Preforeclosure Profit Funnel

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					PreForeclosure Profit Funnel™
                           Preforeclosure Profit Funnel ™

                         Make $90,000 a Year Part-Time
                By Investing in Pre-Foreclosure Properties

   By purchasing PreForeclosureProfitFunnel , you have taken your first step on the road to
financial freedom. After you’ve gone through this book thoroughly, you will know all you need
to know to make money investing in pre-foreclosure properties. All you will have to do then is
implement the procedures as described within.

This book contains step-by-step instructions concerning every aspect of investing in these
properties. We provide checklists, worksheets, and sample letters and agreements.

By following the advice in this book, you will be able to purchase properties directly from
owners who are facing foreclosure, and then turn around and sell the properties at a profit.

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About This Book
This book is divided into three parts.

First, I give you an overview on how to invest in pre-foreclosure properties, so that you get an
idea of the process.

Secondly, I give you the information you need to set up your business. Sure, you’re anxious to
get started on your new career, but if you do not have the basic business foundation in place,
everything else you try to do will simply crumble about you.

Finally, I explain my 10-part plan to buying pre-foreclosure properties and selling them at a

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The 10-part program to invest profitably in pre-foreclosure property
                          Covered in detail in the last half of this book.

Part 1:    Locate home owners whose homes are in pre-foreclosure. (Remember, that means
           that they have been informed that their homes are about to be sold, but the home
           has not yet been so)

Part 2:    Approach the property owners about selling

Part 3:    Research the property

Part 4:    Conduct both a physical and financial inspection of the property

Part 5:    Determine the current market value of the property

Part 6:    Negotiate with the home owners

Part 7:    Negotiate with foreclosing lenders

Part 8:    Complete purchase agreements

Part 9:    Rehabilitate the property for top resale value

Part 10:   Sell the property for as much as possible

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The Overview

Pre-Foreclosure: The Definition
 When a lender files a foreclosure lawsuit, or a notice of default in the official public records
(the legal steps needed to begin foreclosure) there is a period of time before the property is
sold at a public auction or trustee’s sale. This period of time is called “pre-foreclosure.”

Later on in this book, the entire foreclosure process will be outlined. It is important to know the
process well.

The Pre-Foreclosure Stage Is The Best Time To Buy Investment Property
In order to consistently make money in real estate, it is necessary to find “motivated sellers” --
individuals who need to sell their property as soon as possible, and are therefore willing to
accept prices that they normally would not.

These motivated sellers are property owners with mortgage or deed-of-trust loans upon which
they have defaulted, or on which they know they are about to default.

Although the government has enacted a variety of programs to help homeowners in trouble,
there is no doubt that you – and entrepreneurs like you, will be able to help motivated sellers
get out from under their mortgage burden.

The next section covers why you should not bid on properties at public foreclosure auctions,
trustee sales, and why you should never buy lender-owned repossessed properties.

Your First Step To Become a Real-Estate Tycoon
When it comes to a year of part-time work, earning $90,000 is a pretty nice chunk of change.

Just because it’s part-time work does not mean it’s going to be easy, however. You’re still going
to have to work. You’re going to have to learn all of the information I provide in this book, and
you’re going to have to know how to apply it. You also have persevere – roadblocks may get in
your way – I’ll show you how to get around them.

Where does the $90,000 annual income figure come from? It is based on a study of local
foreclosure market conditions -- and how much time, money, and energy the average investor
has to dedicate to investing in pre-foreclosures.

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Even more so than having money to invest in properties, having the energy to do so is key.
Trying to do work when you are tired leads to mistakes and poor decisions – things you don’t
want to have happen in the real estate market!

Breaking Down Your Possible Earnings

How much money you can make investing in pre-foreclosures depends in a large part on the
housing market in your area.

In lower cost housing markets, you will have to conduct nine deals – each one earning you
$10,000 in order to earn $90,000 annually. That’s at least one deal a month for nine months.

In more expensive housing markets, it will take you only six $15,000 deals, one every two
months, to earn that magic number of $90,000.

In the very high-end markets, you could earn your $90,000 per year by simply doing one
$30,000 every three months. It’s also possible to earn $90,000 from a single property.

