I just visited the former site of Casey Serin’s famous IAmFacingForeclosure blog and came across this link to a post by Dr. Housing Bubble about a seemingly improbable foreclosure story involving a couple that was once making $130,000 a year. I liked this quote in particular:
“Amazingly, folks are very upfront when they are making lots of money but go into clandestine mode when they are having financial difficulties.”
This is the reason why it may seem like the recent surge in foreclosures seems to be avoiding your neighborhood. People just don’t talk about entering foreclosure. But stories like the one in Dr. Housing Bubble’s post are everywhere, which creates a great opportunity for investors to not only find many potential deals (homeowners facing foreclosure are less likely to have the time and resources to list with a realtor), but more importantly to assist homeowners going through this very difficult process. Bankruptcy has never been desirable, but it’s becoming a less viable solution due to greater restrictions on bankruptcy, brought on by the recent subprime lending woes.
If a homeowner has enough equity in a property, real estate investors are in a very good position to help that person avoid bankruptcy. Time is on our side. Because investors actually purchase the property (as opposed to Realtors who simply list it for sale), we can complete a transaction within a few days, which is crucial when foreclosure is imminent and when each month’s missed payment leaves the owner in deeper financial troubles. These sellers are highly motivated, which makes them willing to sell the property at a deep discount or with favorable terms in order to sell quickly, making it worthwhile for an investor, who then sell the property for a quick flip profit or as part of a lucrative terms deal (perhaps with someone who just recently was foreclosed and can no longer apply for a conventional loan).
The key to working with pre-foreclosures is finding delinquent homeowners relatively early in the foreclosure process. There are a few ways to do this:
- Search the Notices of Default (NoD) at the county courthouse. This is the quickest way to find out about a homeowner’s pre-foreclosure status.
- Use a pay service like DataQuick, which takes a few days to process a Notice of Default, but allows you to search for notices of default from your computer.
- Try any online provider of pre-foreclosure information. You can probably find a site that lets you search Notices of Default for free, but there’s usually a lag of at least a week or two, so the best opportunities may already be gone.
When working with pre-foreclosure homeowners, be sensitive. This is a gutwrenching and unknown experience for most of them, and as mentioned earlier, many people don’t like talking about foreclosure. Be sure to convey credibility, trust and understanding through your branding materials and communication with the seller. Create a sense of hope and optimism, but be forthright and realistic about the situation and the options available to them. Stay away from the hard-sell tactics and never use their financial situation as a way to exploit them financially. Sure, it may cost you a few hundred dollars here and there, but it’s a minor financial difference and, as Wilford Brimley might say, “it’s the right thing to do, and it can help you live a better life“.
Hat Tip: www.IAmFacingForeclosure.com
I agree that many times home owners that are facing foreclosure do not have a lot of time and “most real estate agents” cannot help them. However if they have enough equity and they can usually net more by listing it. Typically it only has to discounted by about 10% to cause a quick sale. An agent that knows what they are doing in this arena can get the bank to stop especially if a bankruptcy is not emanate.
However I agree that because of the homeowners like you said are clandestine when in trouble. It is challenging to help them. I advise agents all the time if you do not know what you are doing you owe it to those that are in trouble to refer the business to another agent, because it is the right thing to do.
Thanks for the comment, Rob. I think you’re right: a great real estate agent can usually sell the property very quickly if it’s priced right, and they’ll probably get a better price (from the seller’s perspective) than if an investor purchased directly. I also didn’t realize that some agents actually get the bank to delay foreclosure proceedings, although it makes complete sense now that you mention it.
It seems like a bit of a balancing act. Selling through an agent will always take a bit longer than selling directly to an investor, so it depends on how much time pressure there is. Then there’s the tradeoff between price and time, because the lower price will sell more quickly; but once you calculate the commissions, the seller may not receive much more than he/she would with an investor. Ultimately, I think it comes down to the particular homeowner’s situation (how much equity, time, motivation, etc). A good agent and a good investor are both positive things for the seller.
In my market (Minneapolis) most homes facing foreclosure have negative equity. Do you find this challenge in your market as well?
Hi Kermit,
It’s definitely a problem everywhere, and it may affect your chances of making a pre-foreclosure successful, but I think there’s still a lot of potential there. It really depends on the situation, but you can always try to arrange a workout agreement with the lender. Sometimes, both the lender and borrower will be willing to take a hit in order to avoid the lengthy foreclosure process. I’m not sure about Minneapolis, but many states are lien theory states that require judicial foreclosure proceedings, and this can be a grind for anyone. In any case, there plenty of foreclosures happening right now, and there are many opportunities to do your part to help ease the burden for people in this difficult situation.
Great information about Foreclosures. Real estate investors are in a very good position to help that person to avoid bankruptcy, if a homeowner has enough equity in his property.
Got a little bit confused while reading :S