How Much Do You Like To Buy and Sell Foreclosed Properties? Beware!

How Much Do You Like To Buy and Sell Foreclosed Properties? Beware!

Thinking About Buying a Foreclosed Property? BUYERS BEWARE!
Key Considerations to Protect Yourself Against Being a Victim of a Defective Foreclosure

Defective Foreclosures:
There are many headlines and news reports about defective foreclosures, major lender nationwide suspensions of foreclosures and governmental investigations of foreclosure fraud. You need to make sure that you are not a victim of this legal morass.

Profits From Foreclosures:
Buy low and sell high - is also a formula for making money in real estate. One way many people have bought low is to buy a property which has been foreclosed against. Often, a bank may be eager to get rid of a property that is costing it money that it cannot sell for top dollar because it needs a lot of work after it was trashed by the former owner or vandals. The investor buys the house, fixes it up and resells it for a profit or adds the house to their rental portfolio. Because of substantial fix up costs, cash requirements and holding period costs, the investor usually needs to buy the property 40% or more under the market value.


Foreclosure Legal Process:
The buyer of a foreclosed property can have title problems if the legal procedure followed by the attorney overseeing the foreclosure was defective. There are many stories in the press now about defective foreclosures. In general, the law says you can't take someone's house unless you provide them the mandated notice, advertise the sale in the paper, have a proper auction and follow any required court filing procedures. Everyone can understand the heartbreak of someone who loses their home to a foreclosure and the law provides some protection to home owners against arbitrary foreclosures.
Typically, after notice and advertisement, an auctioneer sells the property at a public auction and this process results in a legal transfer of title under state law to the new owner who made the highest bid at auction, all against the will of the foreclosed owner. Given the volume of foreclosures and bank loses, the lenders may have put the foreclosure legal work out to the lowest bidder and achieved defective results. Where a foreclosure does not properly transfer title to the auction buyer, the person who bought the property at the auction may never receive good title; the property may still be legally owned by the person against whom the foreclosure took place. This all depends upon a complex set of state rules.
Each state has its own esoteric legal steps that have to be followed to legally transfer title through the foreclosure process. If the process was not followed correctly, the title of the buyer at auction could be defective and the auction buyer may be unable to pass good title onto the purchaser.


How Can This Happen?
As a buyer of a property which has been foreclosed, you could have a loss of investment in the following cases:

1. You Didn't Buy Title Insurance:
You got a loan to buy the foreclosed property and the lender received title insurance but you did not buy title insurance for yourself. Title insurance is where a capital rich insurance company enters into a contract to guarantee that the title to the property is good. There are lender policies and buyer policies. For the buyer to be protected, the buyer has to buy their own policy. The buyer may not understand this or try to save money by only paying for a lender policy, mistakenly thinking they are protected by the lender insurance policy. A lender title policy protects the lender from loss, but not the buyer.

2. You Got a Quit Claim Deed:
In the deed, there is generally a guarantee, called a "warranty" of title from the seller. If there is a title defect and you have a warranty deed, you have legal recourse against the seller if the seller had a title defect in their foreclosure. If there is no guarantee in the deed, you may have no recourse against the seller of a property with a defective title.

3. The Bank Went Bankrupt:
The bank or large federally regulated institution went bankrupt and even though you had a warranty deed, you are now an unsecured creditor in a huge nationwide bankruptcy case headquartered in Delaware and you have to hire a Delaware attorney for a large fee to collect three cents of every dollar you invested.

4. Your Title Insurance Does Not Protect You:
You go to settlement and pay for title insurance. You ask to read the title insurance policy to make sure that you are protected against a defective foreclosure on the property prior to signing the settlement papers. If you have a title insurance contract that says you own the property with no exceptions for the prior foreclosure and you lose the property due to a defective foreclosure, then the title company is supposed to pay you for the loses up to the dollar limit of the title policy. The settlement company says they will get around to writing up the policy a couple of weeks after settlement. The settlement company gives you a letter saying they will commit to issuing you a title policy with certain exceptions.
The exceptions listed concern anything to do with the foreclosure. Unless the exceptions for the foreclosure are later removed, the title insurance contract will not protect you from defects in the foreclosure process.
The problem is that you may have to go to settlement before the title company has even looked at the foreclosure paperwork to determine if there is a problem. All you get is a promise that they will issue a policy later and you have nothing in writing that they will guarantee there are no problems with the prior foreclosure. You may have only bought yourself a lawsuit if later the title company finds a problem with the foreclosure.

