Thinking about buying a foreclosure and getting yourself a property at 50% of market value. You had better think again. What you need to realize as foreclosure investors really make their money not only through price but how they purchase the foreclosure property. Remember you make money in foreclosure investing when you buy property and realize those profits when you sell it.
There are numerous ways to buy property from people in foreclosure. The first one we will deal with is one of my favorite methods. This is purchasing a property "Subject to" the underlying mortgage. By utilizing this method you are able to minimize the amount of money that you have to come up with and also minimize your personal liability.
Just the fact that your potential customer is in foreclosure means that they have an outstanding balance on their mortgage. This must be taken care of in order to reinstate the mortgage and stop the foreclosure process. There are several ways to do this. The most desireable in order of preference are a) A loan modification, b) a forbearance agreement and c) payment of arrears to bring mortgage current.
The first two methods can be delt with together as the requirements are the same for both. A loan modification is the most desirable because you will have to come up with very little cash up front. The lender will take the arrears and put them on the back end of the mortgage, re- amortized it and file a loan modification agreement. This will actually stop the foreclosure proceedings A forbearance agreement will require that you pay the bank a specific sum of money up front and they then divide the arrears over a period of time, six to twelve months, and add this to the mortgage payment. This does not discharge the foreclosure but puts it in limbo until the forbearance ageement is completed.
Both of these methods require complete cooperation from your seller as the bank has extensive paperwork requirements in order to approve either of these plans. The extra work is worthwhile if you are short of cash or think you will be holding the property long term.
The last method is bringing the loan current. It is more expensive than the previous two but it is quick and easy. It is a method that allows you to stop the foreclosure at any point in time up to several days before the sale. If you are going to flip out the property this method may be the best for you provided you have enough capital to pay the arrears in a lump sum. In essence all you do is deliver a cashiers check to the attorney that is handling the foreclosure proceedings for the lender. This check is in the amount of the arrears plus any and all other costs associated with the forecosure. One this is paid the foreclosure is discharged and the loan is restored.
One caveat is that before you pursue any of these methods, be sure you have complete control of the property, including have had the property deeded to you, your company or a trust controlled by you. Never, I repeat, never spend your own time or money on a property that you do not control.
Next we will discuss more about buying foreclosures "subject to" and how to structure the deal so it is a win, win for everyone involved.
Yours in success,
Dick Weiss
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