Table of Contents
Dedication.
PART I: GETTING STARTED AS A PROFITABLE PRE-FORECLOSURE INVESTOR.
Chapter 1: How You Can Make $60,000 a Year Investing in Pre-Foreclosure Properties Part-Time.
Chapter 2: Why Most Foreclosure Investment Strategies Being Taught Today Are Too Risky, Too Expensive, and Not Worth Doing.
Chapter 3: What Every Pre-Foreclosure Investor Needs to Know about Their State’s Foreclosure Statute.
Chapter 4: Everything You Need to Know about Existing Loans on Pre-Foreclosure Properties.
Chapter 5: How to Finance the Purchase of a Pre-Foreclosure Property.
Chapter 6: How to Get Started Right Now as a Profitable Pre-Foreclosure Property Investor.
PART II: MY 14-STEP PROCESS FOR INVESTING IN PRE-FORECLOSURE PROPERTIES.
Chapter 7: How to Find Property Owners with Loans That Are in Default and Facing Foreclosure.
Chapter 8: How to Contact Property Owners in Foreclosure.
Chapter 9: How to Get the Lowdown on Loans in Default from Foreclosing Lenders.
Chapter 10: How to Perform Due Diligence on Pre-Foreclosure Properties.
Chapter 11: How to Thoroughly Inspect a Pre-Foreclosure Property.
Chapter 12: How to Accurately Estimate the Current Market Value of a Pre-Foreclosure Property.
Chapter 13: How to Negotiate with Property Owners in Foreclosure.
Chapter 14: How to Get Subordinate Lienholders to Discount Their Liens by 50 Percent or More.
Chapter 15: How to Negotiate with Foreclosing Lenders and Their Attorneys and Trustees.
Chapter 16: How to Do a Short Payoff Sale on Properties with Little or No Equity.
Chapter 17: How to Prepare YourPurchase Agreements.
Chapter 18: How to Close on the Purchase of a Pre-Foreclosure Property.
Chapter 19: How to Fix Up Pre-Foreclosures for Maximum Curb Appeal and Resale Value.
Chapter 20: How to Package, Market, and Resell Pre-Foreclosures for Maximum Profit.
Resources: Pre-Foreclosure Property Investor Resources Online.
About the Author.
Index.
Read a Sample Chapter
The Pre-Foreclosure Property Investor's Kit
By Thomas Lucier John Wiley & Sons
ISBN: 0-471-69279-4
Chapter One
How You Can Make $60,000 a Year Investing in Pre-Foreclosure Properties Part-Time
First off, I want to take this opportunity to thank you for investing your hard-earned money in a copy of The Pre-Foreclosure Property Investor's Kit. I also want to congratulate you on making a very wise investment decision! As you will soon find out, this book lives up to its title. It is packed with step-by-step instructions, ready-to-use worksheets, checklists, letters and agreements, and practical, no-nonsense advice on how to buy properties directly from owners with mortgage or deed of trust loans that are in default and facing foreclosure.
The Definition of Pre-Foreclosure
First things first: Before I begin to tell you how you can make $60,000 a year investing in pre-foreclosure properties part-time, I need to give you a brief description of what the term pre-foreclosure means. Pre-foreclosure refers to the period of time during the foreclosure process between when a lender files a foreclosure lawsuit or a notice of default in the official public records and the date the property is scheduled to be sold at a public foreclosure auction or trustee's sale. The entire foreclosure process is covered in great detail in Chapter 4.
Why the Pre-Foreclosure Stage Is the Time to Buy during the Foreclosure Process
The real trick toconsistently making money in real estate is to find a steady source of readily identifiable property owners who have a compelling reason to sell their property. This type of property owner is known in the business as a motivated seller. And that is exactly why I like investing in pre-foreclosure properties. Pre-foreclosures provide a steady source of readily identifiable motivated sellers in the form of property owners with mortgage or deed of trust loans that lenders have publicly declared to be in default and facing foreclosure. As you will soon learn, the future looks bright for pre-foreclosure property investors in the know. The coming months and years could provide a record number of opportunities to buy properties, at a discount, directly from motivated sellers who have a very compelling reason to sell their property. In Chapter 2, you will get the lowdown on exactly why you should never bid on properties at public foreclosure auction or trustee sales or buy lender-owned repossessed properties.