Remember, though, that this $90,000 is not a guaranteed sum. It all depends on how much
time, effort and energy you put into this part-time career. You may make only $60,000, or
$40,000, or even $20,000. But $20,000 a year profit from a part-time job? How many of us
wouldn’t take that?

               Now Is the Time to Invest in Pre-Foreclosure Properties
The United States is in a time of economic crisis. The economy is soft, and a variety of poor
lending policies (whether on the part of lenders or on the part of prospective home owners)
have caused overextended homeowners to default on their mortgage and deed-of trust-loans
in record numbers.

As a matter of fact, the number of home loans foreclosed on each year has steadily increased
over the past 20 years. According to the U.S. Census Bureau, the number of homes in
foreclosure in 1980 was 114,000. The number of homes in foreclosure in the year 2001—the
latest year in which information is available—was 555,000.

This is an increase of over 250 percent. And one would truly have to be living in a cave to not
know that the situation has gotten a lot worse in 2009.

For decades, Americans as a whole were out of control in their spending habits. A vast
percentage of them still live paycheck-to-paycheck, and buy everything they want with credit
cards…which have a tendency to mount up so the monthly bills soon exceeded the monthly

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income. Add a monthly mortgage to that, on a house that isn’t worth what it was when they
first bought it…and it’s a disaster in the making.

Americans must stop living on borrowed credit. That’s fine for the government (well, it isn’t,
but commenting on our government’s financial policies is beyond the scope of this book!) Now
more than ever, it is time for Joe and Jane Q. Public to start living within their means. But it’s
going to be several years before that happens – and indeed will probably require behavioral
change via legislation. In the meantime, they are becoming motivated sellers, and you can help
them, and yourself, at the same time.

              The Six Factors Leading to the National Foreclosure Crisis
Financial experts list ix main factors that have contributed to the skyrocketing number of
nationwide foreclosures:

1. Overextended first-time homebuyers: State and federal government agencies worked
aggressively to make lenders ease up on their credit qualifications, which helped a record
number of first-time homebuyers acquire homes. Or rather…mortgages. However, most of
these first-time homeowners did not have the cash reserves that are necessary when owning a
home. When an unexpected bill came along – whether it was a home repair bill, a car repair
bill, or medical expenses, their money went to pay that rather than their mortgage. Once one
payment is missed, it is usually impossible to catch up. Such homes typically end up in

2. Local economic downturns: Just as businesses go through cycles of growth and contraction,
so do towns, cities and states. Local economies are experiencing an economic downturn due to
foreign competition, not to mention the practice of outsourcing jobs to countries like Mexico
and India. Thousands of people lose their jobs due to such practices, and thus through no fault
of their own, are unable to pay their mortgages on time.

3. Predatory lending practices: There are two types of people, in the financial world. People
with good credit, and people with bad credit. People with good credit are generally rewarded
by having low interest rates. People with bad credit, because they have proved themselves to
be untrustworthy when it comes to handling money, are typically rewarded by having to pay
higher interest rates. (It’s a Catch-22. Because they have bad credit, they are forced to pay
higher interest, but because they have to pay higher interest, they find it harder to make their

The term “predatory lender” has been coined to describe lenders who “prey” on borrowers
who are unable to get conventional loans, by offering them what are called “subprime loans.”
These loans typically have onerous repayment terms -- very high late payment fees and very

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high interest rates. People who receive subprime loans are typically the first to go under during
times of economic crisis. .

4. Lax practices by government-backed loan programs: Loans guaranteed by such
government-backed programs as the Federal Housing Administration (FHA) and the
Department of Veterans Affairs (DVA) had less stringent qualification standards than
conventional loans (even when conventional loan standards were lowered due to government
intervention). These underwriting standards resulted in lenders making loans to borrowers
who had poor credit, poor histories, and debt-to-income ratios that made it probably that they
would not be able to repay their loans . And indeed, this proved to be the case.

5. Loans with high loan-to-value ratios: Up until very recently, individuals who wanted to
purchase a house had to make a substantial down payment. As a result, they had a vested
interest in keeping their payments current. Within the last few years, a new policy was
instituted by lenders (at the behest of the government) to help those who couldn’t afford such
a down payment – by allowing them to pay very little or even nothing at all. Having no money
of their own actually invested in the home, they found it very easy to simply walk away as soon
as they started having problems making their monthly payments.

