Today’s REI Classroom Lesson

John Anderson explains the process of foreclosure and when it’s best for a real estate investor to present the homeowner with an offer.

REI Classroom Summary

By talking with them after they’re behind on payments but before they have a set foreclosure date, they’re normally more willing to accept a low offer.

Listen to this REI Classroom Lesson

Real Estate Investing Classroom Show Transcripts:

Mike: Welcome back to the REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
John: Hi. This is John Anderson. I am founder of Oyezz Real Estate, a short sale brokerage. I’m also a HomeVestors franchise owner in Dallas. Today’s REI Classroom is going to go over what to do if somebody is facing foreclosure.
Mike: This REI Classroom real estate lesson is sponsored by
John: Now, we’re not talking about what to do if you’re facing foreclosure. If you are, you’ve got some big problems. But what I’m talking about is if you’ve come across a potential seller that is facing foreclosure, what can you do? Obviously, there’s a time line, a deadline in here that you have to be aware of. In many cases, you need to move quick.
So the first thing is, when is somebody truly facing foreclosure? Now, if somebody’s behind on mortgage payments, they’ll start to receive letters from their lender saying, “If you don’t catch up we’re going to foreclose on you.” They’ll threaten foreclosure. Some people interpret that as, “Oh. I’m being foreclosed on.” That in the long-term is the case, but they may not have a foreclosure date.
That’s the perfect situation to be in, for you as an investor, that they are getting letters saying, “If you don’t make up your payments we’re going to foreclose on you.” If they don’t have the ability to catch up on those mortgage payments, then make your offer and my suggestion would be make a low-ball offer. You don’t need to give them a lot of equity. You don’t need to give them a lot of money for their equity, because they’re going to get zero if they get foreclosed on.
Now, once they get those letters the next thing that’s going to happen is that the lender is going to hire an attorney. The attorney is going to send a demand letter, and again it’s a threatening letter saying, “If you don’t pay this amount we will foreclose on you.” In that scenario, it’s just gotten a step closer to the actual foreclosure. Again, it’s the same situation.
This can be scary to the homeowner and it gives you the advantage in that you can go in there and make a low-ball offer on this. But you’re going to have to close before any foreclosure date comes up. If you’re doing anything that’s going to take a long time, you’re probably risking it. So you need to move quick.
Now, the last step in the process is that the attorney is going to begin the foreclosure process, and that each state is different on the time lines that that can occur. I’m in Texas and it’s one of the fastest states in the Union. So once the attorney sends out the foreclosure notice or the intent to foreclose, foreclosure will occur as quick as 21 days. So if the homeowner has that letter, they’re down to 21 days.
At that point now, if you want to make an offer on the property you’re going to have to move quick. In many cases, what you’re going to have to do is pay off the mortgage. You’re going to have to pay off the mortgage directly to the attorney or the mortgage company to stop the foreclosure.
Now, on that you need to be really careful. You don’t want to just walk in, pay off the mortgage, and think, “Well, I’m good to go.” Because you’re going to have to have some sort of agreement with the homeowner that they are going to close on the property so that you end up with the property. The other option is if your title company can move quick enough is you just go ahead and close and they’ll pay off the mortgage.
But if you’re down to the last few days, you’re probably going to end up having to go directly to the attorney or the mortgage company and pay it off. That’s happened to us a couple of times and it’s always worked out. Just be careful and make sure that you’re going to get the property. You don’t want to pay off somebody’s mortgage and then them say, “I don’t want to close.” You’ve given them the gift of no more foreclosure plus a house paid off.
So if you’ve got any questions on it feel free to call me. My information is here, and I can help you through it. That covers what to do if there’s a foreclosure.
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