Beginners Guide to Finding Bargain Priced Foreclosures

You are reading this report because you are interested in buying bargain properties. The foreclosure crisis has created an abundance of bank owned properties (especially in Florida). These properties can be purchased for pennies on the dollar and are selling at a substantial discount to their true market value. These bank owned REO properties are typically listed on the MLS (multiple listing service), and can be viewed on websites such as www.realtor.com.

If you are interested in purchasing an REO property you have probably spent a considerable amount of time searching on the computer for bargain properties in your area. And what you have found has probably been pretty discouraging. There is so much competition especially with the lower priced homes that many times it seems like every house is either sold, contingent or pending sale.

Whatever properties are still available are often short sales where the bank has not even approved the short sale. These short sales are often listed by realtors that may or may not have previous experience in submitting short sale offers to banks. As a cash buyer it can be pretty frustrating to actually try and buy a bank owned property only to find that all of the good properties are already gone.

The purpose of this free report is to explain to you how you can create your own advertising campaign to find bargain properties directly from homeowners that are in foreclosure. You see, prior to a property going to the foreclosure auction and selling at the courthouse, it is still possible to submit a short sale offer to the bank. And right now, with the abundance of foreclosures on the market the banks are beginning to take short sale offers much more seriously than they did in previous years.

The reason for this is really quite simple. When a bank has a bad loan on their books they are forced to pay a mortgage insurance premium. This premium can be as much as 15% of the value of the outstanding loan. In addition to this, legal fees to foreclose on a property can be substantial especially if the homeowner hires a foreclosure defense attorney. It can take a bank six month or more to finally get the deed to a property which means that while they are waiting to take possession of a property they are losing at least six months of interest payments. In some cases it can take as long as 2 years for a bank to get their property back if the foreclosure lawsuit was not filed or served correctly or if the homeowners file bankruptcy.

At the foreclosure auction, typically only 20% of properties sell to investors. The other 80% go back to the bank. Since the bank is the mortgage holder with a first mortgage secured by the property, the bank can get the deed to the property and own the property. Once the bank gets the deed to the property, the bank requests a BPO (broker price opinion) and the asset manager at the bank decides what the property is worth and how much it should be listed for.

The property is then handed over to an REO listing agent that lists the property for the bank based on the instructions and pricing that the asset manager at the bank gives them. The bank is required to pay an additional 5% commission plus closing costs to finally sell the house to an investor. It is estimated that it costs banks on average approximately $30,000 per foreclosure case to get rid of a house in foreclosure.

For this reason many banks are taking short sales offers much more seriously. From the banks perspective putting more properties on the MLS will just flood the MLS with inventory which will further reduce prices and increase their losses. It makes much more sense for the bank to ensure that this inventory never hits the MLS. And there are only two ways for this to happen. Either the loan has to be modified or the bank has to accept a short sale.

A short sale is where the bank agrees to take less than what is owed to them on the original mortgage. Savvy investors submit short sale offers to the bank to buy properties directly from the bank and bypass the foreclosure auction entirely. Accepting a short sale offer makes sense for the bank as well as the homeowner. The bank receives as much as they can for the property without incurring the costs and legal expenses of pursuing a foreclosure lawsuit. The homeowner avoids having a foreclosure on their credit report and gets to walk away from the property. In most short sales, the bank agrees to a non deficiency judgment which means that they will not sue the homeowner for the difference between the original mortgage and the amount that the property finally sells for. Most short sale investors make this part of the short sale offer.

So, if you are thinking about investing in some of the foreclosure bargains and you do not want to compete with all of the REO listings that are on the MLS then you simply need to find homeowners that are in foreclosure. Any homeowner in foreclosure who is planning on walking away from their property would be happy to have a completed short sale instead of a foreclosure on their credit report.

How Do You Find Home Owners in Foreclosure?