6. Artificially low interest rates: Recent interest rates on loans were the lowest in forty years.
This allowed borrowers to buy larger and more expensive homes than they normally would
have done. The problem with these large loans is that they are typically based on two incomes.
When one of the borrowers loses his or her source of income, the mortgage payment suddenly
becomes too difficult to make. If that second source of income cannot be replaced, and if the
borrowers cannot sell the home, foreclosure usually ensues.

Buying Homes from Owners who are in Foreclosure is Not Unethical
People who are having financial difficulties and who are in pre-foreclosure need to sell their
homes, recoup their losses, and start again. Losing one home to foreclosure does not mean that
they will be unable to get back on their feet and acquire a new home.

Pre-foreclosure property investors actually help these individuals get as much money as
possible for their home, which will allow them to get back on their feet all the quicker.

 Most pre-foreclosure property investors are honest, ethical business people, who provide a
valuable service to people who need help .

That’s what I want you to be. By reading my book, you will learn the ethical way to go about
investing in pre-foreclosure properties. Unfortunately, as with any business, there are dishonest
and predatory people about – who give the entire profession a bad name. In some cases you

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will have to battle distrust on the part of your potential clients. Be aware of that, conduct
yourself in an ethical manner, and you will succeed in your business.

Knowledge, Persistence and Business Savvy: the Three Keys to Profitable Pre-
Foreclosure Investing
It is not necessary to have a business degree in order to make a living investing in property.
However, just because you don’t pay money to an educational institution does not mean that
you do not need to be well-educated in your chosen field. You just need to educate yourself –
and this book will give you that education.

Your chosen business is a lot of hard work. You need to find a property, research its history,
inspect it to make sure it’s structurally sound, negotiate with its present owners (who will
typically be stressed out at finding themselves in pre-foreclosure) buying it, and then finally
reselling the property to another individual.

As well as knowledge, persistence is imperative. As with any business, it may take a while for
you to find your footing. You may approach several people about selling their property before
you finally achieve your first sale. The first sale is always the hardest, after that it typically
becomes easier.

And then there’s business savvy. If you’re going to make $90,000 a year, you need to be
extremely organized and business-like. If you’re disorganized and careless with forms and
paperwork, you can cost yourself money – in some cases more than you will earn by selling a
property. And don’t forget the records you need to keep for the taxman.

            Begin Your Career as a Pre-Foreclosure Property Investment
In order to make money by purchasing pre-foreclosure homes, and then finding buyers for
them, you must be willing to take calculated risks. I’m not going to lie to you – investing in
these types of properties can be risky. It’s one thing to buy the property at a serious discount,
it’s quite another to find a buyer who can take it off your hands for the amount you wish to sell
it for!

Do You Have the Necessary People Skills?

The Needed Skill Set
In order to be successful at you investing, you are going to need many skills – not the least of
which are people skills. You will have to negotiate with home-owners who will very likely be
distraught, you will have to negotiate with lenders who will want to get as much money as

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possible for their property, and you will have to negotiate with a buyer who will pay you what
you want for that property.

Don’t Rely On Others – Acquire Your Own Specialized Knowledge
There are many self-proclaimed experts in every profession. Listening to them may sometimes
help you, but more often than not can harm you. Just as a friend’s “hot stock tip” seldom pans
out, so it is that an acquaintance’s “hot property tip” may not pan out. You need to do your
own research, and make your own decisions from your own knowledge.

Talk to real estate, title and escrow agents by all means – soak up what they tell you and
tabulate it -- make sure what they tell you is correct!

Cutting Out The Middle Man
When you buy properties directly from individuals whose mortgages or deed-of trust-loans are
in default and facing foreclosure, you bear the responsibility for all the communication. It is you
– not a real-estate agent – who negotiates with the original owner, with the lenders, and with
the buyers – who are buying through you rather than through a real estate agent.

Because these buyers are dealing with your personally rather than with a real-estate agent,
they may or may not be familiar with the process, or able to gain the financing they need to buy
the home.

