Have you restricted your purchases to certain towns or locations? Do you know the street or neighborhood? Is it desirable? If so, why is it desirable?

What Kind of Property Is It?

Is it single family, duplex, apartment, farm, trailer park? Each is an opportunity for the knowledgeable buyer.

Description: Age, Size, and Improvements?

You will need these details in order to compare the property with others in the neighborhood to decide if you can make a profit on the deal. Too old, the house might not meet the current building codes; too young, the owner might not have enough equity to make it worth your while.

What Condition Is the Property In?

This is really subjective. Everyone has a different opinion of condition. It's probably wise to ask how old the carpets are and when the drapes were installed. In that way, you can compare your experience of their probable condition with what you are being told.

How Old Is the Roof?

Shake roofs will deteriorate rapidly after 10 years, so you should take that into account on your appraisal. You must pay professionals to look at the roof and evaluate it. Don't guess; this is a fatal mistake and it will prove costly. Sellers will generally assure you that the roof is in excellent condition. When you see spots on the ceilings, you'll be convinced otherwise.

Have you Had a Recent Termite Inspection?

Most termite reports are valid for only 90 days. Unless the homeowner has tried to sell the house, he probably does not have a recent report. Professional termite reports are as important as roof reports. Remember, ask. You'll save yourself a considerable amount of money if you ask a professional how to handle the termite work.

How Long Have You Had the Property? What Did You Pay for It?

The answers to these questions will tell you how much equity the owner is likely to have and also some idea of whether or not values in the neighborhood are appreciating.

How Much Do You Owe on It?

Many homeowners do not know what they owe. Before leaving your home or office, you must determine what they owe. Ask that the caller read the default notice to you. You need to know what is owed and what the selling prices are in the neighborhood so that you can decide if it is profitable to visit the property and make a deal with the owner.

Is the loan that is foreclosing a first, second, or third loan? This is an important question. You will find that owners will, from time to time, forget about one loan or another. When you buy from the owner, you buy what he owes and that includes all his loans on that property. The biggest mistake new buyers of distressed property make is to buy from the owner and then discover the existence of an additional Trust Deed that is senior to the one they bought. You must find out about all the loans and distinguish the senior loans from the junior loans.

Are the Loans Assumable?

This consideration could be a deal breaker. If the loan is not assumable and the lender is hostile to your taking the loan, you may find that after you cure the default the lender takes foreclosure action against you. The suggested method is for you to take the loan "subject to", which simply means that you will pay the deficit and make the loan healthy and thereafter make the future payments as they come due. This is not a formal assumption and you are not taking on the responsibility or the liability for the payment of the loan.

How Much Will It Take to Cure the Default?

The lenders will welcome your payment to cure the loan. However, they have the rights, specified in the contract (Trust Deed), to accelerate the loan if the title is "alienated", that is, transferred. It is rare for the lenders to accelerate the loan, but they have these contractual rights and they have federal law to back them up. You will quickly find that most lenders will just accept payments. The few who even trouble to communicate with you will simply request that you assume the existing loan and pay them a fee for doing so. If they don't suggest an assumption, you should offer a small fee to do so. By small fee, I mean 1/2 to 1 percent of the principal amount of the loan. Expect some brief negotiation as I percent is normal.

Are You Behind in Any Payments?

Of course they are or they wouldn't be calling you. But this is not a silly question. The number of payments in arrears is critical. If the owner has a Veterans Administration (VA) or Federal Housing Administration (FHA) loan, all of the equity could easily have been used up or have disappeared by the time you ask the question. Homes bought with FHA and VA loans are difficult to deal with because the VA and FHA react slowly when it comes to foreclosure. In many cases the agencies to not start foreclosure proceedings until a year or more has transpired since the first default notice. If the homeowner has only a small equity, the interest on the loan together with late charges and foreclosure fees will have used it all up. In other words, the loan and the penalties and fees will exceed the retail value of the house.

Are you Only in Default or Is the Date of the Trustee's Sale Set?

Remember that the seller has three months to cure a default. Therefore, he or she might just be shopping around for a good deal. The motivated sellers are the homeowners who have been issued a Notice of Default (NOD). Under California law, the NOD, you will recall, is the first notice that the Trustor (homeowner) receives and it signals the start of the three-month reinstatement period during which, if the loan is made current, the foreclosure is cancelled. At the end of the three months, the lender will publish in a newspaper of general circulation a Notice of Trustee's Sale. This is what makes the homeowners motivated. f he doesn't sell his property before then, he will lose it all on the twenty-second day.

When Is Your Property Gong Up for Sale?

Don't be surprised. If the property is scheduled to be sold at the Trustee's Sale tomorrow morning. It's not unusual for some people to wait until the last minute.

How Much Is the Property Worth?

The homeowner will either have no idea or will have an inflated idea of the value. For example, you could expect to be told that the house three doors away just sold for $XYZ. You will probably not be told that it was the best house on the block, that the seller financed it with a low-interest loan, and that the house you are discussing has two fewer bedrooms, no pool, and has never been painted, cleaned, or cared for.

Is That What Homes in the Neighborhood Are Selling For?

Having heard what the owner thinks his house is worth, you must ask this question. Most sellers will guess! As part of your homework before you go out to look at the property, ask brokers who know the area, ask for Multiple Listing Service (MLS) reports, ask appraisers, ask neighbors, ask the mailman, ask the merchants. Keep asking and you'll be successful.

