Caught up in Foreclosure and In Need of Help

Written by Jim Watkins

A homeowner in Dallas contacted me in December and told me their lender had just filed to foreclose on their house and wanted to know if I could help them.

I met with them soon after and read the notice to foreclose. It was scheduled to go to the auction on February 6th, 2008. I asked the owners what they wanted to do and they told me they had wanted to stay but could not keep up with the payments. They had decided to sell the house but even though the house had over 20% equity, the chances of listing the house, finding a buyer and have it close before February 5th was remote.
They needed time to sell and the lender had said, "Enough."

I gathered their paperwork together and told them I would see what I could do to help them and told them they should contact a Realtor and list the house as soon as they could.

Once I was home, I got on the Internet and looked the property up on the Central Appraisal District (Tax records). The legal notice of foreclosure in Texas must always list the legal description address for the property. I looked at the legal address of the house on the website and then checked the foreclosure notice. The Trustee (person appointed by the lender to conduct the foreclosure proceeding) had made a mistake on the legal description. The Lot & Block was Lot A, Block 9 of Rolling Hills Addition 2 and the Trustee had listed Lot A, Block 8 of Rolling Hills Addition 2. I contacted the homeowner and had them notify the Trustee that they made an error on the foreclosure notice and they planned to contest it if they did not delay the sale.

The foreclosure was pulled and the homeowners gained another month of time.

The owners had traffic on their house but had not received an offer. A few weeks later I saw the house was listed on the foreclosure list for the March 4th sale which meant the Trustee filed to foreclose again. The owners told me they had not been notified. Texas law requires that a homeowner be notified by mail no later than 21 days before the foreclosure auction date (in Texas it is the first Tuesday of the month). I had them contact the Trustee and he informed them that he had mailed it to them.

A few days later the owners got the letter but the envelope had the wrong address listed and the letter took extra time to deliver because of it. That is what I had thought anyway. The owners showed me the notice and the envelope. The actual letter had been dated February 8th but the postmark showed February 14th. The Trustee did not mail the letter until the 13th or the 14th. The notice has to be postmarked no later than 21 days before the next auction and the February 14 postmark on the owners' envelope left only 19 days before the sale.

The Trustee had messed up again and was forced to file to foreclose again.

 

The good news was the homeowners had found a buyer for their house. I made sure the buyer's agent knew of the impending foreclosure sale so they could make sure everything was done in time so the house could close before the auction date.

The inspection on the house turned up a few issues that would need to be repaired before the lender would fund the sale. I became worried that the house would not close in time because of the delay for repairs. I asked the owners to show me the current foreclosure notice and studied it again. It looked like everything was correct and in order and as I was handing it back to the owner, I noticed the legal address and looked at it again. I asked to see the previous notices and went to the Appraisal District website.

I was in disbelief when I verified the Trustee had neglected to include "Addition 2" after the "Rolling Hills" on the legal description.

You guessed it. The owners contacted the Trustee and contested the notice. Because of the Trustee's 3rd error, they will have to file to foreclose a 4th time but the owners now have nearly six weeks for their house to close and it is scheduled to close in less than 2 weeks.

I am hopeful that this article will help some people who may face foreclosure. Trustees are people and people do make mistakes.
I told the homeowners...

"If the lender is going to enforce the terms of their mortgage by holding them accountable, then they have the right to hold the lender and/or Trustee accountable for making errors in the foreclosure process."

All of the filing and re-filing costs money and the Trustee passes those fee's on to the lender who adds those fee's to the balance owed on the mortgage. In other words, the homeowner is penalized and charged extra because of the errors made by the Trustee.

I would be interested to know if a homeowner can contest those extra fees and not have to pay them. Anyone know the answer to that?

A Mothers Nature and Mold: Forces to Reckon With

A few years ago, I bought a house that had been infested with black mold but it had been cleaned up by a professional remediation company months before I had bought it. The house had an ARV over $300,000 and I got it for $160,000. Most of the walls did not have drywall and it was obvious that the mold had been treated as the wood framing had all been treated with Kilz paint.