5. You Lost Your Fix Up Costs and Profit:
Larry and Louise bought a title policy with no exceptions for the foreclosure with a limit of $150,000, the price they paid for the house. They put $50,000 of fix up and carrying costs into the house and are ready to sell it for $250,000. But, they lost the property due to a defect in the foreclosure process. The title company makes good on the insurance policy and pays Larry and Louise the policy limit of $150,000 and Larry and Louise are out $100,000.


How to Protect Yourself:
In general, this has not been a likely problem in the past and in many cases will not be a problem today for many reasons even if there is a defect in the foreclosure. But, press reports indicate that the numbers of foreclosures that have "gone bad" have dramatically increased.
To protect yourself, obtain a copy of the title policy with insurance against foreclosure defects prior to the settlement. If you have this option, select a title company to do the settlement that you know and trust to thoroughly review the foreclosure record.
If you expect a large profit, have a clause in your purchase contract that provides that your own lawyer must approve the foreclosure paperwork as a condition of going to settlement. This will focus everyone's attention on getting this taken care of prior to settlement.
The facts about today's real estate market are:

• Demand for home buyers is slowing
• The number of homes for sale is growing
• The length of time to sell houses in most areas is increasing
• There is currently an extremely large and growing number of homes in the banks inventories
• the only logical conclusion is to expect a prolonged period of declining real estate prices in the period ahead
• Foreclosures and "short sales" are exponentially rising
• Time Magazine recently published an article stating that the number of homeowners who are more than 90 days delinquent on their mortgage payments is estimated to be about 5 Million

Therefore, when you combine all of these factors together, the only logical conclusion to be drawn is that the real estate market should have a prolonged period of continued decline in home values in the foreseeable future. And until these trends change, you might want to think about whether a foreclosed property today is really a "bargain".

Buying and selling foreclosed properties is a good business, but buyers must be aware of the properties they are aiming at. Perform due diligence and better if you ask guidance from a lawyer.

The Truth About Money Lenders

The Truth About Money Lenders   


So many first time investors are curious about
hard money lenders.   Who are they?  What is it?  How do I get
some?  Is it beneficial?  Let me share with you some of the basic
principals about hard money lenders.  First of all, lets determine
what the term "hard money" means.  When money is discussed between
investors, it is considered to either be "soft" or "hard". 
Typically soft money is easier to qualify for and the terms are
flexible.  Hard money, on the other hand, is just the opposite.  It
is much more restrictive.   Not in that it's more difficult to
obtain, but the terms are very specific and much more strict.  They
have to be, because most hard money comes from private individuals
with a great deal of money on hand. This is why hard money is also
referred to as "private money". The money used for investment
purposes comes from people, just like you and I, not a typical
lending institution.  So their first priority is to protect their
investment capital.  This is why the terms have to be so strict. 
If it were your money, you would want the same.

So what are some of the terms of "hard money lenders"?  Obviously
it varies from lender to lender.  It used to be that hard money
lenders would lend solely based upon the deal or property at hand. 
They would only lend up to a certain percentage of the fair market
value of the property, that way in the event of default, the hard
money lender would profit handsomely if they had to foreclose or
sell to an end buyer.  Now, you will find that many hard money
lenders, if they want to stay in business, require more than just
equity to qualify.  This is because the laws now are favorable for
consumers.  Consumer protection laws, time consuming and expensive
court procedures, and so on have forced some hard money lenders to
become even harsher when applying for a loan. 

It is good to know what the terms are when dealing with a hard
money lender so you can find the one that will fit your needs. Here
are some of the terms you can expect to see.  Typically they will
only loan you up to 70% ARV (after repaired value).  This means
that a hard money lender can loan you up to 70% of what the home is
worth in repaired condition.  So if you find a home worth $45,000
in the condition it's in, and needs $20,000 in repair work, and
after it is repaired the current fair market value is worth
$100,000, then typically they can lend you up to $70,000, which
would cover the cost of the house and the repairs.  

Other terms you can expect are high interest rates.  Interest rates
vary from 12% - 20% annually and terms can last for 6 months to a
few years.  Many times these rates vary depending on your credit
score and experience.  In most cases, there will be closing costs
or fees to use hard money.  Typically hard money lenders will
charge anywhere from 2-10 points. One point equals one percent of
the mortgage amount.  So charging 1 point on a $100,000 loan would
be $1000. These are all important things to consider when choosing
a hard money lender. 

