The Complete Idiot's Guide To Buying Foreclosures

by Beitler, Todd; Dempsey, Bobbi

• ISBN13: 9781592573950
• ISBN10: 1592573959
• Format: Paperback
• Copyright: 2005-08-02
• Publisher: DK Publishing, Inc.

Summary

To a growing number of people, foreclosures represent a failure to achieve the American dream. But to another group, also growing in number, these same foreclosures represent investment opportunities that pay higher returns than these individuals could ever hope to see from their stock portfolios. When it comes to foreclosures, one man's money pit is another man's money hit. The Complete Idiot's Guide to Buying Foreclosures teaches readers how to find and finance those foreclosed and soon-to-be foreclosed residential properties with the highest potential return. Covering both bank-owned (REO) and government-owned properties, the book focuses on helping buyers distinguish between good investment properties and those plagued with liens and other pitfalls.

Author Biography

Todd Beitler, a recognized foreclosure expert, guest lecturer, and industry consultant, is the founder of The Real Estate Library who pioneered the widely distributed magazines The New York Foreclosure Report and The Florida Foreclosure Report.
Bobbi Dempsey has written several books, including The Pocket Idiot-'s Guide to Home Inspections, and for numerous major magazines, including Family Circle, Good Housekeeping, Parents, Child, Pregnancy, and more.

Table of Contents

Part 1: Foreclosure Basics	1	(42)
Foreclosures 101	3	(16)
What Is a Foreclosure?	3	(4)
Sample Mortgage Deed	4	(1)
Acceleration	5	(1)
The Repossession Analogy	6	(1)
Why This Info Is Important to You	7	(1)
Types of Foreclosures	7	(6)
Mortgage Foreclosures	7	(1)
Trust Deed Foreclosures	8	(1)
Strict Foreclosures	8	(1)
Table of Types by State	8	(2)
Judicial vs. Nonjudicial Foreclosures	10	(1)
Table of Processes by State	11	(2)
Deficiency Judgments	13	(1)
Reinstatement	13	(1)
Right of Redemption	13	(1)
Deed in Lieu of Foreclosure	14	(1)
How Many Foreclosures Are There?	14	(5)
National Statistics	14	(4)
Trends	18	(1)
The Delayed Reaction	18	(1)
Why Foreclosures Occur	19	(6)
Divorce	19	(1)
One-Income Households	20	(1)
Two-Income Households	20	(1)
Other Reasons Foreclosures Occur	20	(2)
Unemployment	20	(1)
Health Problems	21	(1)
The Economy	21	(1)
Relocation	21	(1)
Overwhelmed Landlords/Investors	22	(1)
Other Reasons	22	(1)
Why Knowing Is Important	22	(1)
When You Can Buy Distressed Properties	22	(3)
How It Works	25	(10)
When Is a Late Payment Really Late?	25	(2)
Missed Payments	26	(1)
Late Charges	26	(1)
Breach of Contract	26	(1)
Foreclosure Proceedings Begin	27	(1)
Judicial Process	27	(4)
Notice of Intent	28	(1)
Complaint of Foreclosure	28	(1)
Lis Pendens	28	(1)
Summary Judgment	29	(1)
Notice of Sale	30	(1)
Vacating the Property	30	(1)
Nonjudicial Process	31	(1)
Notice of Default	31	(1)
Notice of Sale	32	(1)
Stopping the Process Along the Way	32	(1)
Comparing the Processes	33	(1)
Public Posting	33	(1)
Foreclosure Sale	33	(2)
How Lenders and Agencies View Foreclosures	35	(8)
The Bank's Legal Obligations	35	(1)