The rehab ran about $50,000 for the 5 bedroom, 3800 square foot house and we put it on the market for less than the going rate in hopes of a fast sale. We had a lot of traffic during the first month. A lot of families were interested in the house because it was located in a nice part of Dallas and the house was perfect for a family.

The feedback we were given was almost all positive. Kids seemed to like the basketball court in the back as well as the swimming pool on the side. The men had commented how they were impressed with the media room and the large 3-car garage.

We were told the women liked the all new kitchen, improved master bathroom and how close the schools were. We wondered why no one had made an offer on the house with such positive feeback.

In Texas, sellers are required to disclose and past mold issues. We had listed the previous mold problem on the sellers disclosure and provided a copy of the environmental report. I had personally located the source of the moisture that had led to the mold and corrected it. If mold was going to show up in that house, it would have needed to come from a new source.

It didn't matter.

Mold is one of the biggest, most over rated issues in real estate. It is very easy to get rid of yet it continues to get negative attention.

We were trying to reason with mothers. When it comes to mothers and the health of their children, there is no room for compromise. To go to the extreme, we could have bulldozed the house and I doubt I could find many mothers who would buy the property as long as they knew there had been a previous mold issue.

I have asked mothers who have attended my classes if they would ever knowingly buy a house that had a previous mold issue, even if it had been cleaned up.

Thus far, I have not had a single mother admit that they would.

The bottom line is, no matter who might be buying the house or making the payments on a house... If the buyer has a family, the mother decides whether or not a house is bought. 
It ended up taking 13 months to sell that house. The carrying costs added up to over $20,000 and in the end, it was bought by a pilot with American Airlines who was single and had no kids.

People say that "Mother Nature" is not something to mess with. I agree with that and I also agree that a "Mothers Nature" is not something to mess with either.

In the end, you won't win that battle.

-Jim Watkins,
2008 - DFW Mentor

For the most part I don't like to self-promote when I write a blog posting but this is a warranted exception.

I am thrilled to announce the launch of the newest real estate investors networking group in North Texas!

IGOTEX - Investors Group of Texas!

The clubs monthly meetings will feature local and national guest speakers who will offer advice, guidance and help to IGOTEX's members. However, IGOTEX's members will not have to fear being "hit up" to enroll in expensive bootcamps or programs where the "guru" never speaks to you after signing up.
IGOTEX will also offer individual classes to it's members. A qualified array of instructors with local experience will teach on a regular basis.

As the owner of DFW Mentor, I am happy to say that I will be offering DFW Mentoring in an alliance with IGOTEX.
Another new program that will be launched on the 9th from DFW Mentor is the all-new Foreclosure Mentoring Program! Whether your interests are learning a little at a time, joining the mentorin network or intensively learning to be a Pre-Foreclosure investor... IGOTEX is in place for one main reason...
INVESTORS HELPING INVESTORS!

You are hereby invited to register to attend the very first meeting on Tuesday, October 9th. The networking is from 6pm to 7pm and the main presentation will begin around 7:15pm.
Location: Embassy Suites Hotel, Frisco, Texas.

Please click the following link for more information or to register to attend free.

www.IGOTEX.com

Please note that my area of expertise is in the State of Texas and the statistics contained in this article should not be relative to other states.

 The following question was asked on a local Dallas Real Estate Board about foreclosure deals... 

"So where are these great deals!! Inquiring minds want to know :confused"

Here is my relpy...

All you need to do is wait at home because the foreclosure deals are set to be delivered right to your front door! Packed with equity and eager homeowners ready to leave their homes in tip-top condition!

WRONG

I feel this is a good time to relay a little bit of REALITY.

The Myths of Foreclosures:

1.  Foreclosures represent great deals

2.  Houses in foreclosure have a lot of equity

3.  Homeowners are never at fault

4.  Texas is 6th in the nation with foreclosures

5.  Homeowners are Motivated to sell

You DID note that I said Myths? I.E. Not true.