Other things to consider are how quickly funds will be available. 
Many times, when you find investment properties, you need to move
quickly.  Your ability to get access to money quickly can make all
the difference.  It's important to begin relationships with
potential hard money lenders as quickly as possible.  You also need
to be aware of pre-payment penalties.   Pre-payment penalties can
really hurt your deal and cut into your profits substantially.  
Try to avoid pre-payment penalties. 

Many hard money lenders today will also require you to fill out a
credit application that may ask you for W-2's and or tax returns,
your most recent pay stubs, and bank statements.  Again, it's all
about protecting their assets.  Yet, some like the old fashion way
where they only care about the deal so they do a drive by or
physically look at the property.  Again it all depends on whom you
deal with.

When should you use a hard money lender?  Hard money is great for
beginning investors who may have little money or for those who have
credit challenges and cannot qualify.  Investors also use hard money when
they need to purchase quickly.  Typical soft money or conventional
loans take 30 days or more.  Sometimes that is to long.   Using a
hard money lender is also a creative way to finance a property. 
Most like to call it "Nothing Down".  If you can borrow enough
money to buy the property, fix it up and then sell it under market
value for a profit, then you've just made money without any of your
own money.  Sure it will cost you money to borrow that money, but
the rewards out way the expense.

How can you find hard money lenders?  There are hundreds of hard
money lenders waiting to lend you money.  It could be your next
door neighbor.  The best way to find hard money lenders is to talk
to a mortgage company and ask for referrals.  You can also call a
title company or a real estate agency.  They deal with buyers and
sellers of houses every day.  Shop around until you find the best
one that will fit your needs.  Another way is search online for
hard money lenders.  Some will lend nationwide - these typically
want a credit check.  If you find a hard money lender in your area,
they may just do a drive by.

Now that you know a little more about hard money and how it works,
you can make an educated decision if you want to go this route. 
You should have received a list of hard money lenders when you
first joined this newsletter.  Understand there are several out
there.  It is a good idea to shop for the best one to fit your
needs.  Then you can establish a long term relationship with them. 
If you use them once and everything went smooth, you will more than
likely use them again.

The Art Of Trading Forclosed Properties

The Art Of Trading Forclosed Properties


You will learn new techniques and strategies that will assist you
in buying foreclosures.  As you probably know, foreclosures right
now are exploding with interest because there are so many of them
available to choose from.  Not only are there plenty to choose
from, investors are finding more and more creative things they can
do to profit from foreclosures.

It's no secret that foreclosures are at a 30-year high. Why? Some
may feel the economy is to blame. Still others say it could be due
to unemployment. And yet others speculate that it could be the
leniency in the lending business. Whatever you choose to believe
the fact still remains that foreclosures are at record highs.
Investors see this as a huge opportunity both to help homeowners
out of an unfortunate situation and to get paid very well for doing
so.

Most people have heard that foreclosures are or can become a great
investment. So why doesn't everyone do it? Is it because it is
hard? Too time consuming? Take a lot of money? These are all good
answers, however none are correct. Through research, I have
discovered that most people just lack the motivation, desire, and
knowledge. They are stuck in what some call a "comfort zone"
satisfied with their surroundings, living paycheck to paycheck.

I would like to share with you one of the
greatest methods of investing in Real Estate that has been passed
on for many years. I will share with you strategies and techniques
that for the most part will be new to you.  You will be able to use
this knowledge so you can compete in todays market.  So why do the
rich keep getting richer? They know where to find the money.

Foreclosures are just one of those areas. To most people,
foreclosures automatically imply the word "discount"  which is
exactly what you are after. You are after properties with
discounts, which means you are looking for homeowners who are
motivated to sell.  There are several reasons why people become
motivated to sell and want peace rather than money.

It could be because of a job loss, divorce, death of spouse,
illness, job transfer, and so on. These are all unfortunate
situations, but the truth of the matter is these situations happen
all the time. You now become a problem solver.  You are trying for
a Win-Win. You want to make money, they want out of whatever
situation their in. Most homeowners are very prideful, therefore,
the biggest challenge they face is embarrassment. They don't want
their friends, family, and neighbors to know they are about to lose
their home.