Other Influences	36	(2)
Introducing Fannie Mae and Freddie Mac	37	(1)
The Bank's Exposure	38	(1)
How Much Does It Cost the Bank?	38	(1)
The Bank's Motivation	39	(1)
FHA	39	(1)
HUD	40	(1)
VA	40	(1)
SBA	40	(1)
IRS Foreclosures	41	(2)
Part 2: How You Can Profit from Foreclosures	43	(30)
Benefits and Opportunities	45	(8)
Bargain Buys	45	(1)
Less Competition	46	(1)
Owner Occupancy	47	(1)
Investments	47	(2)
Rental Income	48	(1)
Other Benefits to Investors	49	(4)
Lower Purchase Price	49	(1)
Lower Down Payments	49	(1)
Motivated Sellers	49	(1)
Motivated Lenders	49	(1)
Helping the Homeowner	50	(1)
Favorable Financing	51	(2)
Pitfalls and Disadvantages	53	(10)
Involuntary Liens	53	(2)
Judgments	54	(1)
Second Liens	54	(1)
Mechanic's Liens	55	(1)
Cloud on the Title	55	(1)
Liens and Judgments	55	(1)
Taxes	55	(1)
Death	55	(1)
Marriage/Divorce	56	(1)
``As Is'' Condition	56	(1)
Additional Problems You Could Encounter	56	(3)
Cured Default	56	(1)
Postponement of Sale	57	(1)
Financing	57	(1)
Bidding Frenzies	57	(1)
Getting Up to Speed	57	(1)
Evicting Homeowners	58	(1)
Bankruptcy	58	(1)
Too Much Too Soon	58	(1)
Making Yourself Legally Vulnerable	58	(1)
Common Mistakes	59	(4)
Do Your Research	59	(1)
Handing Over Money Too Soon	59	(1)
Get the Real Scoop	60	(1)
Being Overly Optimistic About the Resale Value	60	(1)
Getting Too Emotionally Involved	60	(1)
Overlooking Closing Costs and Other Fees	61	(2)
Important Pre-Purchase Issues	63	(10)
Introduction to Buying	64	(1)
The Three Basic Methods	64	(1)
How Much Will I Have to Pay?	65	(1)
Do I Need a Real Estate Agent?	65	(1)
Clear Titles	66	(1)
Financing	66	(2)
Traditional Lenders	67	(1)
Partners	67	(1)
Lines of Credit	67	(1)
The Team Concept	68	(1)
Seller's Motivation	69	(1)
Researching Properties	69	(1)
Identify Your Target Area	70	(3)
Familiar Territory	71	(1)
A Distant Area	72	(1)
Part 3: Making Your Foreclosure Purchase	73	(80)
Finding Foreclosed Properties	75	(10)
Traditional Lenders	75	(2)
Banks	76	(1)
Mortgage Companies	76	(1)
Insurance Companies	76	(1)
Credit Unions	76	(1)
Asset Management Groups	77	(1)
Real Estate Agents	77	(1)
Newspapers	78	(1)
Sample Lender Ad	78	(1)
Other Newspaper Tips	78	(1)
Legal Notices	79	(1)
Public Records	79	(2)
County Courthouse	80	(1)
Other Public Records	81	(1)
Regional Real Estate Publications	81	(1)
Using the Internet	81	(3)
Public Records Online	82	(1)
Foreclosure Listing Services	82	(2)
Word of Mouth	84	(1)
Buying Pre-Foreclosures	85	(22)
The Basic Process	86	(1)
Investing Overview	86	(2)
Locating Properties in Default	88	(1)
Evaluating the Selections	88	(2)
Contacting Homeowners	90	(4)
Search Methods	90	(2)
Good Old Snail Mail Searching	92	(2)
The Phone Call	94	(1)
Getting Homeowners to Come to You	94	(1)
Classified Ads	94	(1)
Signs, Flyers, and Postcards	94	(1)
The Toll-Free Number with Voicemail	95	(1)
The In-Person Meeting	95	(2)
Ask Questions	95	(1)
Inspect the Property	96	(1)
Obliterating the Competition	97	(1)
Preparing Your Offer	97	(1)
Sample Scenario	98	(1)
Negotiating with Lien Holders	99	(1)
Maximizing Your Profits	100	(1)
Helping the Homeowner	100	(1)
