Traditional brokers real estate and/or mortgage may find this interesting, true buyers brokers (working for and being paid by the buyer) need to ad it to their tool box!
Beat The Sharks
Everyone who has ever dealt in the shark infested waters of foreclosure and pre-foreclosure investing knows this is not no money down real estate. The "Big Profit" "Big Trouble" world of foreclosure real estate is dominated by the "Big Sharks," actuality, most often they're would be Sharks, people with no social conscience, who are willing to deceive the trouble home owner, saying anything and delivering little or nothing, to steal all the home owners' remaining equity. The other Sharks, yes you're a Shark, more likely a would be Shark, are second only to finding opportunities as the biggest obstacles to small real estate investments.
There are only three ways to beat these predators. First get to the troubled home owner/seller first. Second always start with a win-win offer, always put enough in your offer for the poor seller to start over, make it oblivious how he wins. Personally I prefer "Net Offers" because they show the seller exactly what he'll leave the closing table with. (I advocate "Net Offers" in three of my books, "One House At A Time / Finding And Buying Single Family Rentals," "Flipping For Fun And Profit," and I explain them detail in "A Bakers Dozen / A Real Estate Anthology.") The third way of dealing with the Sharks is to simply know more real estate and lending than they do!
Before I go on, I'd like to remind you of some ancient wisdom from two strange sources, an old "Star Trek" episode and a very old joke.
When Kirk was fighting with another identical star ship, he had Spock searching for the control panel code of the other ship, as Spock searched Kirk explained to Bones (and the audience) that it's not necessarily the quicker or stronger that wins a fight, but rather the one who best understands how things work. That lesson was repeated in one of their movies, almost word for word.
There's an old joke that tells of a farmer standing behind a plow, wiping his mule and cursing up a blue streak at the resting animal. Not far away stands his much amused neighbor who shouts out "Have you tried asking him nicely?" After responding in words I was to young to know when I first heard this story, the farmer tells the intruder to try it himself! After carefully climbing the fence, the intruder picks up a broken fence post. As the farmer asks what the post is for the intruder hits the mule as hard as he can between the ears. He then leans in close to the animal while it stagers back to it's feet and says "please". As the farmer passed guiding the plow he's told "First you've got to get their attention!"
Keep these two lessons in mind as I go on. Know how things work and sometimes it takes drastic measures to get attention.
Every real estate "Guru," myself included, teaches about "short sales" getting a lender to take less than it's entitled to as full payment. Lenders accept "short sales" when it's in their best interest. Lenders also discount paper and sell notes all the time, large lenders sell these loans in bundles sometimes called "blocks" or "portfolios" unless Bill Gates calls me we're not going go into these. Small lenders, local banks, S & L's, credit unions, hard money lenders, and especially private lenders will often sell individual loans. Any lender that will consider a "short sale" can be approached to sell you the note.
I'm not advocating buying the first, although I have, but rather buying a subordinate note, second thru infinity. Subordinate lenders must bring superior loans current or lose everything when the superior loan forecloses. Subordinate lenders have the right to bring superior notes current and continue making the payments, and when they do so they can immediately call their loan. Subordinate lenders are therefore motivated to accept those "short sales" or even sell the note at a discount.
There are two ways to use this information. One, when you can't find or can't deal with the current owner/seller. Buy the note and they'll not only come to you, they will have to deal with you. Secondly, when you're a day late or out lied by another shark.
Unlike some troubled homeowners, lenders don't hide, their information is on record at the local county recorders office, including their successors and assigns. You don't have to have written permission from the current owner/seller to talk with a lender about buying the note.
When you buy an existing note your order of priority starts not when you buy the note but when the original mortgage securing that note was reordered. Your interest therefor is almost always superior to any current leases, sales agreements or deeds.
Buying the note takes money and must be done right. When done right this is as close to risk free investing as possible, since there is no such thing as risk free investing.
You want your purchase of the note contingent upon the superior note still being in default and redeemable. You'll insist on an escrow closing, I wouldn't close one of these without an escrow and title company and I've been doing this for thirty-six years! You must, the transfer of the note, record the assignment of the security agreement (the mortgage or deed of trust) to you and have the superior note brought current all at the same time, You'll also file your own NOD (Notice Of Default, the start of your foreclosure) all at this time. You don't own the property yet but you are now the "MAN" in control.
Now that you own the note you have to keep up the payments on the superior notes. You have to start your own foreclosure which means that the owners redemption time starts over. (Assuming that the current note holder hasn't started foreclosure, in which case you'd take over, saving time.) Time is now your enemy, depending on the state you're in it can take one to six months for you to foreclose, so you are going to again make a win-win offer to the owner/seller, provided they are not under contract to sell to someone else. It's always better to pay a known amount to the seller/owner than risk unknown thousands in payments and further damage to the property. You're going to end up owning the property for about the same money as what you would have, had you had a fair offer accepted in the first place. You would have gone after the short sale from the second.
What's the worst thing that could happen? Assuming you insured yourself, (in case of fire or other loss, don't depend upon the current owner still having insurance) the owner/seller or his buyers could pay you off! In most states any payoff would have to included all your cost plus accrued interest, and remember that's on the gross amount of the note, not your discounted purchase price.
Just a note of caution, do not be in a hurry to stop your foreclosure, trouble sellers may have other as yet unrecorded liens against the property. Don't try to stiff inferior lien holders, try to negociate short sales with them, remember they could pay you off.
Check your state laws, and next time you see a second behind a NOD consider tacking control of the of the situation. Let no Guru mislead you, you will need real, real estate education or you'll need to hire it. Now go buy a house.
Bill
William J Archambault Jr
The Real Estate Investment Institute
©REII
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