This is where you come in.  I am going to share a technique with
you that only 1% of investors know about and the other 99% wish
they did.  This strategy is not new by any means, yet very few even
know about it.  This technique is a win-win for both parties, and
the profits are phenomenal.  Even when it looks as if there
is no more hope for the homeowner who is upside down and
over-leveraged, no equity in the property at all.  I am going to
show you how to create instant equity, help the homeowner out of
their situation and profit handsomely all in one.

You won't believe what I'm about to tell you unless you actually
see it yourself...

If you are struggling to buy properties right now, I just met a guy
who has bought and sold over 3600 properties within the past 2
years... right in the middle of this economic storm. 

I called B.S. on his story, but then he actually showed me how he's
doing it and it's truly unbelievable. 

Now here's the kicker...

He didn't purchase a single one for more than $15K...  And he didn't
make less than $1,000 on each one... yeah you do the math.

I want to introduce you to a technique that I believe will
create more opportunities for you than any other strategy.  There
are so many homeowners in the country today who leverage their home
to the max and then when they get in a bind they end up losing it.
To most investors, a home with no equity and the foreclosure
auction approaching is pretty much a waste of time.  However, I
want to teach you a strategy that will allow you to create equity
in a home that is over-leveraged.  And, assuming you are anything
like me, you'll want the "meat" now not later. This technique I am
referring to is called a Short Sale.

A short sale is when a lender accepts a discount on a mortgage to
avoid a possible foreclosure auction or bankruptcy. Instead of
buying the property from the seller, you are purchasing the
property directly from the lender for a discount. For example: A
homeowner, who is facing foreclosure, has an existing first
mortgage of $300K. You write an offer to purchase the property from
the lender for $220K as full payment for the loan. Depending on
your offer and supporting documents, the lender will either accept
or reject your offer.

Why would any bank be willing to take such a discount one might
ask? First of all, banks do not like excess inventory and bad loans
on their books.  Therefore, if they see an opportunity where they
can get rid of the property without a huge loss, they will do it.
Secondly, lenders know they could lose a lot more money if the
property goes to auction. There are so many fees involved if the
property goes to auction, that they would be better off taking the
discount beforehand and be finished with the headache of it all.
Really it comes down to you.  If you can prove to the lender that
your offer is the best option, they will usually accept it.

Let me just say that when you are dealing with pre-foreclosures,
and you understand how this technique works, you will attempt to do
a short sale on almost every property you find, just because of the
discounts you will receive from the lenders.  It is safe to say
that most lenders will discount, however, you may come across one
or two lenders who will not discount. If the numbers work out for
the lender they will do it.

Short Sales may occur during any phase of the foreclosure process,
however, the best deals are found in the pre-foreclosure phase and
is what I am going to focus on.  There are two stages within
pre-foreclosure. The first stage being those individuals who are
behind on payments and the second stage are those who are behind on
payments with a notice of default. In order for this to work
properly and for you to successfully work out a short sale, you
must find the homeowners who are in the second stage of
pre-foreclosure or more than 3 payments behind on their mortgage.
Most banks will not even consider a short sale if the homeowner has
not been issued some sort of notice to foreclose.  Once the notice
of default has been recorded, banks become motivated, and now they
are ready to negotiate. Until that time, very rarely will a bank
ever discount a mortgage that soon. Why would they? The homeowners
still have time to cure the loan and make up the back payments.

It does not matter what type of house or condition it's in, all
mortgages can be discounted. Some of the best properties to do
short sales on are the houses that need lots of work and repairs
because lenders will give you bigger discounts. Properties that are
over leveraged are also prime candidates. Most rookie investors who
see a house over leveraged with an upside-down mortgage may think
there is no hope for this property. On the other hand, this is a
sweet deal to the savvy investor. Properties with large 2nd
mortgages are also treated as gold because the 2nd mortgage is
wiped out at the foreclosure auction if they don't protect their
position. Lenders with a 2nd and 3rd mortgage position would rather
have something then get wiped out and have nothing.

Don't be hesitant if you find a million dollar property in
pre-foreclosure either.  The more expensive the home, the larger
the profit margin.  Banks give larger discounts on higher priced
properties.  Wouldn't you rather have a larger return if you
invested the same amount of time and money and risk was not a
factor? Me too!  You don't need good credit because you don't have
to qualify for any loans.  And in many cases, you don't need money
because you are not buying anything.