Negotiating with the Lender	101	(1)
Presenting Your Offer	101	(1)
The Competition	102	(1)
Credit Counselors/Debt Agencies	102	(1)
Bankruptcy	102	(1)
High-Interest Lenders	103	(1)
Other Investors	103	(1)
The Purchase Contract	103	(1)
Terms of the Agreement	104	(1)
Ready, Set, Close!	105	(2)
Buying at Auction	107	(12)
Introduction to Auction Buying	107	(1)
Investing Overview	108	(1)
Disadvantages of Auction Buying	109	(3)
Right of Redemption	109	(1)
Financing Your Auction Buys	110	(1)
Title Problems	110	(1)
Property Damage	111	(1)
Evicting the Homeowner	111	(1)
Finding Out About Auctions	112	(1)
Evaluating Properties	112	(1)
Inspecting the Property	112	(1)
Calculate Your Profits	113	(2)
What You Need to Bring	115	(1)
Prequalifying Bidders	115	(1)
Practice Before You Purchase	115	(1)
Success!	116	(1)
Tax Sale Auctions	116	(3)
Risks and Complications	116	(1)
Finding Out About Sales	117	(1)
Using Tax Information to Your Advantage	117	(2)
Buying Bank Foreclosures and REOs	119	(14)
Investing Overview	119	(1)
Myths and Misconceptions	120	(1)
Only Banks Own Foreclosed Properties	120	(1)
Lenders Can Profit from REOs	120	(1)
Lots of Cloudy Titles	121	(1)
Advantages	121	(1)
Disadvantages	122	(1)
Buyer Beware	122	(1)
How Lenders Dispose of the Properties	123	(1)
The Lender's Asking Price	123	(1)
Locating REOs	124	(1)
Narrow Your Selections	125	(1)
Contacting the Lender	125	(1)
Inspecting the Property	126	(1)
Don't Expect Huge Discounts	127	(1)
Obstacles That Can Work in Your Favor	127	(1)
Calculate Your Profits	128	(1)
Making the Offer	128	(2)
Sample Offer Letter	130	(1)
Financing	131	(1)
Closing	131	(2)
Government Properties	133	(8)
HUD Properties (Department of Housing and Urban Development)	133	(3)
Finding the Properties	134	(1)
The Bidding Process	134	(1)
Financing	134	(1)
FHA (Federal Housing Administration)	135	(1)
VA (Department of Veterans Affairs)	136	(1)
Ocwen	136	(1)
Vendee Financing	137	(1)
SBA (Small Business Administration)	137	(1)
FDIC and FSLIC (Federal Deposit Insurance Corporation and Federal Savings and Loan Insurance Corporation)	137	(1)
Fannie Mae Repossessions	138	(1)
Freddie Mac	138	(1)
Finding Properties	138	(1)
Financing	139	(1)
IRS Properties	139	(1)
Locating Properties	139	(1)
Right of Redemption	139	(1)
Payment	139	(1)
Government Properties for a Buck?	140	(1)
Financing Your Purchase	141	(12)
Before You Get Started	141	(1)
Borrowing Money	142	(1)
Lines of Credit	142	(1)
Finance Companies	143	(1)
Your Personal Credit	143	(2)
Loan to Value Ratio	144	(1)
The Credit Report	144	(1)
Mortgage Companies	145	(1)
Friends and Family	145	(1)
Partnerships	146	(1)
Investors	147	(1)
Hard-Money Lenders	147	(1)
FHA Loans	148	(1)
203(b) Loans	148	(1)
203(k) Loans	149	(1)
Wholesale Flipping	149	(1)
Other Sources	150	(1)
Advanced Financing Options	150	(3)
Subject To	151	(1)
Lease Option Sales	151	(2)
Part 4: After the Sale	153	(54)
Details, Details	155	(10)
Is It Officially Yours?	155	(2)
Right of Redemption	156	(1)
Pre-Foreclosures	156	(1)
Auction Buys	157	(1)
REO or Government Property	157	(1)
What to Do First Following the Closing	157	(2)
