It’s sad but true: foreclosures are on the rise and everyone knows it. So everyone wants a piece of the action. Chances are that whatever foreclosed property you come across, a bunch of other people got there first.
Then what do you do? One answer is: go ahead and find previous foreclosures.
Go to any foreclosure auction and you’ll find it full of speculators eagerly eyeing the prospects. That is an indication that when a property has reached the auction stage, it is not of much use as an investment in the short term. You need to get hold of the properties at an earlier stage; in other words, find previous foreclosures.
What is a prior foreclosure? Pre-foreclosure is the period of time between the date a notice of default is served on homeowners because they have fallen behind on their mortgage and the date the property will be sold at public auction. During this period, the lender does not have any rights to the property and the owners can still dispose of it as they wish.
So how do you find previous foreclosures? Here are some ideas.
- Contact your local County Court and ask if Notices of Default (NODS) must be recorded as court documents. If yes, ask how you can search for archived documents.
- Go to http://www.netronline.com, click on “Public Records Online” and select the state you want. If there is any information about prior foreclosures available in the public domain, you can find it there.
- Look in your local newspaper under “Legal Notices”, look for properties that are going up for sale at auction and write down the addresses, and the names of the owners, tax ID, etc. if available. Then go to the County Recorder’s office, look up the NOD (Notice of Default) of the title at those addresses and find out who registered it; You want to find a title or abstract company you can work with. They will often provide you with a list of the NODs they have registered, on the condition that you use their services when you close any of these deals.
- Find landlords whose tenants have moved out or been evicted. If they can’t get new tenants soon, chances are they won’t pay their mortgage if they haven’t already. Also look for people who have filed for divorce or bankruptcy.
So once you’ve managed to find previous foreclosures, what do you do next?
- Contact the owners, preferably by mail, or else by phone or even a personal visit. Remind them that once the lender forecloses, they will be evicted and receive zero for all the work they have done on your home. Ask them if they are interested in a deal to avoid foreclosure.
- Some homeowners will still be reluctant to face reality. But if the owner agrees, visit the property and do a quick but thorough inspection.
- Find out the amount of gross equity in the property. Subtract from this the estimated amount needed for repairs and any arrears, taxes, etc. due, to arrive at net worth.
- Make an offer of 50 percent of the net worth, “subject to” being able to take over existing financing. Your offer may only be a few thousand dollars and homeowners may feel that is too little, but if you think about it, it gives them huge advantages. If the property were foreclosed on, they would get nothing besides a huge blemish on their credit score. This way, at least they get something, besides that their mortgage is paid off. You get a great deal, your finances in place, and the potential for profit once the repairs are done.
Foreclosures can have great profit potential for you. But the longer you quit, the more your earning potential will be reduced. If you know how to find previous foreclosures and how to get the best deal, you’ll really be ahead.