Buying in the Preforeclosure Market - What Are the Legal Requirements? Part II

From Buyincomeproperties.com

Foreclosure
Buying in the Preforeclosure Market - What Are the Legal Requirements? Part II
By Incomeproperties
Nov 22, 2005, 10:56

THE BASIC STEPS OF PREFORECLOSURE BUYING

Let’s briefly review the methods by which you can help defaulting homeowners solve their problems and receive a substantial reward for doing so.

After you have located a potential seller, you must make contact by email, by telephone, by direct mail, or by knocking on the door. Your success rate will improve dramatically if you pursue all three approaches simultaneously. Then you must investigate the seller’s problems. When you have found out what he needs, negotiate a purchase of his equity and, finally, sign the Equity Purchase Agreement. Remember, all the parties who signed the original deed, the Grant Deed, must sign the Equity Purchase Agreement, unless an original interest has been disposed of.

PITFALLS OF THE PREFORCLOSURE MARKET

You must be cautious and especially alert when dealing with owners who will waste your time and make you think they are going to sell to you. They will invite other foreclosure buyers to bid on your contract. When a person is in default, he or she receives mail from other foreclosure buyers and from lenders who want to lend out even more money. Expect the owners to be pursuing several alternatives. If they are not happy with your proposal, they will look until the final hour. Plan on this and keep solving their problems or you may lose your prospective bargain.

Buying before the sale is easier for you if the owner is running out of time. As you recall from the review of the foreclosure period, the homeowner has 90 days to cure the default (bring the payments current) before the start of the 21-day publication period and final Trustee’s Sale. If you contact the owners immediately after the default notice is issued, they probably won’t be motivated to sell. After all, 90 days plus 21 days are almost four months and the miracle they have been waiting for will certainly arrive in that time.

The really motivated sellers will answer your email and telephone inquires, letters, and house calls about four to six weeks before the Trustee’s Sale, when they realize that the foreclosure clock is running down. Think about the problems of the owner at this point: no money, no place to go, and no alternatives.

But don’t believe that, in pursuing the equity, you have solved the owner’s problems. Even if you have made a deal with the owner and he or she has nowhere to go and very little money, the problem will soon become yours. The owner will not move. Plan ahead for this contingency. Be sure the sellers understand that you will pay them only they have left the premises and removed all of their personal possessions. And, even with such an understanding, don’t expect each of the homeowners that you deal with to give you the keys and then walk away with your check. Remember, you must be a problem solver. People pay for solutions. The homeowner will need help with moving, garage sale, transferring the utilities, and a great deal of understanding. If you intend to succeed again and again you’ll need to establish a positive attitude and handle the homeowner’s problems.

If you do otherwise, it will be a costly mistake. Possession of the property might require that you evict the former owner. If the owner is not receiving enough money to move and get re-established, I’d suggest you pay for the move and the initial costs of renting an apartment. This cost is insignificant when compared to the time and effort of an eviction. The dollar costs will add up rapidly in the eviction process with the attorney fees, mortgage payments, property taxes, filing fees, insurance, and property damage. The owner may become hostile and could damage the property as a result. If the owner is irrational, you should probably walk away from the deal. The foreclosure marketplace is full of opportunities that make sense. Owners who try to take advantage of your good intentions will use up your time and money. Forget them and keep moving.

AUTOMATIC POSTPONEMENT

There is another type of transaction you may be inclined to walk away from, even though the seller is motivated to the point of desperation. What about the seller who contacts you one day before the sale? If you normally purchase property in California and use a Home Equity Purchase Agreement requires that you allow the owner a five-day right of rescission. But you don’t have five days. The Civil Code in California also allows the home equity purchaser to buy the property just before it goes on the auctioneer’s block.

If you purchase before the Trustee’s Sale you must know what you are purchasing. You have very little time to do a thorough title search, but you must find out about the existence of any encumbrances or liens on the property. Don’t simply shrug your shoulders and tell the owner that you can’t help him.

Get a postponement. First have a Home Equity Purchase Agreement signed and agreed to by all parties. Then have the seller sign the Request for Automatic Postponement. Do not simply give the Automatic Postponement document to the seller and then expect him or her to show up to sign the contract. Many sellers won’t. They will get the postponement and then go shop for a better deal. This is desperation!

You need the one-day postponement to review the records at the County Recorder’s Office. Then you will be knowledgeable enough to purchase the property with its known liens and encumbrances. Don’t let the seller hurry you into giving him or her any cash until you are sure of the condition of title.

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