The First Step to Making $60,000 a Year Investing in Pre-Foreclosures Part-Time
I do not know about you, but to me, $60,000 a year is nothing to scoff at, especially from a part-time job. And if you are willing to apply the information and advice that is contained in this book, and work hard, and don't quit the first time you run into an obstacle, you can reasonably expect to earn $60,000 a year investing in pre-foreclosures part-time. The $60,000 annual income figure that I am using in this chapter to illustrate the profit potential that pre-foreclosure properties can provide to hard-working investors is not based on wishful thinking or pie-in-the-sky logic. Rather, it is based on local foreclosure market conditions and how much time, money, and energy the average investor has to dedicate to investing in pre-foreclosures. For example, in lower cost housing markets, an investor might have to do six $10,000 deals in order to earn $60,000 annually. To accomplish this, an investor would have to buy and resell one pre-foreclosure property every two months. In more expensive housing markets, it could very well take an investor just four $15,000 deals to earn $60,000 annually. This would require completing one deal every three months. And, in high-end markets, an investor could do two $30,000 deals or even earn $60,000 from a single property. Please keep in mind that individual results will vary and that many people may not reach $60,000 in profits during their first year in business. But, what if you earn only a "measly $20,000" during your first year? I am willing to bet that most of the people reading this book could put an extra $20,000 in annual income to good use.
Why Now Is One of the Best Times Ever to Invest in Pre-Foreclosure Properties
Today's soft economy, lax lending policies, predatory lending practices, and historically low interest rates are causing overextended homeowners to default on their mortgage and deed of trust loans in very large numbers. As I write this, the Mortgage Bankers Association of America has just reported in their quarterly National Delinquency Survey that a near record number of single-family homes were in foreclosure during the last quarter of 2003. Also, other organizations that monitor residential loan trends are not making any rosy predictions about any possible future decline in the number of mortgage foreclosures. In fact, the number of home loans foreclosed on each year has steadily increased over the past 20 years. According to the U.S. Census Bureau's statistical abstract, the number of homes in foreclosure in 1980 was 114,000, while the number of homes in foreclosure in the year 2001-the latest year in which information is available-was 555,000. This is an increase of over 250 percent. The main reason that I do not see any letup in the number of foreclosures in the foreseeable future is because of the unbridled spending habits of most Americans, which are fueled by easily accessible credit in the form of credit cards. Far too many homeowners today are in debt up to their eyeballs and living on borrowed money, well beyond their financial means. They are living in houses they really cannot afford. And until Mr. and Mrs. America learn how to live a lifestyle that is based solely on their actual income, and not on the credit limits of their fantastic plastic credit cards, the number of foreclosures nationwide can only go one way: straight up!
Six Factors Contributing to the Skyrocketing Number of Foreclosures Nationwide
The following is a list of the six main factors that most financial experts claim are contributing to the skyrocketing number of mortgage and deed of trust loan foreclosures nationwide:
1. A downturn in local economic conditions: Many local economies that are not well diversified and are overly dependent on one or two types of low-tech industry are experiencing a downturn due to foreign competition and the ever-growing practice of outsourcing jobs offshore to countries like Mexico and India. This has resulted in massive layoffs that have caused many borrowers to lose their homes through foreclosure.
2. Overextended first-time homebuyers: An aggressive push for homeownership on the part of state and federal government agencies and lenders has helped a record number of first-time homebuyers buy homes of their own. However, most first-time homeowners do not have the cash reserves necessary to pay for emergency home repairs and the other unexpected costs that are a part of homeownership. And, once they get behind on their bills and miss a loan payment, they are usually never able to make up the missed payment and they end up in foreclosure.
3. Predatory lending practices: So-called predatory lenders prey on borrowers with low credit scores, excessive debt, and past bankruptcies and foreclosures that keep them from being able to obtain conventional loans at market terms and rates. They make what are called subprime loans that typically have repayment terms that include extremely high late payment fees and interest rates that cause many borrowers to eventually have their loans foreclosed.
4. Government-backed loan programs: Government-backed home loan programs such as Federal Housing Administration (FHA) insured loans and Department of Veterans Affairs (DVA) guaranteed loans have less stringent qualification standards than conventional loans that are not backed by any government agency. Lax loan underwriting standards result in lenders making loans to borrowers with marginal credit, less than stellar job histories, and higher than normal debt ratios. This is proving to be a recipe for financial disaster for many borrowers who end up in foreclosure.
5. Loans with high loan-to-value ratios: Conventional and government-backed loan programs offer loans at 95 to 100 percent of the value of the property securing the loan. The practice of making loans to borrowers who pay little or nothing as a down payment has led to many borrowers just walking away from their home the first time they experience any type of financial difficulty.
