One of the most effective ways to find a wholesale property is to look for
foreclosures. When property owners fail to make the monthly payments on their
mortgages, their loans become delinquent. Each lending institution has different
guidelines for handling delinquencies.
It usually starts with a nice reminder letter asking the customer to bring
his or her payment up-to-date. This is followed by a series of increasingly
threatening letters leading up to a formal notice of default. Depending on where
you live, the time frame between the notice of default and the actual
foreclosure sale can be 90 to 365 days. There may also be a period of redemption
after the foreclosure sale. Generally speaking, however, most states have a
90-day foreclosure process with no redemption period. After missing a payment,
most homeowners are technically 90 days away from losing their home.
There are four important phases in the foreclosure process:
Presale, before the lender files the notice of default at the courthouse
Presale, after the lender files the notice of default
At the foreclosure sale
Post sale
Presale: Before notice of default
Each phase has its advantages and its disadvantages. For example, the least
competition will occur before the bank files notice of default. In essence, the
only people who know of the delinquency are the lender and the property owner.
Unfortunately, it is very difficult to find these people. You have to flush them
out with your own ads in the newspaper and your own bird-dogging.
Presale: After notice of default
After the notification has been filed at the courthouse, it becomes a matter
of public record. There are several foreclosure service companies that search
out these notifications and sell a subscription to those who are willing to pay
for this information. Generally, the sellers become increasingly flexible as the
foreclosure date draws near. Still, there are other buyers to compete with.
At the foreclosure sale
If the property makes it to the foreclosure sale, you have only one option ?
to pay off the mortgage holder in full. Therefore, it takes a lot of cash to be
bidding at a foreclosure sale: If you win the bid, you have only a short time to
pay for the property. I encourage you to visit your courthouse, find out when
the next foreclosure sale takes place, and show up to watch. You’ll find many of
the properties due to be sold that day have been withdrawn for various reasons.
Of the properties remaining, the vast majority have little equity (the loans and
legal fees equal or exceed the value) and therefore no one bids on them and the
lending institution takes them back. A small number of properties are really
worth bidding on. Occasionally, there is an exceptional bargain. Sometimes you
end up in a bidding war with another investor.
Post sale
Once lenders have foreclosed on a property, those lenders become remarkably
more flexible. Now it’s their problem and they want to get rid of it…they
actually show many signs of “don’t-wanter-it is.?They can even be convinced,
under the right circumstances, to sell the property to you for less than the
mortgage. This is referred to in the industry, as a short sale. For instance,
suppose a lender foreclosed on a $100,000 house with a $95,000 mortgage. If no
one bids at the auction, the lender gets the house back. Many times the lender
will consider an offer for less than $95,000 and take a loss to get rid of it.
