Riding the Waves of Foreclosure
I have been a full time investor since 1998. My past experience was a legal secretary for 18 years working for Attorneys, Builder and Real Estate Broker. We were working pay check to pay check. I started investing in real estate in Michigan and then rode the foreclosure wave to Florida. A smart investor needs to shift with the tide to be successful. I purchased real estate courses and attended as many educational boot camps as possible. I am a licensed Real Estate Broker. In 2000, I created the course "I'm a Real Estate Junkie" because people were contacting me after attending other boot camps and still did not know what to do or how to get started. I found that other courses would give you just enough information to lead you to the next seminar. My course taught you what you need to do from beginning to end, how to set yourself up as a corporation, why to use land trusts, book keeping, how to buy, fix, retail and hold property. You may have seen a picture of my husband, Larry and I in Ron LeGrand book "How to Be a Quick Turn Real Estate Millionaire" page 101 as one of his successful students.
After working in the real estate investment field for 6 years buying, fixing, retailing and holding, I started to look at the foreclosure market. As a savvy investor I saw our economy changing and noticed the bigger checks investors would receive from working the foreclosure market. Since I didn't know how to buy properties in foreclosure, I decided that I needed to have a mentor. I knew Jeff Kaller had a course and had hired a couple of ex-bank mitigators to help with his coaching program. I attended his seminar and signed up for 1 year coaching. For 1 year I was able to pick the brain of Jeff Kaller and his ex-bank mitigators. I soon found out that the ex-bank mitigators were asking the same questions that the Homeowner's bank mitigators would ask "what is the most you want to pay for the property". I would always reply "as little as possible". I realized that they still had a mindset of a bank mitigator and not an investor. They eventually learned how to play both sides. I learned a lot from Jeff Kaller and during that one year as I did from all the other real estate gurus.
I purchased 10,000 leads of individuals who were in pre-foreclosure. I realized that my company with 4 employees needed help to work those leads. I created an "Apprentice Program" in Michigan where local investors would have "hands on training in my office" not only for foreclosure but for all different ways of investing. I was overwhelmed by the response. I immediately had 18 students sign up and work the "Apprentice Program" with me and had a waiting list. I created my own detailed Foreclosure System that worked for my students. We worked on over 75 deals in one year profiting hundreds of thousands of dollars. We decided to relocate due to the enormous loss of jobs and buyers moving out of Michigan. Michigan is a great state to buy and hold property in. I brought my system the "Apprentice Program" to Florida. I partnered with Hunter Paschall who I met at Jeff Kaller's one year coaching program. The "Apprentice Program" in Florida is full and has a waiting list. We are presently working on 55 foreclosures and already profited hundreds of thousands of dollars since July of 2006.
The key to being successful in the foreclosure market is to have the right system knowing what paperwork to fill out, understanding the paperwork and how to speak to Homeowners, BPO Agents and Mitigators. I believe in team building. Having the right team will make you successful a lot quicker than you doing it on your own. Having a system to take you step by step through this process is vital to your foreclosure business.
It is important in the real estate business especially the foreclosure business to make sure that the Homeowner understands everything that is going on. You should have everything in writing. Be honest with your Homeowner. Don't promise that you will be able to get a short sale when it is up to the mortgage company whether or not they will take the a discount. Just promise that you will work real hard.
Motivated Sellers are the key to being successful in real estate. If you don't have a motivated Seller, then you don't have a deal. You can't make a Homeowner motivated. Only time and circumstances will change the Homeowner into a motivate Seller. It is so hard for the average person to believe that someone would sell their house for a low price. The reason people have a hard time believing Homeowners would sell their house for such a low price is because they wouldn't do it. Remember, just because someone is in foreclosure does not mean that they are motivated. In fact, most people are not motivated and are in denial. They believe that their white knight in shiny armor is going to ride in a save them from foreclosure. Many individuals that are in foreclosure want to stay in their home but they can't afford too. Most will stay in their home until the sheriff comes to throw them out. Other Homeowners once they are served with court papers, just disappear not knowing what other options they have. To be successful in real estate, you need to be a good listener and learn to ask all the right questions. You need to educate the Homeowners on the options they have while in foreclosure. After you have discussed all their options with them, you need to explain how you can help them solve their situation.