Ok here are my comments to the Myths. Or in other words.... here is the reality of foreclosure.

1. Foreclosures represent great deals

No they don't. In fact ony HALF of all properties posted for foreclosure, make it to the courthouse steps for the auction. Of the 50% that go to sale, only EIGHT percent (8%) are offered with an opening bid that has enough equity to warrant a bid. That means 92% of the properties at the sale, go back to the lender.

2. Houses in foreclosure have a lot of equity

Not true. While the total number of properties posted for foreclosure skyrocket, the equity (in Texas) hasn't. The recent loose lending habits allowed many owners to borrow up to 100% and some allowed the closing costs to be rolled into the loans! Interest Only loans also have contributed to the problem (granted Texas hasn't had as many as other states). Texas hasn't appreciated like elsewhere. The result? The owner loses the house.

 

3. Homeowners are never at fault

Yeah, right!

According to Foreclosure Listing Service, Inc. in Addison, Texas, the top three reasons for foreclosure are:

1. Divorce
2. Loss of Job
3. Health

I agree with those being the root problem. However, I know a lot of people that got a divorce and didn't lose their house. I know a lot of people that got laid off but didn't lose their house. I know a lot of people that have had major health setbacks but managed to not lose their house. The top 3 reasons are what starts off a series of Poor Choices!

In my experience, only 1 out of 25 homeowners that are in foreclosure, are there for reasons other than poor choices. The one that comes to mind was a couple that I consulted in Richardson. The woman was a smart, well dressed, Paralegal of all things. Her husband was an INS Attorney. I was baffled and asked how they got to the point of foreclosure. She said, "My eight year old daughter has a brain  aneurysm. She has been in and out of hospitals since she was five. I understand the bank has to protect their position at some point but, any money we have had access to, has gone to the care of our daughter." I wanted to disappear into thin air right then. More than I ever had before. THAT scenario, I think anyone would understand.

That coulple is the ONLY one out of hundreds of owners in foreclosure that stands out as someone I can reason with. The vast majority of the time, it's brought on by poor, bad or just dumb choices.

It's easy to sit and say, "I feel so bad people are losing their houses." Let me twist it a little and ask, "If you had given someone the money to buy a house and they failed to make a payment in TEN months... would you still feel the same way?"

4. Texas is 6th in the nation with foreclosures

I had to read the posting three times to catch it. Read what it says... "The RealtyTrac report is based on data on more than 800,000 properties from nearly 2,500 counties across the United States -- including databases of pre-foreclosure and foreclosed properties."

"Including databases of pre-foreclosure and foreclosED properties."

They are two very different markets. Pre-foreclosure means the homeowner is still the legal owner and most likely is still on title. "Foreclosed" property is otherwise known as an "R.E.O." It stands for Real Estate Owned. It no longer belongs to the homeowner. It has passed through all the legal steps and was sold at the auction. If there are no bidders, then the lender becomes the buyer and the house is then REO with the lender.

Adding those statistics together is not a fair way to relay foreclosure statistics to the public.

Texas and Florida go back and forth as the top 2 states in Actual PRE-FORECLOSURE postings monthly. Dallas County, ranks number one in the Country in overall postings monthy. Last month Dallas County was just shy of 2,000 properties posted for foreclosure.The following table chart shows the local foreclosure statistics, not Florida's or Ohio's or California's, where I don't work or have any use for their figures. The source of these statistics are courtesy of George Roddy Sr., who is the President and Owner of Addison based Foreclosure Listing Service, Inc. (http://flsonline.com/).

AREA OR COUNTY	# RESI POSTINGS MARCH 2006	# RESI POSTINGS MARCH 2007	% CHANGE FROM  MARCH 2006	% CHANGE FROM PREVIOUS  MONTH
D/FW METRO	3,063	3,276	7 %	-19 %
DALLAS	1,473	1,510	3 %	-22 %
TARRANT	934	1,029	10 %	-19 %
COLLIN	341	411	21 %	-13 %
DENTON	315	326	3 %	-14 %

 

 

 

 

 

 

 

 

 

5. Homeowners are motivated to sell

This is, in my opinion one of the largest myths in the business. We all agree that the general public dislikes attorneys, right (personally, I feel that my work could not be done without them)?

