Foreclosure Investing For Dummies Cheat Sheet

Foreclosure investing preflight checklist

Before you place a bid or make an offer on a property, perform your due diligence and be prepared. In addition to having financing in place to cover the cost of purchase, holding costs, and repair and renovation expenses, create a file that contains the following items:

• Copy of foreclosure notice or notice of default, if available.
• The title commitment and 24-month history in the chain of title or the minimum last two recorded documents.
• A copy of the deed with the current homeowners’ names.
• The last recorded first mortgage, so you know how much the homeowners currently owe on the property.
• Full knowledge of all liens (financial claims) against the property, including property tax liens.
• A map showing the location of the property.
• Your exterior home inspection notes, photos of the house from all views, including from across the street, and neighborhood photos.
• The city worksheet on the property showing the history of any major renovations, inspection reports, or other details about the property.
• MLS listings of comparable properties that have recently sold or are currently for sale.
• Copy of the tax bills and notes on whether they are paid up or delinquent.
• The SEV (Standard Equalized Value) of the property, on which property taxes are based.
• Notes from meetings with homeowners, assuming you contacted them prior to foreclosure.

Step-by-step investing in pre-foreclosures

Purchasing a home directly from the homeowners prior to the foreclosure auction often delivers the best deals, often because you’re not buying blind and you know exactly what you’re buying.

The following list provides a brief overview of what can be a very complex process:

1. Line up the financing required to make a cash offer on the property.
2. Obtain a lead on a property either by word-of-mouth networking or reading the foreclosure listings in the county’s legal publication.
3. Visit and inspect the property with your own two eyes.
4. Research recent sales prices of comparable properties in the area.
5. Research the property thoroughly, especially the title work.
6. Establish contact with the homeowners by way of an in-person visit, phone call, or letter.
7. Meet with the homeowners (if possible) and gather as much pertinent information as possible. Obtain written permission to contact the lien holders.
8. Present all options to the homeowners.
9. Work with the homeowners and lien holders to negotiate a compromise that addresses the needs of all parties @@md you, the homeowners, and the lenders.
10. Present a purchase offer to the homeowners.
11. Close on the property.

Steps for buying properties at foreclosure auctions

Bidding on and buying properties at foreclosure auctions sounds easy enough, but doing it successfully often requires several weeks of preparation and a detailed follow-through.

The following list provides a basic step-by-step overview of the process:

• Attend four or five auctions to get acclimated to the bidding process and determine the proof of financing and other conditions required to bid at auctions.
• Line up the financing required to make a cash offer on the property.
• Identify a potential investment property in the foreclosure listings in the county’s legal publication. Track the listing weekly all the way up to the date of the foreclosure auction, including adjournments.
• Visit and inspect the property with your own two eyes and take photos.
• Research recent sales prices of comparable properties in the area.
• Order the title work on the property from your local title company and review the document thoroughly.
• Obtain and review property records from the city or county.
• Contact the foreclosing attorney several days prior to the scheduled auction date. (The attorney’s name and contact information are on the foreclosure notice.) Find out whether:
  • The attorney has an assistant you should contact in the future.
  • The property is still going to be auctioned.
  • An opening bid has been set and, if so, the amount.
  • They are considering an adjournment.
• Drive by the home a few hours before the auction and take new photos of the property if its condition has changed significantly. (If the house has burned down, you may end up buying ashes.)
• If you decide to bid on the property, obtain a cashier’s check for the amount of the opening bid.
• Organize your property file for the foreclosure auction.
• Set the absolute maximum amount you can afford to bid on the property to ensure a 20 percent or better return on your investment in excess of all estimated costs, including holding costs (interest, insurance, property taxes, homeowner association fees, and so on for the duration of the project).
• Attend the foreclosure auction and bid on the property, if desired, being careful not to bid in excess of your predetermined maximum.
• If you offer the winning bid, do the following as soon as possible:
  • Pay any balance remaining on the bid amount.
  • Record the deed.
  • Obtain an insurance policy for the property and record an affidavit for the amount paid.
  • Pay any property taxes owed on the property and record an affidavit for the amount paid.
• If your area has a mandatory redemption period, do the following:
  • Send a letter to the homeowners explaining what happened at the mortgage sale, the options you can offer, and their redemption rights, and warn them of other investors who may try to take advantage of them.
  • If you bid more than required to pay off the liens, let the homeowners know that they can claim the overbid money and where to go to claim it.
  • Establish contact with the homeowners, if possible, to smooth the change of ownership.
  • Wait until the redemption period expires.
• Encourage the homeowners to move out or proceed with an eviction.