Signed, Sealed, and Properly Filed	157	(1)
Insurance Coverage	157	(1)
Take Care of Any Necessary Red Tape	158	(1)
Address Serious Safety/Maintenance Issues	158	(1)
Eviction	159	(3)
Ideal Eviction Scenario	159	(3)
Firm Up the Financing	162	(1)
Find/Maintain Tenants	162	(1)
Get Ready to Sell	163	(2)
Maintenance and Home Improvement	165	(12)
Selling vs. Renting	166	(1)
Where to Start	166	(1)
The Major Issues	167	(3)
Wiring Problems	167	(1)
Structural/Framing Issues	167	(1)
Faulty Furnace	168	(1)
Kitchens and Bathrooms	168	(1)
Doors and Windows	169	(1)
The Roof	169	(1)
Basements and Foundations	169	(1)
Do You Really Need to Fix It?	170	(1)
Make the Home Buyer-Friendly	170	(2)
A Maintenance-Free Image Is Key	170	(1)
Creepy Crawlers	171	(1)
Curb Appeal	171	(1)
Garages and Sheds	171	(1)
Underground Gas Tanks	172	(1)
Little Improvements Mean a Lot	172	(1)
Paint	172	(1)
Landscaping	172	(1)
Do You Need a Professional?	173	(1)
An Expert's List of Hot Spots	173	(1)
Mold and Mildew	173	(1)
Wet Basements and Crawlspaces	173	(1)
The Roof and Its Neighbors	173	(1)
Inadequate or Inferior Electrical Systems	174	(1)
General Repair/Maintenance Costs	174	(3)
Plumbing	174	(1)
Roofing	174	(1)
Bathrooms	175	(1)
Framing	175	(1)
Chimneys	175	(2)
Holding On to the Property	177	(16)
Owner Occupancy	177	(1)
Are You Landlord Material?	178	(1)
Depreciation	179	(1)
More Tax Breaks	180	(1)
Before Seeking Tenants	180	(1)
Learn the Law	180	(1)
Spruce the Place Up	180	(1)
Call Your Insurance Agent	181	(1)
Network	181	(1)
Determining Your Rent	181	(1)
Advertising	182	(1)
Which Tenants Will You Attract?	182	(1)
Online Outlets	183	(1)
Brokers/Agents	183	(1)
Classifieds	183	(1)
Would-Be Tenants: The Good, the Bad, and the Ugly	183	(3)
Military Tenants: A Mixed Blessing	184	(1)
Section 8 Tenants	184	(1)
Disabled Tenants	185	(1)
Your Perfect Tenant	185	(1)
The Application	186	(1)
Employment Information	186	(1)
Recent Landlord Information	187	(1)
Credit Report	187	(1)
Playing Detective	187	(1)
The Lease	188	(1)
Security Deposit	189	(1)
Entering a Tenant's Property	189	(1)
Renters Insurance	190	(1)
Eviction	190	(1)
The Friendly Departure	191	(1)
Record Keeping	191	(2)
Selling Your Property for a Profit	193	(14)
Selling Strategy Overview	193	(1)
Working With Brokers	194	(1)
Choosing a Broker	194	(1)
Necessary Conditions	195	(1)
Price It Right	195	(1)
Advertising the Property	196	(2)
For Sale Signs	196	(1)
Classifieds	196	(1)
Online Ads	197	(1)
Flyers	198	(1)
Presenting Your Property	199	(3)
Curb Appeal	200	(1)
Neatness Counts	200	(1)
Play It Safe	200	(1)
What's That Smell?	201	(1)
Small Repairs	201	(1)
Ten Ways to Make Buyers Hate Your Home	202	(1)
Use Competition to Your Advantage	202	(1)
Get It in Writing	202	(1)
The Deposit Check	203	(1)
The First Screening	203	(1)
Negotiating Price and Terms	203	(1)
Common ``For Sale by Owner'' Mistakes	204	(2)
Property Disclosures	204	(1)
Lead Paint Disclosure	205	(1)
Buyer's Deposit	205	(1)
Qualifying Buyers	205	(1)
Accepting the Offer	206	(1)
Closing	206	(1)
Part 5: Beyond Basics: Advanced Strategies for Experienced Investors	207	(38)
Buying ``Subject To''	209	(16)
