fraud. The investor received a four-year sentence in a federal prison.
When you have to evict homeowners, do it with heart. Put yourself in their shoes and try to appreciate how you’d feel in a similar situation or how you’d feel if one of your family members was being evicted. If possible, rent a moving truck for the homeowners, and help them pack and load their possessions. Whatever you do, don’t cause additional pain while you’re getting your gain.
Chapter 3
Picking Your Point of Entry in the Foreclosure Process
IN THIS CHAPTER
Foreclosure investing encompasses much more than simply buying properties for pennies on the dollar at a foreclosure auction. The foreclosure process often takes three months to a year to run its course, and investors can step in at any time to scoop up a property. In fact, investors can even step in before official foreclosure proceedings begin and (in some areas) months after they wrap up.
In this chapter, I reveal the various entry points in the foreclosure process, covering everything from pre-auction to post-redemption, also known as Real Estate Owned (REO) opportunities. I point out the pros and cons of investing at each stage so that you can make a well-informed decision about where you’d like to begin your journey in foreclosure investing.
Dipping In at the Pre-Auction Stage
Homeowners often feel reluctant to take action when they first get an inkling of financial foreboding. Instead of contacting their lenders, an attorney, or a real estate agent who specializes in foreclosures to seek advice and try to work out a solution, they often stick their heads in the sand and hope the problem goes away. By the time they act, they’re usually too late. Behind on their house payments, drowning in credit card debt, and unable to pay back taxes, they sealed their fate months before the bank initiated foreclosure proceedings.
When the bank finally moves forward to foreclose, the homeowners are often in a panic. They don’t know what to do or where to go for reliable information. As a foreclosure investor, you can step into the process, provide homeowners options to cut their losses, and perhaps even help them retain possession of their property.
Exploring the pros and cons of pre-auction foreclosures
Although you can certainly wait for the foreclosure auction to roll around, the pre-auction stage offers several benefits to foreclosure investors:
Less competition from other investors.
More options for negotiating deals with homeowners and their lenders.
More time to put together a deal and close on the house.
Increased opportunity to inspect the condition of the house, inside and out.
No redemption period or other legal issues at the end that can sink the deal. When you close on the property, it’s yours. You may have to wait a week or two to take possession, depending on your agreement with the homeowners, but you don’t have to wait three months to a year for the redemption period to expire. For more about redemption, skip to the section at the end of this chapter called “Waiting Out the Redemption Period — If Necessary.”
At this point, you’re probably ready to dive into the pre-auction stage and start scooping up properties from homeowners who are eager to shed the financial burden. But before you leap, consider some of the following drawbacks of buying directly from homeowners:
Emotional fallout, including anger and resentment, from the loss of a home
Complications of dealing with other people’s financial messes
Misleading information or outright lies from homeowners who are desperate or still in denial
Indecisiveness of homeowners who change their minds at the last minute because they really don’t know what they want
Legal issues concerning just how far you can go to persuade homeowners to sell their property at less than market value without committing fraud
Carefully consider the pros and cons before investing in anything, and honestly assess your ability to deal with the negative aspects of certain investment options. Buying foreclosure properties in the pre-auction stage isn’t for everyone.
Guiding homeowners to good decisions
When helping homeowners, you can’t try to pass yourself off as an attorney, accountant, financial adviser, or therapist unless you really are one. But you’re often called on to play some of these roles. Like a therapist, you have to be able to listen to the homeowners. Like an accountant, you need to be able to look at the homeowners’ finances to assess their options. And, like an attorney, you need to know the foreclosure and redemption laws in your area.
A TYPICAL DAY IN THE FORECLOSURE OFFICE
As a real
