Ralph R. Roberts - Foreclosure Investing For Dummies

When you meet with homeowners, listen at least twice as much as you talk, and try to gather the information like the following that can enable you to provide more valuable guidance and assistance:

The total amount owed on the first mortgage and all other liens on the property, including any back taxes owed

The current monthly payment on the house and on any other outstanding loans

The names and contact information for all lienholders (lenders, contractors, and others who have a claim on the property)

The amount of time before the property goes up for auction

The value of any possessions the homeowners have that can be liquidated

A list of any family members who may be able to help

A clear idea of what the homeowners see as their options, such as selling the house, moving to a rental unit, relocating, or scaling down to a smaller house

This brief list can start you on your information-gathering mission, but as you talk with the homeowners, other issues and opportunities often present themselves. Create a thorough record of your discussions with the homeowners so that you can begin to paint a portrait of them in your mind. The more information you have, the more creative you can be in developing viable solutions. See Chapter 9for additional details.

Even the coldest and most calculating real estate investors become enthusiastic about properties. They may fall in love with a particular house or simply get so caught up in the heat of an auction that they bid too much for a property. Then they have to work twice as hard to make a profit on it.

Before you bid on a property or make an offer to the homeowners, you should have a clear idea of how much you can afford to pay for a property to earn the desired return on your investment — usually, no less than 20 percent. Write down the amount, and make a firm commitment to yourself to stick to it. Bid or offer no more than your upper limit, no matter how hyped you become during the bidding or negotiations.

In Chapter 10, I show you how to set the maximum price you’ll pay for a property when preparing an offer to purchase directly from homeowners. In Chapter 11, I lead you through the process of preparing a maximum bid for an auction and let you in on some strategies for effective bidding.

When you buy a house, you usually expect to move into it on the agreed-upon date. You and the seller sign a purchase agreement in which the seller agrees to vacate the premises and turn over the keys on a specified date. Sometimes, the buyer requests possession at closing. In other cases, the seller agrees to move out one or two weeks later.

With foreclosures, the transfer of a property can be a long, drawn-out, and messy affair. In some areas, you take immediate possession of a property as soon as you offer the winning bid and pay the trustee or courtroom clerk. In other cases, the homeowners retain possession of the property for the duration of the redemption period, which can last up to a year in some areas.

While you’re waiting for the redemption period to expire, you may be tempted to start working on the house. Don’t. You may invest $10,000 in renovations only to have the property owners decide to redeem the property just before you wrap up the project. They may thank you for the free $10,000 in renovations, but don’t count on it.

Even when the redemption period is over, you have no guarantee that the previous homeowners are going to vacate the premises in a quiet, orderly fashion when their time runs out. In some cases, you can gently encourage the homeowners to move out. In other cases, you must have them forcibly evicted (by the sheriff, not you), which is always a painful process for all parties.

In the following sections, I provide an overview of what to do to take formal ownership of a property and eventually take possession of it. In Chapter 16, I reveal your responsibilities as the new owner and cover the eviction process in more detail.

When you purchase a property directly from the homeowners, you and the sellers attend a closing in which a title company’s agent or an attorney shuffle all the paperwork and file the necessary records.

When you purchase a property at an auction or sheriff’s sale, however, you receive the deed, which you must then record at the Register of Deeds office to have your name officially added to the title. See Chapter 11for details.

After dropping off the deed to have it recorded, make sure that you obtain title insurance to protect you from any hidden claims against the property. Some title companies don’t offer title insurance for foreclosure properties or properties you pick up at a sheriff’s sale.

As soon as you purchase a property, either from the homeowners or at an auction, you become the official owner of the property, even though you may not be able to take immediate possession of it. As owner, you’re in charge of insuring the property and paying property taxes. Be sure to do the following:

Call your insurance agent to obtain a homeowner’s insurance policy for the property.

Pay the property taxes as soon as they’re due. (You may need to pay back taxes when you purchase the property.)DON’T FORGET THE INSURANCEAs soon as you buy a foreclosure, even if you can’t take possession of it right away, call your insurance agent and buy a homeowner’s insurance policy for the property.I once purchased for $75,000 a house that was worth $150,000. By the time I took possession of the property, the previous owners had taken the carpeting, the entire kitchen (including the sink), the bathroom fixtures, the furnace, the central air conditioning unit, the doors, and everything else they could carry out, hoping to stick it to the next owners. I turned the claim in to my insurance carrier, received $25,000, and sold the house to another investor for $100,000. After expenses and holding costs, I walked away with about $35,000.The investor who bought the property decided to rent it instead of selling right away. He refinanced to pull about $50,000 equity out of the property, used the equity to cover repair and renovation costs, and still had a little money left over. Then he rented the property to cover his mortgage payments.

File an affidavit proving that you paid the insurance and property taxes. If the homeowners decide to redeem the property, an affidavit enables you to recover any taxes and insurance payments you made during the redemption period.

See Chapter 16for details concerning your responsibilities as a homeowner during the redemption period.

As the official owner and soon-to-be possessor of the property, your goal is to encourage the homeowners to move out without trashing the place or forcing you to evict them. You want the property to be broom-clean and in the same condition it was in when you first inspected it — or better. The key to success in this area is providing the homeowners an easy exit. Following are some suggested perks for assisting the homeowners out the door: