent you could solicit a listing on the property and try to sell it before it's lost at the trustee's sale.
      2. As a principal you could buy the property outright or do some form of equity sharing with the owner.
      3. As an agent or for a finder's fee you could arrange a refinancing plan to cure the default, or maybe make the loan yourself.
    2. Deal with the beneficiary of the trust deed in foreclosure.
      1. Buy out the beneficiary's position at a discount and continue on with the foreclosure. Thereafter only three things could ultimately happen after all the delays had run their course - (1) the default would be cured and the loan reinstated or (2) the loan would be paid off thru a resale, refinancing, or an overbid at the trustee's sale, or (3) you would get title to the property in lieu of being paid off for lack of any outside bidding at the trustee's sale.
    3. Discount a junior note holder's position prior to the trustee's sale of a senior note. If the right parameters were extant, you'd be paid off in full via the owner's success in reselling or refinancing the property prior to the scheduled trustee's sale, or out of the trustee's sale via the overbid proceeds.

  • At The Sale
    1. Buy the property from the trustee, on the courthouse steps, in competition with any other qualified bidders. Competititon is about nil in a Buyer's market but very keen in a Seller's market.

  • After The Sale
    1. Buy out the disappointed beneficiary who got the property, in lieu of a payoff, at the trustee's sale. Buying up lenders' REO's (real estate owned) is a workable approach when it's a Buyer's market and lenders have lots of REO's they are anxious to get rid of. But in a hot Seller's market they aren't so motivated.
    2. For a flat fee do a foreclosure turnaround for an overwhelmed beneficiary who really isn't equipped to obtain a peaceful eviction, oversee an economical but attractive rehab, and then mount a low-cost, speedy resale of the property.

  • Services
    1. A daily foreclosure notice service that saves subscribers the hassle of trying to find out the daily filings firsthand. REO newsletters are popular too.
    2. Lawyers who provide legal services employed to stall off the trustee's sale via T.R.O.'s, bankruptcy filings, etc.
    3. Seminars (sadly, most of them don't even begin to teach beginners the ropes).

Information provided by this website is for informational purposes only and is not a substitute for professional advice. Please consult your investment advisor and/or attorney before entering into any transaction. Read our privacy policy.

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