Qualities of a Leader
How often have you heard the comment, He or she is a born leader? There are certain characteristics found in some people that seem to naturally put them in a position where theyre looked up to as a leader.Read More
By Brian Payton
President and CEO of ATW Investments, Inc.
With the current climate surrounding the real estate world, the number of foreclosures is skyrocketing across the board. The most common are Bank Foreclosures (when the lender seizes a property from the party unable to satisfy the mortgage owed) and Tax Foreclosures (when the Government seizes a property from the party unable to satisfy the property tax owed). The key component to consider as an investor is, "What kind of foreclosure do I want to work with?" My answer to that question is the answer to all great real estate deals...
WHO IS THE MOTIVATED SELLER?
That, my friend, is the million-dollar question and will be addressed further down. I often encounter investors who work on bank foreclosures. Investors will spend ample amount of time attempting to make these deals work, when in reality they're fighting an uphill battle from the beginning. There are often hidden costs associated with acquiring this type of property that the investor doesn't think to consider. Commonly, bank foreclosure deals entail a substantial sum in attorney fees, filing fees, and late payment fees to the lender; this is in ON TOP of the principal amount owed. These hidden fees must be satisfied in order to close the deal and add to the expense of the transaction, making it much less lucrative than you originally thought.
Now at this point, you're probably thinking that a few extra hundred or even a few extra thousand dollars in unexpected costs isn't enough to deter you from proceeding with a bank foreclosure because it's still a great deal. Well, therein lies the secret to why tax foreclosures are such a better deal to work with. In my experience, at least 70-80% of the time you do a transaction that involves a Bank REO, you're dealing with a buyer who is behind on their taxes anyway. So the government is already involved in the deal, regardless of the fact that you are working a bank foreclosure.
Lenders have a huge amount of holding costs on foreclosures. They place so many barriers in the way to getting a deal done that it becomes very difficult. My point in going over all of this is to point out to you the battle you're facing when you're placing the bank as first in the negotiation process. So, to answer the "million-dollar question"--in general, lenders are not motivated to sell to investors. They are less likely to negotiate, in an attempt to recoup their expenses, which they have a right to. Homeowners, however, ARE motivated to sell to investors. A homeowner facing a tax foreclosure is much more likely to negotiate with an investor because it may be the only opportunity they'll have to make any type of profit.
By implementing the following priority of whom you're working with, you'll be closing deals in no time:
This formula works because we use the natural progression of the deal against the bank to force their hand in working with us.
The bottom line is that what is owed to Uncle Sam is, for the most part, the one debt that cannot be changed out of all the debts you will see in a foreclosure deal. The government is ALWAYS the first lien holder on transactions. They tell you what you owe and give you a deadline. If you don't get the funds by that time, you lose the property. For the banks this would be devastating because what would then happen to their lien? Even though on paper they are in the first position (this means they have a greater right to take back the home), in reality the Government is always in 1st position. So the banks will actually lose their note if the government seizes the property.
Once I have this basic information I find out these important pieces to the deal:
Once I have this information I'm ready to start negotiating the deal.
Does this work every time? NO! But once you get the swing of it down, it can work in your favor. You can work this formula in about two days time instead of working through the red tape of the Banking and Realtor systems. Even if your offer is rejected, you get it quickly so you can move onto the next deal.