An often overlooked approach by beginners is to utilize the classified ads both online and offline. The simplicity of this approach is so simple that many investors simply overlook it. I have even had beginning investors tell me that it is ridiculous to suggest that they can find bargain properties out of the classified ads in their local newspaper. However, if you think about it a little you will realize that if you were a homeowner in foreclosure and you were desperate to sell your home you would maybe consider placing a classified ad to see if you could find a buyer for your house. This is exactly what many homeowners in foreclosure do. You just need to be able to recognize the classified ads that say “desperate seller“.

Search for words like “short sale”, “foreclosure”, “must sell”, “make offer”, “any offer considered”, “handyman special”, “needs work”, “investor special”, “desperate”, “hurry”, “must sell quick”, etc. When I first started looking at the classifieds it took less than one month of reading the classified ads for me to find a bargain priced property.

The first property that I found from a classified ad was not for one house but for three houses! These houses were all located in Port St Lucie, Florida, and two of them were on the same street. All of these houses were for sale by a wholesaler that had signed a contract to purchase all three houses and wanted to “assign” (flip) the contract. The houses were worth around $140,000 at the time but had sustained some roof damage from one of the hurricanes. I agreed to buy the houses for $95,000 a piece and after paying for the roof repair and some basic cleanup there was around $90,000 in equity in those three houses. We still own those houses as rental properties today. Believe it or not, you can get amazing bargains right out of the classified ads in your local newspaper.

You can also advertise your services to potential sellers by placing a classified ad in the newspaper. Simply place an ad that says “I buy houses for cash” with your phone number. The phone will start ringing immediately and you might get as many as 3-5 calls per day. You can also get creative by targeting short sales specifically and saying something like “cash buyer looking for homeowners in foreclosure”.

This soft sell approach is a great way to find homeowners in distress. The home owners will be calling you so psychologically you are in the drivers' seat. They are calling you because they want your help. They want you to buy their house. It is up to you to decide if you want to or if it is even feasible. The only way you will know this is if you negotiate with the bank. You will need to meet with the homeowner and get all of the necessary documents from them in order to submit a short sale offer. You can also use a short sale negotiator like we do to negotiate the short sale on your behalf.

In addition to classified ads, I have found the following methods to be very useful in locating distressed homeowners in foreclosure:

• Car Magnets – We Buy Houses For Cash and your phone number
• Bandit Signs – We Buy Houses For Cash and your phone number
• Postcards – mailed to your target area or zip code (see notices of default)
• Letters – mailed to your target area or zip code (see notices of default)
• Attorneys – contact foreclosure defense attorneys and network with them
• Notices of Default – buy a list of homeowners in foreclosure and market to them via postcards and letters
• Social Networking And Internet Marketing – Twitter, Facebook, You Tube, Capture Pages, Web Site, Make sure sellers can find you on the internet
• Online Classified Ads – Craigslist, Backpage, etc.
• REIA – go to meetings held by your local real estate investment club or association and network with buyers and wholesalers and investors
• Bird dogs – hire other people to do all of the above and pay them a percentage on the deal or pay them by the hour.

When you have sellers coming to you, you have all the control. You decide which deals are worth pursuing and which are not. You won't be dealing with hostile homeowners, rather with people looking for your help. Be honest and sympathetic to their needs and let them know if you cannot help them. Don't let them think that you will solve their problems if you cannot.

You also need to make sure that you are aware of local new laws such as CS/HB 643 and CS/SB 992 which are part of Florida law as of October 1st, 2008. If you buy a house from a homeowner in foreclosure and they claim after the fact that they didn't know that they would lose their home then you will have a big problem. Make sure that you have an attorney prepare or review any documents that you intend to use.

Taking some of the steps that I have mentioned above will mean spending some money on advertising and marketing. Distressed sellers will not find you if you don't advertise. Most beginners don't want to take this first step. That is the difference between finding a bargain property and not finding a bargain property. If you made $30,000 on one property then that would pay for a few years worth of all of the above advertising. If you are serious about being a real estate investor and finding bargain properties then you should be prepared to spend some money advertising yourself and your services to desperate sellers.