Foreclosure Investing For Dummies. Ralph R. Roberts

posting of the foreclosure notice is almost an entirely separate stage of the foreclosure process — after negotiations between the homeowners and lender break down, but before the property is sold at auction. At this stage, every foreclosure investor in your area probably knows about the property, and any investors who are interested in buying the property before auction are likely in the process of trying to contact the homeowners.

      The investor who arrives first and whom the homeowners trust most is typically the investor who stands to get the property.

      

As you discover in Chapter 7, you can find foreclosure properties even before the foreclosure notice is posted by keeping your ears open, networking effectively (as explained in Chapter 6), and getting the word out that you buy properties.

      Knowing the benefits of waiting for the foreclosure notice

      Many foreclosure investors don’t like dealing with distressed homeowners until the official foreclosure notice is posted because until that point, homeowners may be unwilling to accept the fact that foreclosure is imminent. The posting of the foreclosure notice removes most of the lingering doubt and acts as a wake-up call, spurring the homeowners to take action.

      The foreclosure notice offers several additional benefits:

       Contains the location of the property (usually a legal address, not a street address, but you can use the legal address to obtain the street address, as discussed in Chapter 8)

       Lists the names of the homeowners being foreclosed on so you can refer to them by name instead of addressing them as “sir” or “madam”

       Specifies the name of the lender foreclosing on the property, so you have the information you need to gather more information from the lender

       Provides the name of the attorney or trustee in charge of liquidating the property, so you have someone to call for additional details

      As you’ll discover throughout your experience as a foreclosure investor, every bit of information you have about a property is a valuable puzzle piece that clarifies the situation and enables you to put together an attractive deal that benefits all those involved.

      

Just because the lender posts a foreclosure notice doesn’t mean that the property is destined for the auction block. Any time before the sale, the homeowners can strike a deal with the lender, refinance with another lender, or sell the property. As soon as the foreclosure notice is posted, the clock starts ticking for any investor who’s looking to buy the property before auction.

      

Keep track of properties from the day they’re advertised to the time they’re sold. Very often, a particular foreclosure sale is adjourned, so the property doesn’t go up for auction on the scheduled day. By following the adjournments, you often find that the property goes up for sale later. If you’re prepared, you may be able to grab the property without facing any competing bids.

      Weighing the drawbacks of waiting for the foreclosure notice

      Although the posting of the foreclosure notice delivers some valuable benefits to foreclosure investors, it also heats up competition among investors, all of whom are looking for the best deal. As soon as that foreclosure notice is published, every foreclosure investor working the pre-auction circuit catches the scent and heads out to research the property and contact the homeowners.

      

When you’re buying properties from distressed homeowners pre-auction, finding out about prospective foreclosure properties before the posting of the notice often gives you a competitive edge. Networking (discussed in Chapter 6) provides the earliest leads. Reading the notices as soon as they’re posted and acting quickly to contact the homeowners is the next-best option.

      Wrapping up your deal before the sale

      Buying a property from the homeowners before the sale is a standard seller-to-buyer transaction. If you’ve ever bought a house (and you should be a homeowner if you’re investing in real estate), you know the drill:

      1 Present your offer to the homeowners in the form of a purchase agreement.You may need to work through a series of counteroffers to agree on a price and terms.

      2 Have the property professionally inspected.

      3 Order title insurance to protect yourself if the title has any hidden claims against it.

      4 Sign the papers at closing.

      5 Take possession of the property on the agreed-upon date.

      

Because you purchased the property directly from the homeowners, they have no right of redemption, so you don’t have to wait around for several months. You can move into the property immediately, renovate and sell it, or turn it into a rental unit. See Part 5 for details on profiting from a property after you take possession of it.

Bidding for a Property at a Foreclosure Auction

      Foreclosure investors often choose to do their bidding at auctions. A common misconception about foreclosure auctions is that investors bid on properties. The truth is that investors bid on mortgages (also called liens). What’s the difference? When you buy a property from homeowners, you own the property. When you buy a lien at a foreclosure sale, you may or may not eventually take possession of the property; if your area has a redemption period, the homeowners or someone else who has a legal claim to the property can redeem it. Check the appendix at the back of this book, and consult your county’s Register of Deeds office to find out more about the redemption period in your state.

      For a better understanding of what you’re actually buying at a foreclosure auction, brush up on the following types of liens:

       Senior lien: The senior lien, or first mortgage, is the loan that the homeowners took out to purchase the property. I recommend that novice investors always buy first mortgages, because owning the senior lien gives you the best opportunity to take possession of the property eventually.

       Junior lien: The junior lien is any other loan the homeowners took out, using their home as collateral. A junior lien is usually a second mortgage, but it can be a home-equity loan, line of credit, or contractor financing provided for home improvements. Junior liens are often wiped off the books during the foreclosure process, so they can be very risky investments.

       Tax lien: A tax lien is a claim against the property for unpaid tax bills. Unlike junior liens, which foreclosure typically erases, a tax lien remains in place after foreclosure. If the tax lien is for overdue property taxes, the buyer must pay the taxes. If the lien is for income taxes, the Internal Revenue Service or other taxing agency may choose to forgive the taxes, but make sure that the foreclosing attorney notifies the IRS, as explained in Chapter 11. Buying a property tax lien is usually a safe investment, because if someone else purchases the property, you stand to get your money back and perhaps even earn a small