When purchasing a pre-foreclosure property, time is of the essence. You need to conduct your
research into your potential home purchase (and research into who might be available to
purchase it) and ensure that there are no structural problems with the home, and purchase it
before it goes up for auction. Sometimes this purchase can be within a day or two of the actual

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          Setting Up Your Pre-foreclosure Property Investment Business
In a sense, setting up a pre-foreclosure property investment business is like setting up any other
kind of business. You need to set up the foundations of the business before you start going out
and buy property.

Without a proper foundation, your business will crumble into dust..if not while you are trying to
conduct business, then at year end, when all of a sudden you have to start doing your income
taxes and find that you don’t have all the information you need to satisfy Uncle Sam.

You don’t have the time to waste correcting your mistakes months after the fact. By setting up
a strong foundation from the beginning, you will minimize problems in the future.

However, the business of real-estate does have its own particular rules and regulations that you
must follow. However, by following the advice given below, you will always have the
information at your fingertips that you need in order to satisfy those rules and regulations, not
to mention the tax man.

Don’t Even Think of Not Having A Computer

Today, anyone with a personal computer and an Internet connection can gain access to the
same information that the wealthiest companies use to make business decisions – provided you
know where to look! There is no need to go crazy and buy all the latest toys. What you need is
the following:

1.     A personal computer, either a Macintosh or a PC, with an operating system free from
       bugs, word processing and data processing software. If you’ve purchased a computer in
       the last three or four years there’s no need to go out and buy a new one. (Although,
       computer prices have fallen so much that you can buy much more powerful computer
       today for half the price that you could just a few years ago.)

2.     Quality printer. Ink jet printers turn out as good a product as laser printers, in my
       opinion, but check for yourself at a store before you purchase.

3.     Reliable high-speed Internet connection.

4.     Reliable cell phone.

Set Up a Home Office That Qualifies as a Tax Deduction

For your home office to qualify as a business deduction for federal tax purposes, it must be
used regularly and exclusively for business purposes.

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The IRS is very strict about this. For example, if you have a full-time job outside your real-estate
business, and do work on that job in your real-estate office, your deduction as a home office
would be disallowed – should you ever be audited by the IRS. (And if you start making a lot of
money, you probably will be.)

Make absolutely sure that your home office will be approved by an IRS auditor by assuming
that an audit is just around the corner, and preparing accordingly.

For more information on how to deduct your home office as a business expense, read IRS
Publication 587, Business Use of Your Home, which is available online at: /irs-pdf/p587.pdf.

Maintain a Separate Checking Account for Your Real Estate Investment Business

You must maintain a separate checking account for your real estate investment business. Not
only is this something the IRS will expect, but it is also something that will help you keep track
of your business, when it comes to record keeping and so on.

Pay All Expenses with Business Checks or Business Credit Cards

Let me repeat. Keeping detailed records of your business transactions is crucial.


By paying all of your pre-foreclosure investment business expenses with checks written on your
business checking account, or with a credit card issued in the name of that business, you will
find the records pretty much keep themselves. (If you forget your business check book, never
pay a bill with your private checking account. That’s bound to cause trouble. Simply go get your
business check book, and don’t forget it again!)

Using a separate checking account for your business allows you to track expenses easily, and to
know at a glance, each day, where you are in financial terms.

Credit card companies that are issued to businesses provide more services than those that are
issued to individuals. (Though you do pay for those services, in higher fees.)

With a business credit card, your quarterly expense statements are sent to you in extremely
detailed fashion, allowing you to track everything you’ve done on that card for the past quarter.
This information is invaluable come tax time.

Maintain Automobile Mileage Records

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Document your business-related travel by maintaining automobile mileage records. If you claim
deductions for any car use for business (and why wouldn’t you take advantage of this?) the IRS
will want to see proof, in the form of mileage logs and receipts, that you traveled when and
where you said you did, for the purpose of business.

Maintain Expense Records

I’ve always found that it’s a lot easier to keep track of things when you’ve got paper records
than electronic ones. However, we live in a paperless society and one must get used to it.
Typically, your bank statements and cancelled checks are all electronic now, as is your credit
card statements. (You can still get paper copies from some banks, but typically you’re charged
for this service.)

Paid invoices and accounting records may or may not be of the paperless variety, depending on
whether or not you invest in book-keeping or accounting software such as Quicken or
Peachtree. If they are paper, make sure you keep them in properly labeled file folders.
(Similarly, if they are electronic, make sure you label them properly on your computer.