By far, the most essential step in the short sale process is
finding motivated sellers in pre-foreclosure.  If you can't find
motivated sellers in pre-foreclosure, then it will be very
difficult to do short sales.
I will share with you a few of my secrets of finding motivated
sellers and you just need to choose 3 or 4 of them to use that fit
your style.  The idea behind this is to maintain a constant flow of
pre-foreclosure leads - potential homeowners who need your help and
expertise.

There are several ways in which to find motivated homeowners.
Newspapers, ads, signs, courthouse, attorneys, just to name a few.
See, when a homeowner is delinquent on their mortgage, a legal
notice or notice of default must be sent to the homeowner to let
them know that their property will be going to auction soon. Once
the legal notice has been recorded, you can go to the courthouse
and research these files to find homeowners in default. These legal
notices are published weekly, sometimes daily at the courthouse.
This will be the first place to look.  Go down to your county
courthouse and ask to speak to the clerk of courts.  Then ask him
where they publicize the legal notices or notices of foreclosure or
lis pendens.  Depending on what state you live in, they may call it
something different.  If you can't get any answers, then go to the
recorders office.  Any legal action must be recorded.  You are
looking for notices that show homeowners have defaulted on a loan
and are now trying to collect the debt.  Once you find them, make
sure you don't take any of these notices or files out of the
building, just ask them if you can make copies.

Before you leave, ask the clerk or recorder if there is a county
website or newspaper that publishes all the legal notices so you
can save time by just looking them up on your computer.  Most
newspapers have a website with everything on it - yes even legal
notices.  Let me clarify one thing.    Ideally, you are trying to
find homeowners who are 90 days from the auction because this gives
you more time to negotiate a short sale with the bank.  Every state
is required to notify the public, usually by newspaper, that there
will be a foreclosure auction on such and such a property anywhere
between 3 to 5 weeks before the auction.  So be aware that if you
find legal notices in a newspaper, the auction is only 3 to 5 week
away.  You must act very quickly and know what you are doing.  On
the other hand, when you go to the courthouse or recorders office,
typically the homeowner still has a few months before the auction.

Real estate agents can become very useful to you.  They are
constantly looking at real estate, it's their job.  Start
networking with them.  Come up with some sort of win-win.  Let them
know if they ever see a property that is upside down or
overleveraged, to give you a call.  If you buy the property, let
them list it for you.  Agents make their money from commissions.
You treat them good, they will treat you good.

Business cards are another great way to find pre-foreclosures.  You
can hand them out to everyone and let them know you buy distressed
properties.  Give them out to real estate agents, attorneys,
friends, neighbors and so on.  Anything that gets your name out
there that you are looking to invest in distressed properties.
Make them attractive so people want to call you back.  Send them
out in all your letters.  Money talks for most people.  So set up
some sort of referral program where you give them money if they
know of anyone who may need your help and you buy their home.  I
don't know how many people I've talked to just because of a small
finders fee.  Most of the time it's friends and neighbors of the
people you are doing the short sale with.  They are so pleased with
what you've done with them, they want you to help their friends or
family, plus they get a finders fee.  You could have something like
this - "this card is worth $1000 to whomever finds me a property!"

Attorneys work well because a huge number of people are filing for
divorce or bankruptcy.  If you know any attorneys that specialize
in these areas, work with them.  They can become one of your
greatest assets.

Other methods include flyers, magnets, newspaper ads, and signs you
see on the side of the road.  Try all these ways to find
pre-foreclosure leads and then focus on the ones that bring you the
best results.

Now that you know several methods for locating distressed sellers
it's time to send them a letter.  Next week I will share with you
several strategies to get these motivated sellers to call you.   
Yes, there is competition out there, so what makes one letter
better than the other?  How do you get the seller to call you and
not someone else?

This is an essential step in the whole short sale
process.  Once you've identified 3 or 4 different methods you want
to use, then it's time to contact them.  Some investors will knock
on their door or call them.  I like to send them a letter with a
business card.  You can use whatever approach you feel comfortable
with, it's really up to you. 

 how do we find the homeowners phone number?
One of the best resources you can use is the internet.  There is a
website called infospace.com.  It's database has millions of names
and phone numbers of people across the country.  I have used them
several times when I'm trying to find individuals.  It's alittle
scary in a sense when you see how much information is on there. 

When you send out letters to homeowners, which is what I personally
like to do, it's a good idea to imagine if you were in their shoes.
They've probably received several letters from attorney's, banks
and possibly other investors or real estate agents.  So knowing
this, you've got to be different.  People in this situation are
usually embarrassed.  So keep that in mind as well.