Do You Have a Recent Appraisal?

In other words, what is the value of your home? This is a difficult question for most homeowners, for the same reason: They usually have an inflated idea of value. 

Appraisals from brokers are fairly useful but I'd advise caution here. Most brokers appraise properties at about 10 percent above market value. If the seller does not have a professional appraisal provided by a Member of the Appraisers Institute (MAI), you can be assured that it is your job to determine the value.

Have You Had the Property for Sale?

Don't be surprised if they tell you it hasn't been for sale at all. (These are the people who are waiting for a miracle to come along and make their house payments). If it has been for sale ask why it did not sell. Ask what the people who had looked at it had said about it. Find out what price the owners had been asking for it. Ask them what the realtor had told them.

How Much Will You Take for the Property?

After all the other questions, this one will be easy to answer. Don't be surprised when you are immediately challenged with "What will you give me?" or "As much as I can get". Be prepared for that kind of answer. Don't offend the caller. Just tell him that it is too early to evaluate the dollars and cents without visiting the property. This will lead you into the next question.

How Do I Get There? (Directions to the Property)

Make sure that you have the:

• Name
• Address (always get the nearest cross street)
• Telephone number (day and night)

Then make an appointment to visit the property and remember to note the date and time on your form. When you have hung up the telephone, check the address on the map and make a note of the relevant page. Also remember, when you make an appointment, to ask the owner to have all the loan documents available for your inspection. your time is too valuable to waste waiting while the seller turns his attic upside down looking for pieces of paper. I can't stress enough how important it is to get the name, address, and telephone number. This information will be of value over and over again and without it, you'll waste more time than you can afford.

The record keeping is very simple in this business, but you'll be surprised how many times you'll refer back to this Property Evaluation Questionnaire. You'll also be surprised how many people call but do not set an appointment and then call again a few weeks later (as their time is running out) and don't realize they have already talked to you. it is always interesting to see if the information and motivation are the same on the subsequent call.

AFTER THE TELEPHONE INTERVIEW

Here are the key questions to ask yourself after you have completed the telephone interview. Make sure you can answer every question.

• Do you want property in this area?
• Will it meet code or the requirements of building permits?
• Do they owe the banks too much?
• Is it insurable?
• Is financing available?
• Are you wasting your time?
• Are the comparables easy to verify?
• Do you have different options, for instance, better property, better neighborhood?
• Will the house have dry rot?
• Can you buy it and sell it for a profit?

MEET THE OWNER

Establish a rapport. Tour the house and observe its good and bad points. Will it be marketable?

• Confirm the information you have already received and recorded on the Property Evaluation Questionnaire.
• Is the information the same as you received over the telephone? For example, the owners might have said that the roof does not leak buy you notice stains on the bedroom ceiling.
• Determine if the owner really does own the property. (Review the Grant Deed).
• Before leaving the office, remind the owner to have the Grant Deed available for review when you visit the property. Otherwise the search could take hours, while you sit and watch papers - everything from high school pictures to love notes from old friends - being dredged up out of shoe boxes and metal containers. The Grant Deed, along with the Notice of Default (NOD) and the Promissory Note, Mortgage, or Trust Deed, will usually be sufficient proof of ownership. Once your contract is effective, you will order a preliminary Title Report from the title company to confirm the information.

FIND OUT WHAT THE OWNER WANTS FOR THE PROPERTY; DETERMINE HIS EXPECTATIONS

Many sellers will be realistic about the value of their property. However, most owners will try to make you believe that it is higher than fair market value. A number of sources will provide information, including the Multiple Listing Service provided by real estate brokers, the Real Estate Data Inc. (REDI), and databanks, such as DAMAR and CMDC.

REVIEW THE EQUITY PURCHASE CONTRACT WITH THE SELLER

Use the Grant Deed to determine the Assessor's Parcel number and obtain an accurate property description. Later you will compare this information with the preliminary Title Report to confirm that you are buying what you have contracted for and what you think you are buying.

List the loan balances you are buying. Determine the price you will pay the owner.

AVOID THE PITFALLS THAT MANY FORECLOSURE BUYERS IGNORE

Ask the owner about termite reports that might have been recently completed. If no report has been completed, ask the owner about known termite damage. In most circumstances, the owner will respond as if you accused him of living in a dirty house. Expect the owner to be very protective of his property and be aware that your questions may seem offensive. Use a tone of voice that is pleasant, not accusatory. It is your objective at this point to prepare the owner for the costs of repairing the termite damage if there is any. 

Loan documents should be reviewed in detail. Many loans are due on sale. If you are buying from the owner before the foreclosure sale, you should review the loan documents and determine if the loan has an alienation or acceleration clause. There are options that the lender may have written into the contract made with the owner from whom you are purchasing. Either of these clauses will allow the lenders to begin a foreclosure action against you if they become aware that you have purchased the property.

As the wise buyer, you should give this some thought prior to the purchase and determine alternatives. If, for example, the lenders are not getting paid an dhave started a foreclosure action, you might advise them that you will buy the property from the seller and then bring the payments up-to-date, provided that they agree, in writing, not to exercise their rights to accelerate the loan.