If that is true, and and most homeowners are in denial, then why do over 40% of the owners in foreclosure, file for Bankruptcy (Chapter 13 is most common and Chapter 7 is filed on occasion)? A lawyer is usually the one that files on behalf of an owner. Oh wait, the owner isn't in a right state of mind so why would they willingly go to an attorney? Simple. Bankruptcy lawyers help people stay in their house by getting it protected in Bankruptcy so the lender can't proceed to sell the house at the auction.

Before the Bankruptcy laws changed in October of 2005, nearly 60% filed for Bankruptcy. SIXTY!

Maybe I am wrong in my analysis though? On second thought, yes. Homeowners ARE motivated... To KEEP their home. Not house. It's their home. Who lives in homes? People. While this business is about buying and selling houses, we tend to overlook that people live in those houses. So actually it's a business about people.

Treat them right. Don't take advantage of their situation as some have before. Talk to them. Let them know what options they may have overall and that is something most Investors, Lawyers, Realtors and Lenders don't do very often.

Should any of this be seen as a negative? Absolutely NOT! I have made a living working the local foreclosure market and also teach/mentor others about it. It's the "myths" that can mislead some people into thinking there are all sorts of "deals" out there.  In Reality, there are good deals in foreclsoures. Just take the time to properly research any foreclosure property. They all start by being posted for foreclosure. Don't get mislead into thinking there are all kinds of "free" foreclosure lists out there or take RealtyTrac's statistics as gospel locally.

Hope this has helped.

-Jim Watkins

www.dfwmentor.com

***THIS IS APPLICABLE IN TEXAS*** 

Getting a tenant to move peacefully and without causing physical damage is hard to do

Tenants being evicted tend to feel victimized and when they get upset they are a risk to do physical damage to the house and leave behind mountains of trash.

It will take a minimum of three weeks to legally evict a tenant and can cost in excess of $500 (Texas Law).

Owners tend to reason that they will keep the security deposit to offset losses but a tenant can cause thousands of dollars in damage in minutes.

Here is a plan that has yet to fail:

Let the tenant know that you have filed to evict them and give them a copy of the eviction papers. (Making sure to follow the courts procedures)

Tell the tenant you will only talk to them 30-minutes before the court hearing and there will be no contact until then. When they laugh at you, tell them you will refund their full security deposit, in cash, the date they move out.

<30 minutes before the hearing> Offer to issue their FULL deposit back to them the day they move out as long as all belongings and trash are removed.

Set a date for them to be out (date needs to be before a date the court will set), add the requirement that they agree to leave the property completely free of belongings and trash which includes small things such as a candy wrapper

Have them sign your prepared agreement and proceed to your court hearing.

Tell the judge that you have reached an agreement and you would like him/her to endorse it (This is the only time I remember telling the Judge how I want them to rule and they agree).

The judge should (and has) accept the agreement and inform the tenant that if they break this agreement, he/she will authorize an immediate eviction.

Finally, once the tenant is officially out, then withdraw the eviction.

It is hard to justify giving the tenant cash to leave after losing money with them already. I can only point out that in a situation such as eviction, there is NO winning! There are only degrees of LOSING!
Evicting a problem tenant only to face a damaged property is bad enough. Give the tenant the one thing that is of use to them.... cash. And offer it when it will be needed.... upon move out! This is also known as a "Cash for Keys" settlement.

Hope this has helped...

Jim Watkins
www.dfwmentor.com

This may seem elementary to a lot here but I continue to see my students writing frantically to get it down so, I thought I'd post it. (also posted on another national site)

When you first look at a potential deal, how do you determine the equity percentage and/or figure out how many cents on the dollar it will cost?

This is a very simple thing to do and knowing it will greatly assist in walking away from a potentially bad deal.