First let's talk about the letter itself.  You should always come
across as non-threatening.  You never want to appear as though you
are looking down on them or they will just throw your letter away.
You are sending this letter to them because you want to help them.
Your letter should come from the heart and be sincere.  It's a good
idea to personalize your letters inserting their first name.  Let
them know who you are.  As far as length, it doesn't matter as long
as it's not boring to  read and you get your point across.  I like
to always include the line "If this is not true, then I apologize
for any inconvenience this may have caused by sending this letter"
because there will be mistakes.

Now, when you send these letters you need to stand out, you need to
be different.  So don't put your letters in a standard envelope.
Get creative.  Go out and buy the multi-colored envelopes that look
like wedding announcements or invitations.  Anything that looks
like another letter from the attorney will probably be thrown away.
Personalize the front so it looks like it's coming from a friend.
And don't forget to throw in your business card with the finders
fee on it.  This will typically generate a few more calls for you. 

If time permits, I like to send at least 2 and sometimes 3 letters.
Homeowners go through many stages when they are faced with this
situation.  First they are angry so they may through your 1st
letter away.  They they are in denial so maybe they will throw your
2nd letter away.  Then they become desperate so they begin digging
through the trash trying to find your letter and then the 3rd one
arrives and they call. 

If you would like to see examples of letters you can send to
homeowners in foreclosure, I have collected a few to give you ideas
or you can use them as a template.  If you go to
http://www.foreclosureuniversity.com/letter.php you will find a few
different samples of letters.  Remember to be creative.  There is
no right or wrong letter, however it is important to test different
ones to see which ones have a better response.

As soon as you begin sending out your letters, your phone will
begin to ring.  Next week I will discuss what happens when you get
a phone call from someone in pre-foreclosure and questions to ask.
We want to pre-screen the seller and set up a time to see the
property.

I hope you've had a chance to send some letters and have
gotten a few phone calls from these motivated sellers.  This is the
whole idea behind sending the letters.  You want to be able to talk
to these people and show them how you can help.  When you receive
that first phone call, it is important to "pre-screen" the
homeowner on the phone to find out if it will be worth your time to
go see the property.  Here are the questions I like to ask.

1.  Are you the only owner?  I like to find out if they are the
only owner.  Remember you will be dealing with many divorces and if
there are two people on title you need to get both their signatures
when you show them the paperwork.  So make sure you find out who is
on title, it will save you an extra trip.

2.  What's the house worth?  I like to find out what the house is
worth.  It doesn't really matter at this point what it's worth
because you're not going to pay full price for it anyway.  At least
it gives you an idea what you're working with.  And then it's
always nice to follow up with a question to find out how thay came
up with that price.  Did they have it appraised recently?  Did they
run comps in the area?  Are they just guessing?  Most homeowners
tend to give a value of their home in "perfect" condition and we
all know better than that.  All I'm trying to do is establish some
sort of rapport with the homeowner and get an idea of what the home
is worth, even though I am not going to take their word for it.  I
will do my own research to establish a value.

3.  What do you owe on the home?  By asking this question, I can
find out if there is any equity in the home.  Typically they will
also tell me about the loans on their property.  You need to know
as much as you can about the loans.  If it has a 1st and a 2nd and
so on.  You will be negotiating with these lien holders later on in
the short sale process. 

4.  How many payments are you behind?  This kind of gives me an
idea where they are at in the foreclosure process.  Again, don't
take their word for it.  You will find out really quickly that
everyone is way off on how much they're behind because they forget
or they just don't know.  But at least it will give you an idea.

5.  Have you received a NOD?  This is important because most banks
will not do a short sale unless it is in the second stage of
foreclosure meaning they have been issued some sort of legal
notice. 

6.  Have they set a auction date?  Very important.  If the auction
date is right around the corner you may need to work out a
postponement with the bank quickly.  If you have a legitimate
reason to postpone the auction, the banks usually will.  A
legitimate reason would be an offer to purchase the property.  Some
students will ask me, "when is it to late to postpone an auction?"
The latest I've ever postponed on auction is 5 days before the
auction.  However, you can postpone it 1 day before the auction as
long as you can provide the bank with a legitimate reason.

