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Article of the Month for March 2008 Printer friendly version

Foreclosures

(An Overall View)
by Ward Hanigan

Regardless of your home state location, the following themes will come to the fore when considering participating in foreclosing investing. This is not an all-inclusive checklist since your particular state will have additional procedures or requirements unique to your area.

  1. RESEARCH (3 choices)
    1. Find the new foreclosures by yourself, or by hired help, or via a reliable subscription service.
      1. You could personally do your own 5 hour daily search for the notices at the county recorder’s office, or
      2. You could hire someone to do a daily search of public records for about $1,500/mo, or
      3. You could get the notices the cheapest, most efficient way by downloading them from an online foreclosure notice service for about $80 - $100/month. The list of such services for Southern California fluctuates, but currently these are the main companies:
        1. www.CountyRecordsResearch.com
        2. www.Retran.net
        3. www.e-ForeclosureData.com
        4. www.ForeclosureRadar.com
    2. Select the most likely prospects from your daily downloads:
      1. Establish the available equity (value less cost basis)
        1. Find the current, fair market value of the property (see LOCATE formula),
        2. Subtract your cost basis (see BEST BID formula).
      2. Ignore notices that pertain to:
        1. Recent loans (<5 years) that probably exceed 75% LTV.
        2. Low owner-equity properties like timeshares, etc.
        3. Deals that require more cash than what you have to invest.
        4. Unfamiliar condo projects with wide value ranges.
        5. Hazardous/negative areas that are difficult to resell:
          (1) Flood, fire, subsidence, septic system failures, loud/noisy areas, fumes/odors, etc.
        6. Slower marketing areas (during a retreating Buyer’s market).
    3. Research the title record and determine ALL present liens (BOTH voluntary and involuntary) and their relative priorities (see Researching The Title Record).
  2. CAPITAL
    1. Your own funds:
      1. Cash on hand
      2. Instantly available via pre-established lines of credit.
    2. Other People’s Money (OPM)
      1. Loan vs. investment?
      2. Secured vs. unsecured?
      3. Private vs. public offering (solicitation regulations)
      4. Time frame?
      5. Record keeping, periodic reports, tax return elections
  3. BUYING
    1. Before the auction/sale (from the defaulting homeowner/trustor):
      1. Get title and current possession for a relatively low cash outlay.
      2. “Due on Sale” acceleration possibility.
      3. Nullified discount (no liens wiped off).
    2. At the auction/sale (from the trustee):
      1. Generally the “best potential buy” . . . but it requires ALL cash bid.
      2. You get a deed absolute, rather than a deed of defeasance.
      3. Get title immediately…but not necessarily possession.
    3. After the auction/sale (from the beneficiary)
      1. Apt to get slightly better-than-market loan terms, but only a marginal price break from an REO owner on a single property. Much better buys occur when buying a bundle of REOs.
      2. If you want to buy just one REO property at a time, then your best deal will come from an out-of-county private beneficiary who is stuck with an REO in your county, in rundown condition, occupied with a non-paying squatter, with a remaining senior lien costing a thousand dollars or more per month.
  4. POSSESSION
    1. The informal method. Grant the occupant extra time to move out.
    2. Formal legal means as a last resort (filing an Unlawful Detainer Action).
    3. Pre-arranged, immediate insurance binder covering fire, vandalism and liability.
  5. HOLDING PERIOD CONCERNS
    1. Extent of rehabbing, getting bids, job supervision, sub contractor releases, etc.
    2. Rental management, rental averages (www.rentometer.com), etc.
    3. Positive/negative cash flow management.
  6. CASHING OUT (When reselling in the retail market)
    1. Finding financing for your Buyer
      1. Local, first-time-buyer assistance programs (City and County programs)
      2. Get referrals of local, conscientious loan brokers
    2. Reselling techniques
      F lyers (letter size and door hanger type)
      O pen house on Sunday (Noon to 4pm)
      A dvertisements in main newspaper (both “For Sale” and “Open House”)
      M ultiple Listing Service inclusion (usually $350 flat fee service)
      S ign on property and bootleg signs on Sunday directing Open House traffic to your property.

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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