7 Ways To Buy Foreclosure Property

There are many ways to profit from foreclosures if you know how to think “outside the box”. Most investors only know a few.

Here’s 7 ways to buy a foreclosure property and make a profit.

Foreclosure Property With Equity – Buy it for a Fair Price

Most investors hunt for properties in foreclosure that have a lot of equity so they can get a “steal” from the desperate homeowner facing losing his home. Don’t county on it; even sellers in foreclosure know they have options when the home has a boatload of equity. Instead, negotiate a fair price that lets you make a reasonable profit and the seller walk away with some cash in his pocket. This type of transaction isn’t particularly unique in the process, except that you have to be aware of state “Foreclosure Protection” laws that require specific disclosure language in the contract and a cooling off period (right of seller to rescind).

Foreclosure Property With Equity – JV With the Seller

If the seller wants to stay a while in his home, consider doing a joint venture arrangement with the seller. This might be a scenario where you make up the back payments and the seller gets to live in his home for a period of time (preferably less than a year), then the property is rehabbed and re-sold. You and the homeowner split the proceeds after you are reimbursed your expenses.

Who gets the make the payments in the meantime? Well, that depends on how the equity in the JV is split. Make darn sure you put this JV agreement in writing and DETAIL every step of the process, particularly what happens if the seller does not move out or is required to make monthly payments and fails to do so.

Property Without Much Equity – Cure & Take Sub2

If the seller hasn’t much equity, but has a really good interest rate on his loan, consider making up the back payments and taking title “subject to” the existing mortgage loan. You are not assuming the loan formally with the lender, but I doubt they will care if you make the loan current, particularly if there isn’t much equity. You might also give the seller a little walking money, depending on how much it costs you make up the back payments and late fees. You could then rent out the property, then rehab and resell it in the future when there’s more equity.

Property Without Equity or Upside Down – Short Sale

If the loan balance with late fees and penalties exceeds the value of the property, then a short sale is in order. Prepare a contract between you and the seller that is at a price much lower than the amount owed. The contract is contingent on the lender accepting a “short pay” or “short sale” on the amount they are owed. The amount owed could be a first mortgage lien and/or a second mortgage. You can even short judgment liens, IRS liens and HOA liens that have attached to the property.

Buy at the Auction

Bidding at the foreclosure auction is the next step in the process. If you have not seen the interior, you must assume it doesn’t have one and bid a price low enough to account for replacing everything inside the house. If someone is living there, you can probably assume the repairs are mostly cosmetic, but still assume the worst-case condition.

Don’t get into bidding wars with your competition or you will end up paying too much. Know your bottom line number before you go to the sale, and don’t bid a penny more than you planned. “Auction fever” can often to the best of us, so make sure you proceed with a level head.

Lien Redemption

Some states offer the ability of junior lienholders to “redeem” the property after the sale. For example, if a first mortgage is foreclosing and there’s a second mortgage or judgment lien behind it, the junior liens would have the right to pay up the bid price paid on the foreclosure of the first mortgage and get the property. You could buy these junior liens prior to (and in some states after) the auction and redeem it yourself. This is a tricky process, so make sure you become well versed in the redemption process or you could lose your shirt!

Bank REO

Once the auction redemption periods are over, the bank would become the owner of the property (assuming nobody outbid the bank’s offer). This is called “Real Estate Owned” or “REO” for short. Don’t bother calling the bank after the sale date to see if the property is available for sale, unless you are dealing with a small, local bank or credit union. It’s a colossal waste of your time. The bigger banks have long, drawn-out processes for handling the resale of an REO, which is generally involves sitting it on it for months and then handing it off to a local real estate broker to list it for sale. Do, however, become friendly with real estate brokers who often list bank REOs, as they may offer you the opportunity to preview the home before it gets listed on the MLS. Having insider knowledge will allow you to bid ten minutes after the house is listed for sale, beating other “suckers” to the punch!

7 Reasons to Use a Land Trust

The land trust is a very powerful tool for the savvy real estate investor. A land trust is a revocable, living trust used specifically for holding title to real estate. Each property is titled in a separate trust, affording maximum privacy and protection.

Here are seven reasons to use land trust for titling property to real estate.

Privacy: In today’s information age, anyone with an internet connection can look up your ownership of real estate. Privacy is extremely important to most people who don’t want others knowing what they own. For example, if you own several properties within a city that has strict code enforcement, you could end up being hauled into court for too many violations, even minor ones. Having your real estate titled in land trusts makes it difficult for city code enforcement to find who the owner is, since the trust agreement is not public record for everyone to see.

Real Estate Appointment Setting

Protection From Liens: Real estate titled in a trust name is not subject to liens against the beneficiary of the trust. For example, if you are dealing with a seller in foreclosure, a judgment holder or the IRS can file a claim against the property in the name of the seller. If the property is titled into trust, the personal judgments or liens of the seller will not attach to the property.

Protection From Title Claims: If you sign a warranty deed in your own name, you are subject to potential title claims against you if there is a problem with title to the property. For example, a lien filed without your knowledge could result in liability against you, even if you purchased title insurance. A land trust in your place as seller will protect you personally against many types of title claims because the claim will be limited to the trust. If the trust already sold the property, it has no assets and thus limits your exposure to title claims. Sell My House Fast Boca Raton.

Discouraging Litigation: Let’s face it, people tend to only sue others who appear to have money. Attorneys who work on contingency are only likely to take cases which they can not only win, but collect, since their fee is based on collection. If your properties are hard to find, you will appear “broke” and less worth suing. Even if a potential plaintiff thinks you have assets, the difficult prospect of finding and attaching these assets will discourage litigtation against you.

Protection From HOA Claims: When you take title to a property in a homeowner’s association (HOA), you become personally liable for all dues and assessments. This means if you buy a condo in your own name and the association asseses an amount due, they can place a lien on the property and/or sue you personally for the obligation! Don’t take title in your name in an HOA, but instead take title in a land trust so that the trust itself (and thus the property) will be the sole recourse for the homeowner’s association’s debts.

Making Contracts Assignable: The ownership of a land trust (called the “beneficial interest”) is assignable, similar to the way stock in a corporation is assignable. Once property is title in trust, the beneficiary of the trust can be changed without changing title to the property. This can be very advantageous in the case of a real estate contract that is non-assignable, such as in the case of a bank-owned or HUD property. Instead of making your offer in your own name, make the offer in the name of a land trust, then assign your interest in the land trust to a third party.

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Making Loans “Assumable”: A non-assumable loan can become effectively assumed by using a land trust. The seller transfers title into a land trust, with himself as beneficiary. This transfer does not trigger the due-on-sale clause of the mortgage. After the fact, he transfers his beneficial interest to you. This latter transaction does trigger the due-on-sale, but such transfer does not come to the attention of the lender because it is not recorded anywhere in public records. This effectively makes a non-assumable loan “assumable”.

As you can see there are many creative and effective uses for the land trust, limited only by your imagination!