What Does ``Subject To'' Mean?	209	(2)
How Subject To Started	210	(1)
The Big Difference---Shhh! It's a Secret	210	(1)
Why All the Controversy?	211	(1)
Is It Legal?	211	(1)
What Rights Come with a Subject To Deal?	212	(1)
Benefits of Buying Via Subject To Deals	213	(1)
Your Responsibilities	213	(1)
The Mechanics of a Subject To Deal	214	(3)
Sample Letter to Lender	214	(1)
Sample Agreement Document	215	(1)
Sample Limited Power of Attorney	216	(1)
What's in it for the Seller?	217	(2)
Getting the Seller On Board	217	(1)
Sample Dialogue for Negotiating a Subject To Deal	218	(1)
The Dreaded Due-on-Sale Clause	219	(2)
Land Trusts	221	(1)
Maintaining the Status Quo	221	(2)
The Insurance Issue	222	(1)
Some Subject To Pitfalls	223	(2)
Lease Option Sales	225	(10)
Lease Option Basics	225	(1)
Have a Sandwich	226	(1)
The Two-Step Sandwich Deal	226	(4)
Finding Good Seller Candidates	227	(1)
Persuading the Seller	227	(1)
Finding the Tenant/Buyer	228	(1)
Classified Ad	228	(1)
Screening Tenant/Buyer Candidates	229	(1)
Why Investors Like Lease Option Deals	230	(1)
A Triple Payday	230	(3)
Show Me the Money	231	(1)
A Dual-Contract System	232	(1)
When the Tenant Is Ready to Buy	233	(1)
If the Buyer Bows Out	233	(2)
Other Creative Approaches	235	(10)
``Flipping'' to Other Investors	236	(3)
Isn't Flipping Illegal?	236	(1)
The Wholesaling Process Explained	237	(1)
Types of Flippers	238	(1)
Who Should Get Involved with Wholesaling?	238	(1)
The Downsides	239	(1)
Wraparound Mortgages	239	(1)
Buying the Note from the Lender	239	(1)
IRA as Investment Capital	240	(1)
Exit Strategies	240	(5)
The Importance of Exit Strategies	241	(1)
Types of Exit Strategies	241	(4)
Part 6: Real-Life Lessons	245	(68)
Advice from the Pros	247	(12)
Letting Sellers Stay in the House	247	(1)
Leaving Your Personal Assets Vulnerable	248	(1)
Renting to a Friend or Relative	248	(1)
Jumping In Before You're Ready	248	(1)
Getting Emotionally Involved	248	(1)
Underestimating the Importance of Curb Appeal	249	(1)
Misjudging the Amount of Fixing a Fixer-Upper Needs	249	(1)
Going It Alone	249	(1)
Not Researching a Property Carefully	249	(1)
Being Clueless About Local Laws	250	(1)
Giving the Homeowner a Check Too Soon	250	(1)
Going Overboard on a Home's Makeover	250	(1)
Little Tips That Can Make a Big Difference	250	(1)
Negotiate with Lenders and Lien Holders	250	(1)
Do a Little Sprucing Up	251	(1)
For My Next Trick ... I'll Instantly Add a Bedroom!	251	(1)
More Advice from the Pros	251	(1)
Gurus and Infomercials	252	(7)
Research and Compare	253	(1)
Search Engines	253	(1)
Sites with Guru Ratings and Rankings	254	(1)
Single-Page Websites	254	(1)
Red Flags	255	(1)
Gurus That Won't Go Away	256	(1)
That Free Seminar Comes with Strings Attached	256	(3)
Case Studies from Real Foreclosure Investors	259	(54)
An Auction Success	259	(2)
Mining Foreclosure Lists for a Gem	261	(2)
Subject To Deal	263	(6)
Appendixes
A Foreclosure Glossary	269	(6)
B Recommended Resources	275	(16)
C Worksheets and Forms	291	(16)
D Tips for Buying Real Estate out of Probate	307	(4)
E Top 10 Financing Fumbles to Avoid	311	(2)
Index	313