6. Historically low interest rates: The lowest interest rates in 40 years have allowed borrowers to buy larger, more expensive homes than ever before. However, most residential loans are based on two incomes. The problem with large loans that are based on two incomes is that when one of the borrowers loses his or her source of income, the borrowers usually cannot continue to make their loan payment on just one borrower's income and wind up having their dream home foreclosed.
The National Delinquency Survey
As I briefly mentioned, the Mortgage Bankers Association (MBA) compiles and publishes the quarterly National Delinquency Survey (NDS) that shows the seasonally adjusted delinquency rate for mortgage and deed of trust loans on one-to-four-unit residential properties. According to the MBA, the NDS currently covers more than 32 million loans that represent about half of all outstanding first-lien residential loans in the United States. The loans surveyed are reported by approximately 130 lenders, including mortgage bankers, commercial banks, thrifts, and life insurance companies. To review the National Delinquency Survey, log on to the MBA Web site: mortgagebankers.org and click on News Room and scroll down until you find the NDS.
Nothing Illegal or Unethical about Buying Property from Owners in Foreclosure
In spite of what many uninformed people may believe, there is nothing inherently illegal or unethical about buying properties directly from owners with mortgage or deed of trust loans that are in default and facing foreclosure. The fact of the matter is that the vast majority of pre-foreclosure property investors nationwide are honest, ethical business people, who provide much needed debt relief to tens of thousands of financially distressed property owners annually. And during the course of reading this book, you are going to learn how to be a profitable investor without having to resort to the vulture tactics that are commonly employed by predatory foreclosure investors. Treating property owners in foreclosure in an honest, ethical manner is not only the right thing to do, but also the best way to avoid being the subject of the lead story on your favorite local television evening news broadcast exposing sleazy real estate investors who prey on homeowners in foreclosure.
It Takes Knowledge and Persistence to Be a Profitable Pre-Foreclosure Investor
Trust me; you do not need a degree from Harvard Law School in order to make money buying properties directly from owners with mortgage or deeds of trust loans that are in default and about to be sold at a public foreclosure auction sale. Please do not get me wrong: Finding, researching, inspecting, negotiating, buying, and reselling pre-foreclosure properties can be a lot of hard work. But it can also be a very lucrative line of work, provided you are knowledgeable, well organized, and have the good old-fashioned stick-to-itiveness that is necessary to be a profitable pre-foreclosure investor in today's competitive foreclosure market.
How I Got Started Buying Pre-Foreclosure Properties 20 Years Ago
When I started out as a real estate investor in 1980, there were no books available on how to buy properties directly from owners in foreclosure before the auction. In fact, everything that I read on the subject of investing in foreclosures told me to buy property on the county courthouse steps at public foreclosure auction sales. I attended a few public foreclosure auction sales, but I was not impressed by what I observed. I saw investors get caught up in the frenzy surrounding the competitive bidding process and end up overpaying for property. So, I decided to forget about investing in foreclosures. However, in 1985, Archie, one of my birddogs in South Tampa, called and told me about a single-family house on Fitzgerald Street, near MacDill Air Force Base, that was scheduled to be sold at a public foreclosure auction sale in 30 days. Archie also told me that due to the husband being injured on the job, the owners were six months behind on their house payments, and the owners had decided to vacate the house and move in with relatives before the scheduled sale date. The next day I mailed the owners a short note that read: "What do I have to do to buy your house?" I enclosed a business card and told them to call me anytime. I received a telephone call from the wife two days later. She told me that she and her husband did not understand how I could possibly buy their house while they were six months behind on their payments and owed the bank over $3,000 in loan payments, late fees, accrued interest, and legal fees. I told her that it was possible, and I made an appointment to meet with her and her husband. That evening, I negotiated a deal where the owners sold me their equity in exchange for my bringing their loan current and assuming their non-qualifying Veterans Administration (VA) mortgage loan. As far as I understood it at the time, I had done nothing more than take over a delinquent loan from a homeowner in distress. Now in hindsight, I realize I had done my first pre-foreclosure property deal without even knowing it. However, I quickly realized that the concept of taking over loan payments from financially distressed property owners had a lot more profit potential than bidding against every foreclosure investor in Tampa on the Hillsborough County Courthouse steps. And, I have been refining the process of buying properties directly from owners in foreclosure ever since I struck that first deal back in 1985!
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