Refinancing is one option. It is important to have a mortgage broker on your team that you can refer Homeowners to see if can get refinanced. This builds rapport with your Homeowner. Most of the time once foreclosure is showing on their credit report, they are unable to get financed unless there they have a lot of equity in the home. If they are unable to refinance their home, then the mortgage broker would refer the Homeowner back to you to buy their home. Don't forget to follow up on a regular basis. Homeowners' change their mind. They sometimes decide that they want to sell their home and not refinance. If you don't follow up, someone else could contact them and buy their home.
Forbearance is another option. A forbearance is where the mortgage company will work out a payment plan with the Seller to pay extra money every month towards the arrearage that is owed for their back payments. The forbearance plan could be for 6 months or longer and could require a lump sum on their first payment. Most of the time the mortgage companies would like to make this payment plan as short as possible. Loan Modification is another option. A Loan Modification is where the mortgage company will allow the arrearage owed on the loan to be added to the end of the loan. I believe a lot more mortgage companies are heading this way because of the wave of foreclosures.
Dealing with the Mortgage Companies is not the easiest thing to do. A lot of Homeowners get tired of talking with the representatives from the mortgage companies. The key to dealing with mortgage companies is knowing that there are many departments: customer service, workout department (used for forbearances), collection and loss mitigation (used for short sales). Each department has their own duties and they do not know what is going on with the other departments. Homeowners frequently become frustrated when talking to the mortgage companies. They are transferred from one department to the next spending hours on the telephone talking to the wrong individuals. That is why most Homeowners give up with working with the mortgage companies.
Selling their house is another option. Most Homeowners owe as much or more than what the property is worth. Depending on the amount of equity n the home, you could purchase the property "Subject to" the underlying financing and bring the payments current. This is another article in itself. If you are unable to take the property "Subject to" then it's time to talk about a short sale. Remember we are here to help the Homeowner save their home by refinancing, forbearance or loan modification and if that doesn't work, it is time for a short sale. What is a short sale? It is having the mortgage company take a discount for what is owed on the property. Below is an example of a deal that I recently concluded:
After Repaired Value of Home (ARV) was $190,000.00 minus $10,000.00 in repairs. Countrywide Mortgage was owed $150,000.00 for the first mortgage, a Private Individual was owed $17,000.00 for a second mortgage, and IRS had a $38,000.00 tax lien. All three lien holders agreed to take a discount as follows: Countrywide $115,000.00, Private Individual $1,000.00 and IRS $1,000.00 making the total payoff on the property $117,000.00. The property was sold to another investor for $140,000.00 netting us $23,000.00
This deal would have not worked unless all three lien holders agreed to take a discount. Mortgage companies have guidelines they follow when accepting short sales. Knowing what those guidelines are helps you to become successful in your short sale process. Remember it's all education.
Deficiency Judgment - If the mortgage company agrees to take less than what is owed, they could give the homeowner a deficiency judgment or a 1099. Either way, the homeowner is going to get one or the other. A deficiency judgment is for the difference in what is owed and what the mortgage company agreed to accept as payment. I request that the mortgage company waive a deficiency judgment and accept the short sale as full pay and 99% of the time this is done.
1099 - This is a form that the mortgage company could send to the Homeowner for the difference in what was owed and what the mortgage company agreed to accept as payment. The Homeowner reports this amount as income and would be taxed on that amount. If the Homeowner's liabilities out way their assets, then their CPA can file a necessary form which could release them from paying any taxes.
When you are able to short sale the mortgage and either buy it or resell it, the Homeowner is very grateful. A short sale is always better than a foreclosure for the Homeowner. Make sure that you get a testimonial letter from the Homeowner upon completion of the short sale.
Re-selling the property after the short sale is where you have to be very creative. There are thousands of homes on the market right now that you are competing with. You have to make sure that you are able to provide the new Buyer with some creative ways in buying. Example: zero down, seller to pay closings costs, appliances, vehicle comes with purchase of home etc. You must buy low and sometimes if you can't find any other way of being creative, you have to sell low.
Remember the golden rule, you make money when you buy the property and you realize the profit when you sell the property. Now is the time to add Foreclosures to your investment tool box. Happy House Hunting.
Kimberlee Frank
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