Example:

A house will cost you $65,000 to buy and has an After Repair Value (ARV) of $100,000 (The ARV is what the SOLD comps in the area say your house "should" sell for).

Drop the zero's or the last three numbers (000) off and take YOUR purchase price and DIVIDE it by the ARV/Retail price. This is the breakdown:
65 DIVIDED by
100 =
.65 (cents on the dollar)
So you now know it is 65 cents on the dollar but what is the percentage of equity?
Take the maximum amount of equity you can have, which is 100% and minus the cents on the dollar figure you just got.
100 percent equity MINUS
65 = 35% equity.

The number I have to be at or below for me to consider a deal (unless there are other factors brought to my attention) is .70 cents on the dollar or LESS. OR in percentages, 30% equity.

One final note:
DO NOT FALL IN LOVE WITH PEOPLE SELLING "GREAT DEALS" that have (example) $45,000 in equity! Do the math:

Cost: $130,000
ARV: $175,000
$45,000 profit.... right? WRONG!

130 Divided by
175 =
.74 cents on the dollar OR 26% equity. I pass!

Hope this little formula helps save some from a bad deal disguised with big numbers.

-Jim Watkins
http://www.dfwmentor.com/
_________________

The following question was asked on a national real estate forum site and it is followed by my response.
Pre-foreclosures in the DFW area is my specialty area and my opinions are based off of my personal experiences.

"I was wondering if conducting a mailing for pre-foreclosures is an effective technique? Is this more effective then door knocking?"

Opinions:
Door Knocking - Terribly time consuming and represents the least chance for a deal. On the plus side, it helps you to identify the characteristics of abandoned houses.

Calling on Phone-
This method yields only about 30% as far as listed numbers. The ones you do talk with, usually end up calling you names you may have to look up. They tend to bring your mother into the insult-fest.

Mailing-
BY FAR the best way to market to foreclosures! Not with the intention of reaching the owners still living there mind you. The ones that respond are just gravy.
The intention is to have the post office tell ME where the ABANDONED houses are, for just .39 cents!!!
Abandoned owners have no emotional ties left and once you find them, nearly 100% of the time they will sell for payoff. Here is a list of steps you must take to be effective:

1- Plain white legal size envelope.
    Bright colors piss owners off as they think that you are bringing attention onto them. Like the mailman
    doesn't know??? lol
2- Regular 1st class stamp
    A metered stamp looks non-personal.
3- HAND WRITE name & address and don't list "or current resident"
    In fact, have a female do that part. In DFW women get a 50% better return rate than men. Less intimidating.
4- Return address must be a home, street address and NOT a PO Box or work address. Also, do not put your
    name on it. If they see a name and they don't know you... it gives them a reason to not open it.
5- Have a stamp that says, "RETURN SERVICE REQUESTED"
    This is the major one. Even though it is a 1st class letter, the post office is slow to return letters without it. 
    Usually 15% of all the foreclosure houses are abandoned. In fact, 30% of the time the post office will return
    the letter with their forwarding address printed on the envelope!
    Simply the best chance you will give yourself.

Following these steps should get you between a 2% and 8% return call rate on top of 10-15% returned letters to follow up on. Just make sure the letter you write is good. But that's another blog.

Good luck,
jim watkins
www.dfwmentor.com/about_jim_watkins

I have been tracking the national markets and most of them are being pounded by the real estate storm. Prices and values are dropping as the storm continues. The storms seem to be everywhere except Texas.

Don't get too excited just yet though. I am seeing a small dip in values around the DFW area. I think it is mostly due to the massive foreclosure postings locally. The banks are taking a beating because of it and the REO market is assisting with the dip in values.

I see the market in DFW going up into the low double digits by summer. DFW didn't experience the triple digit appreciation as most of the country did and now we are sitting in a great spot because of it.

"Buy low, Sell high" is the saying. Locally I think we can cash in on the fallout of the national real estate storm by "Buying low and Selling higher."

Get in position! Good luck!