Proceeding to the Foreclosure Sale
Before the foreclosure sale, the homeowners can work with the lender or their attorney to delay or cancel the foreclosure sale. In other words, just because you see a foreclosure notice in the local paper doesn’t mean that if you show up for the sale, that property is going to be auctioned off.
At the foreclosure sale, you have an opportunity to bid against other investors for any properties that are being auctioned off. As I explain in Chapter 11, some auctions have open bidding; others use a sealed bid system. However your county chooses to hold its auctions, a few words of advice can assist you in acquiring properties and not losing your shirt:
Sit in on at least five auctions before bidding to get a feel for the process and to gather information.
Research the property thoroughly before you bid. In Chapter 8, I explain how to build a file for each property, packed with useful details.
Buy only senior liens (first mortgages). You can really get burned buying junior liens, because foreclosure typically wipes them off the books. When you have more experience and knowledge, you can start working the junior-lien circuit and tax liens, as I discuss in Chapter 15.
Set a maximum bid, and never ever exceed that amount, no matter how juiced up you get at the auction. See Chapter 11 for details on calculating your maximum bid.
When you plan to bid, show up with a cashier’s check. Most auctions require payment at time of purchase or within an hour. For additional information on paying for a property after the auction, check out Chapter 11.
Halting the Foreclosure Process
Distressed homeowners are plagued by a swarm of emotions, ranging from disbelief and resentment to shame and guilt. They may have several options to stop the foreclosure process, but they’re too upset and confused to think clearly or explore their options, and they’re so angry or fearful that they hesitate to contact the lender to work out a solution.
In the following sections, I introduce various ways that homeowners in foreclosure can stop or delay the foreclosure process. Use this information not only to better assist distressed homeowners, but also to prepare yourself for the possibility that the homeowners may choose to cut you out of a promising deal by successfully negotiating with the lender or another investor.
A SMOOTH OPERATOR
I once purchased a property at a sheriff sale and did everything I could to contact the homeowner. I even tried to drop in for a personal visit, but she slammed the door in my face as though she knew who I was and had been expecting me.
Later, I discovered that a con artist named Brian had gotten to her during the redemption period. He established some sort of emotional connection with the homeowner, took her to the county building to pick up the overbid (the money I paid for the property at auction in excess of what was owed on it), and convinced her that he could save her house for her.
Brian bought her a vacuum cleaner and a few groceries in exchange for her signature on a quitclaim deed — a document signing away her rights to the property. He videotaped her making statements that he thought would protect him legally.
With quitclaim deed in hand, Brian redeemed the property, and I got my money back. Then he sold the property to an investor named Ray. Ray came to my office. Without knowing what had transpired, I bought the property and sold it to another investor. When that investor showed up at the homeowner’s house to work out a rental agreement with her, he learned about the con job and wanted nothing to do with the property.
Eventually, the matter wound up in court. I bought the property back from the other investor and gave the homeowner some money so that she could move to a more-affordable home. While in court, I got a $100,000 judgment against Brian. Last I heard, Brian was scheduled for a creditors’ hearing.
Never take advantage of homeowners for your own benefit. After all, this property is their home, and any equity they have in that home is theirs. Commit to becoming a champion of the homeowners. If you can help them and earn some compensation for your assistance, everybody wins. Quick money never lasts. By acting with integrity and in the best interest of the homeowners, you provide a much-needed service to a suffering portion of your community.
Reinstating the mortgage
Before the foreclosure auction, homeowners who can get their hands on enough cash may have the option to reinstate the mortgage, which consists of making up for all missed payments and paying any late fees or other penalties.
To reinstate the mortgage, the homeowners must contact the lender before the auction date to verify that reinstatement is an option. If the option is available, the homeowners must work out a payment schedule with their lender.
Requesting and receiving a forbearance
When homeowners have a temporary loss of income with the promise of regaining their financial footing, the lender may agree to a forbearance, in which the homeowners can delay payment for a short period or negotiate a payment plan to make up for missed payments over the course of several months, as explained in the following section.
The lender may also offer some sort of combination between a forbearance and reinstatement, enabling homeowners to delay payment for a short period and then bring their