A key part of flipping houses is to buy inexpensive homes — and that often means looking for ones that are in foreclosure or about to be. Foreclosure is what happens when you don't pay your mortgage; you lose your rights to live in the house. (The institution from which you borrowed the money to buy the house either auctions it off or takes it back outright.)
Homeowners who are facing foreclosure typically have several months of warning before their home is auctioned off. If the homeowners fail to respond or agree to work out a suitable solution with the lender (in a state that uses non-judicial foreclosure) or if a judge orders the property to be sold so the lender can recover some or all of the unpaid debt, then the sale of the property must be advertised for several consecutive weeks prior to the sale (auction).
At any time during this pre-sale phase, you can act as a mediator between the homeowners and the lender to resolve the non-payment problem. In a large majority of cases, the homeowners' best decision is to sell the house and find more affordable accommodations, but other options are also available. By revealing all options to the homeowners and treating them fairly and with respect, you place yourself in a good position to purchase the property if they decide to sell it. And if they don't decide to sell, you'll be prepared to attend the sale knowing more about the property than most of the other bidders do.
Having a game plan for researching the property and contacting the homeowners and lenders is always a good idea. By planning your activities, you create a schedule that keeps you on track and in touch with the homeowners and lenders. Schedules vary depending on state statutes that govern how far in advance of the foreclosure sale it must be advertised. In Florida, for example, public notice of the sale must be published once a week for two weeks prior to the sale, whereas in Indiana, the county sheriff must advertise the sale for three consecutive weeks prior to the sale with first notice published at least 30 days prior to the sale.
Begin tracking a property as soon as you know (usually from the publication of the notice of sale) that the homeowners are facing foreclosure. If the notice appears one week and not the next, this usually means that the homeowners resolved the issue with their lender, so send the homeowners a letter congratulating them.
Following is a schedule to use in Michigan, which is a non-judicial foreclosure state and where the lender is required to advertise the sale for four to six consecutive weeks prior to the auction:
Week 1
Find the notice of sale in the county or local newspaper where notices are published and research the property. Drive by the house and take pictures.
Send or hand-deliver your first foreclosure letter, introducing yourself to the homeowners.
Week 2
Find the second notice of sale.
Review the title work.
Attempt to contact the homeowners by phone, and knock on the door to attempt a face-to-face meeting. If that doesn't work, send or hand-deliver your second foreclosure letter.
Week 3
Find the third notice of sale.
Attempt to contact the homeowners by phone.
Call the mortgage company's attorney to find out if the property is still going to auction and what the opening bid amount will be.
Send or hand-deliver your third foreclosure letter to the homeowners.
Week 4
Find the fourth notice of sale.
Drive by the house to see if its condition has changed considerably (take pictures).
Attempt to contact the homeowners by phone.
Send your fourth foreclosure letter.
Organize your property folder for the auction.
