Because of foreclosure sale competition, you have to “firstest with the leastest” to make money. Pre-foreclosures are one way to do this. Try to buy a CD listing of out-of-area owners from the tax collector Make low offers to buy properties with unpaid property taxes by sending letters to delinquent owners. In the following paragraphs I’ve inserted some distress market approaches that I extracted from my little booklet called “Fifty Nifty Ways to Buy Foreclosures from Distressed Owners and Lenders”. These are to help you to structure transactions that will be acceptable to the other party and profitable for you.
All of them won’t work all the time, but, it will pay you to try to build on them to improvise concepts that you will be able to apply in your specific area:
A. Here’s a variation on the technique to use with junior lien-holders who would be wiped out at sale: Buy the first mortgage lien from the foreclosing lender. Next, as the foreclosing lender, temporarily delay the sale while you contact all other junior lien holders. Point out that you are going ahead with the foreclosure and offer to discount their liens. Once the liens are assigned to you, obtain a deed in lieu of foreclosure from the defaulting borrower; otherwise, resume the foreclosure.
B. Buy the house ahead of foreclosure at discount by taking over the loan. Next, negotiate a “short sale”, or get the foreclosing lender to give you time to re-sell the property. Refinance or re-sell the house at retail to capture your profit.
C. If a senior lien is being foreclosed, borrow funds from the junior lien holders secured by other collateral. Next, use the money to either buy the property or defaulted 1st lien at discount. Retail the property and repay your lenders.
D. In return for buying a lender’s foreclosed inventory, negotiate to borrow the funds to buy the houses at full foreclosed loan balances. While you‘re at it, try to get the lender to throw in an operating line of credit secured by other property.
E. Buy defaulted Notes with performing Notes that you own, or can buy at discount, thereby trading the lender’s income and better security in return for taking over its foreclosure position. Offer the defaulting owner a release of loan liability with no foreclosure on his credit record in return for a discounted price for the property. If rebuffed, foreclose and reap a profit between the value of the Notes you gave up and the sale proceeds. If you are the high-bidder, retail the house.
F. Discount any defaulted loan(s)held by motivated lenders for cash. Next, restructure the loans by juggling interest and pay off date to provide for lower payments. Once regular payments resume, sell the loans to capture your profit.
G. Buy assignments of defaulted loans from private lenders who don‘t want to take a chance on being the winning bidders at foreclosure. With large equities, in return for a deed, agree to clear up the owner’s other debts and to release all the owner’s liability. Pay off other debt by putting a second mortgage on the house.
H. Do all the above, but where the equity is much larger, or the market is rising and holding a house for appreciation makes sense, share future sale proceeds. In the interim, offer to lease the home back to the seller with a pre-paid lease at a high rental rate. Use the rent credit as a form of currency to partially pay the seller for his equity and relieve him from having to relocate his family.
I. After the lender has bought back the property at sale, negotiate with the lender to buy the foreclosed property at a more realistic price with performing Notes that you’ve previously bought at discount; then sell the property at retail for cash. This way, you’ll transfer the discount from the “paper” to cash profits from the property while helping the lender get rid of a house it doesn’t want.
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Jackie,
Utilizing an option when purchasing the property is an excellent way to tie the property up and also have the seller allow you to secure a place on title by securing notice with your local recorder’s office.
I have done this successfully a number of times.
Buyers should always remember that there is another house around the corner and someone won’t work with them, they need to remember that person needs them, and there is another one waiting if they don’t take your apartment deals, title flaws can make you a lot of money. Understanding and even procuring options on those underlying loans closing those at the title company is a superior way to secure and record your position in the transaction.
Jack Miller had infinite wisdom, and many hundreds of people and those who attended his classes were blessed ! He was a super human!
DanButler, Portland, Oregon
You’re so right Dan! And those who study his materials here in CashFlowDepot get to learn all that wisdom too! Plus they have access to so many people who have been investing (following Jack’s advice) for 30++ years like you!