7.  Is there anything else I need to be aware of?  They will
usually respond by saying, "what to you mean?"  What you are trying
to find out here are several things.  Back taxes, judgments, liens,
repairs needed, are they working with anyone else - like a realtor,
filed bankruptcy, etc.  These are all very important items you need
to know about.

8.  What's the address of the property?  It's a good idea to verify
the address and maybe get directions if you are not familiar with
the neighborhood.

The next step is to set up a time to meet.  You want to meet with
them to sign the necessary documents that will give you control of
the property.  You will be taking over the existing loans "subject
to".  By doing this, there will be little risk on your part.


When you
pre-screen a seller, don't be afraid to ask more questions than
what I mentioned.  Those questions are there to get you started.
Today I will be going over the paperwork.  The paperwork is really
what makes or breaks a deal.  When you are negotiating a short sale
with the bank, the paperwork is a key component.  There are two
sets of documents that need to be filled out.  The first set are
those that you need in order gain control of the property and to
talk with the lender.  The documents that follow this are the ones
the lender requests.

The first document you need is called a Warranty Deed.  It is very
similar to a Quit Claim Deed.  It transfers ownership of real
property from the seller to you or your corporation.  I like to use
a Warranty Deed, because a Quit Claim Deed is typically used when
transferring ownership between family members.  In every case, it
is so important to get the deed.  When you have the deed, you now
control the property.  There are many reasons why we get the deed.
The main reason is so the seller  doesn't change his mind and sell
it to someone else after you've spent several hours negotiating
with the bank. 

I know what some of you are thinking.  "What about the due-on-sale
clause?"  For those who may not know what this is, let me explain.
Every mortgage has a clause in it which basically states that any
time you transfer title from one person to another, the lender has
the right to call the entire loan due, it's to be paid in full now.
Let me just say this very rarely happens.  If the property is
going to auction anyway, they usually don't bother with it.  The
lenders are hoping that the homeowners will cure the loan.  The
lenders don't want this property back.

I like to handle this a different way.  There is a way to get rid
of the due-on-sale clause so it's never an issue.  Not only that,
but this other way also protects you as the buyer and you won't
have to deal with chain of title concerns either.  What I am
referring to is setting it up in a Land Trust.  Land Trusts are a
type of trust that hold title to real property.  There are several
advantages by doing this.

#1 - It is a form of asset protection.  When I transfer a property
into a land trust, if it's my own property and a judgment comes
against me or my company, it will not attach to my property.
Normally it could.  So, it protects both the seller and the buyer
from any judgments that may attach to the property.  Land Trusts
not 100% judgment proof, but they set up a line of defense and that
is what you want. 

#2 - Privacy.  You don't want people to know how many properties
you own.  We live in a sue crazy world, people like to sue people
who have money.  This makes it look like you own nothing. 

#3 Chain of title. This is one of the most important reasons for
setting up a Land Trust. Lenders are becoming more and more
cautious.  They don't like people like us because we are the middle
men.  They don't like to see real estate investors buy houses cheap
and sell them for lots more where we make huge profits in a short
amount of time.  They are ok with little profits because they can
be justified by saying he must have found a good deal, good for
him.  But when you start to make more they really start to question
your deals.  The reason for this is because there has been a lot of
fraud going on between investors and lenders, and the lenders were
the ones who got stuck with the bad loans. 

This becomes challenging for investors because if they start to
question, they will stop lending to your end buyer.  They cannot
justify how you bought a house for $90,000 2 months ago and now you
have a buyer for $150,000.  The lender does not want to take that
kind of risk, because they think you are scamming them.  When you
use a trust, it gets rid of this chain of title issue with the
lender. 

#4, Another advantage is the due on sale clause that I talked
about.  If the property still looks like homeowners own it, you've
just eliminated the whole due on sale clause.  In fact, you can
even prove the sellers still own the property if they ever ask.
This is important for you because you may decide to keep this
property for a while, make up all the back payments, and reinstate
the loan.

The other document you need is an authorization letter.  The
authorization letter gives you permission to talk to the lender
about the homeowners loans.  You absolutely need this form in order
to do a short sale.  You will need the loan numbers from the last
statement that was sent to them by the lenders and a social
security number.  Be sure you have this because when you call the
bank they will ask for it and they won't do anything until they
have it.

These two documents get you started.  The next set of documents are
the ones the lender requests after you ask them to send a workout
or short sale packet.  Usually they will request a purchase and
sale agreement, a HUD-1, hardship, and financial statement.

Inspired By:
Jarad Severe