Tip one: Banks do not want to foreclose on real estate
I’ve seen a lot of investors miss out on huge profits because they just don’t understand how far banks will go NOT to take back a property. Banks don’t want to own real estate. Banks don’t want to have bad loans on their books. All they want is people to pay them on time and take care of the house.
When you understand this, you recognize how much power you have when negotiating with lenders to find creative solutions to help sellers solve their problems. The key is to COMMUNICATE with the lender about what is going on and what you need to make this work for their best interest, which is having the loan brought current.
Many times I’ll do a three-way call with the seller and the lender. I’ll coach the seller to introduce me to the lender as a, “friend who knows more about this real estate thing than I do and who is helping me to understand what exactly is going on and how I can make sure you get your money.”
Then I take over and find out the specific details and exact status of the loan. Many times I negotiate a payment plan, known as a forbearance agreement, with the lender right there on the phone.
One word of caution, don’t tell the lenders that you are buying the property because they might not like you buying the property without paying off or assuming the loan. If they ask any questions about who you are, which they almost never will, simply repeat that you are a friend of the sellers who is trying to help them out.
Tip two: Foreclosure tidbits investors don’t know
What happens if the lender doesn’t get all its money out of the foreclosure sale? Many homeowners think that once the bank foreclosure sale has happened, all their worries are over.
This may not be true. In many states the lender can get a “deficiency judgement” from the court which means the borrower (homeowner) owes the lender any money that the lender LOST from the whole process.
Does the lender make money in foreclosure sales?No, they’re not allowed to make a profit. Any money made in excess of the amount owed the lender, including the foreclosure costs, will go to the borrower. The reality is that rarely will the borrower get anything for his or her equity in a foreclosure sale.
Lenders can get money for fees like:
- Late penalties
- Accrued interest
- Attorney’s fees
- Court costs
- Filing fees
- Title work fees
Tip three: Other ways property owners default
While we usually see property owners default on loans by not making the monthly payments, there are other things home owners do that can trigger the foreclosure process.
- Homeowner fails to pay property taxes which creates a lien that jeopardizes the lender’s security
- Homeowner fails to pay a Home Owner Association fee
- Homeowner transfers title without getting the lender’s permission
- Homeowner does something to the property that diminishes it’s value
All of these things COULD trigger the lender to foreclose on the property, but rarely will they be the cause of the bank foreclosure. By far the most common reason for a lender to foreclose is non-payment by the borrower.
Tip four: Don’t be afraid to knock on doors
One useful technique to find great deals is to literally knock on the doors of owners who are default.Can we really mean just show up at their doorstep and knock on their door? Yes!
Let’s face it, out of the 50 other investors who have the Notice of Default or Lis Pendens information about the sellers in the early stages of foreclosure, 25 of them will pop a postcard or letter one time in the mail to them.
Five of them will go to the effort of tracking down the owners’ phone number and giving them a phone call. And only one or two will actually face their fear and go knock on the seller’s door.
Now this is time consuming and takes a bit of finesse to make it pay off for you. The biggest clue that it is worth the time for a personal visit is if you reasonably expect there to be either:
- A lot of equity in the house; or
- The property is in an area where you are very interested in acquiring long-term keepers.
If one or the other (ideally both) of these criteria is not met, then give the sellers a call on the phone or plug them into your mailing sequence but don’t waste your valuable time visiting them.
You might be thinking that the homeowners wouldn’t want you to come to their door. In many cases they really are in desperate need of help.
For example, a student of ours in Columbus, Ohio knocked on the door of a couple who were in the end stages of foreclosure. The sellers were a nice couple who had gotten caught up in an unfortunate financial situation.
Our student, Mike, agreed to make up the back payments and stop the foreclosure. Then Mike would fix up the house, take over the payments, and resell it. There was a large chunk of equity in the house so Mike agreed to give 10% of his net profit back to the sellers to make it even more of a win-win deal.
What to say when you knock on the sellers’ door
Here are two scripts of what to say when you’re knocking on their doors cold:
Script One: This one works well if the sellers are still in pre-foreclosure OR if you’re not quite ready to use the gutsier script below.
Knock, knock. [Step back off the porch, turn sideways, assume a passive, harmless posture to put them at ease.]
Owner: “Yes?”
Investor: “Hi, (looking as harmless and Bambi-like as you can manage) my name is Jim and I’m an investor who is looking to buy another house in this neighborhood. I was wondering if you knew of anyone in the area who might be at all open to selling their house if they got a fair offer on it?”
Owner: “Well, actually I might want to sell my house.”
Investor: “Oh, okay, but I’ve probably caught you right in the middle of something, huh?” Owner: “No, I was just making dinner. Now’s as good a time as any.” And away you go with them showing you the house and following the Instant Offer System.
Script Two:
Knock, knock. Owner: “Yes, can I help you?”
Investor: “Hi, my name is Jim [looking passive and harmless like a small puppy dog], and I’m an investor who helps out folks who have a house that’s in trouble. Is your house in trouble?”
Owner: “No, I don’t know what you’re talking about.” Investor: “Oh, [looking down at his clipboard and scratching his head] I’m a little confused here. It says here that the city thinks this house is behind in it’s payments. Heck, they even have it listed in the legal notice newspaper. But they probably got all that wrong, huh?”
Owner: “Can I see that paper?”
Investor: “Sure.” [showing the owner the clipboard that has a list of the owner’s house with the date that the Notice of Default was filed or even a copy of the legal notice publication with the seller’s property highlighted]
Owner: [a bit softer now] “Well I guess I must be a bit behind. I thought the bank would work with me longer before they did this.”
Investor: “Yeah, I know–banks sure can play real tough with little fish like us.
“You know though, a lot of times banks make mistakes when they send you all that paperwork that can make them have to start all over again from the beginning. I was visiting with another homeowner like yourself the other day when we spotted how the bank misspelled her name on the official notice. I helped her get another 60 days’ delay in the process to give her more time to find her best solution.
“If you’d like, I’d be happy to take a quick look over the paperwork they sent you to see if I can spot any mistakes they made. Would you like me to sit down for a second and see if I can spot anything in the paperwork?”
Owner: “Would you?”
And now you’re in the house and connecting with the owner.
I got an email from an investor who found a great deal by doing some research at the courthouse to find sellers in default. Next he went and knocked on the seller’s door. The seller’s wife answered the door, and the three of them sat and talked for and hour and a half.
Our student funded the deal by taking on a money partner, and the two of them will split the $50,000 profit 50/50. The best part was that he helped the sellers avoid foreclosure.