Maintain Financial Records With Accounting Software

Bookkeeping and accounting software simply makes things easier for you in the long run. The
computer does all the calculations, you simply punch in numbers, hit the enter key, and see
your entire financial condition spread out before you.

Set up a separate account for each property that you own, by street address. (Don’t overextend
yourself, however. Start out with one property, and sell it as per your expectations. After you
gain a bit more experience is the time to expand to buying two or more properties at a time.)

Two of the most popular off-the-shelf small business accounting software programs are:

   1.      QuickBooks Financial Software
   2.      Peachtree Software

From my own experience, QuickBooks seems to be the easiest software to use. Peachtree is a
program for big business. Although it’s easy to use, you might need to hire a professional
software designer to create a personalized database for your particular kind of business. After
that is done, it’s a simple matter to use it.

Depreciate Equipment Used in Your Real Estate Investment Business

For your business to earn as much money as possible, “maximum profit” as it’s called, it is
essential that you take advance of all the tax laws that you can. One of these is depreciation, in

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which you are able to deduct a certain amount of money each year – for a limited number of
years – on:

   1.      Office equipment such as computers, printers, and facsimile machines.
   2.      Software programs for accounting and word processing.
   3.      Cellular telephones and telephone answering machines.

In the first year that you own such equipment, you can deduct a certain amount. The next year,
the deduction will be smaller, and smaller again in each subsequent year, until finally the piece
of equipment is considered to be fully depreciated, and you can no longer make any deduction
at all.

Three-Ring Binders on a Shelf, or File Folders in a Filing Cabinet?

Organization and easy access to needed information is key, when you are working in the pre-
foreclosure investment business.

When you begin work on a property, you will accumulate information of every description,
which you need to keep organized somewhere. Some people keep this info in a three-ring
binder kept on a shelf, for easy access. Others keep it all in a series of folders in a filing cabinet.

Use whichever method works best for you. Once you have graduated to purchasing and selling
several properties at one time, the three-ring binder approach might be the best one.

Original Records and Documents Need to be Kept Safe

Fire can strike out of nowhere, it seems, as can flood – whether it’s a recalcitrant river or a
burst pipe in your basement. You must protect all of your documents. For this reason, all
original documents should be photocopied, or even scanned onto a CD rom. The originals
should then be stored in a safety deposit box. If you like to keep the originals on site, invest in a
waterproof and fireproof save to keep them secure.

Online Resources
Record Keeping Information

The Commerce Clearinghouse Small Business Owners Toolkit provides a wealth of record
keeping information. It is available for free here:

Internal Revenue Service Publications (Available Online)

IRS forms and publications are available online in PDF format at the following Web page:

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Internal Revenue Service Publications That Pertain to Running a Business

   1.      Publication 334, Tax Guide For Small Business.
   2.      Publication 535, Business Expenses.
   3.      Publication 583, Starting a Business and Keeping Records.
   4.      Publication 587, Business Use of Your Home.
   5.      Publication 1779, Independent Contractor or Employee.

Use the U.S. Master Tax Guide as Your Tax Reference Guide

Use the U.S. Master Tax Guide as your tax reference guide. It's published annually by the
Commerce Clearinghouse and available here:

Hire a Professional Account to Prepare Your Tax Returns

Just as a lawyer who represents himself has a fool for a client, so businesspeople who try to do
their own tax returns are simply asking for trouble.

Why? Well, even if you are a certified public accountant, board-certified tax attorney, or an
enrolled agent, will you even have the time to do your own taxes, considering that you are
running your own part-time business and perhaps working a full-time job as well.

The solution is simple - hire a reputable tax professional to do all that work for you. Make sure
this individual is licensed to represent you before all administrative levels of the IRS, just in case
an audit ensues.

There are inexpensive off-the-shelf tax preparation software programs available. They work for
the individual and for small businesses. But for a real-estate related business? No – you need a
professional human being to do the work.

When seeking out a tax professional for the first time, do some research – in particular with the
Better Business Bureau, to ensure that the company, and your particular representative, is
reputable. Talk to other clients. Once you’ve settled on them, keep working with them, so that
they will become familiar with your company over the years.

Protect Yourself: Form a Separate Business Entity for Your Investment Business

Who are my readers? Individuals looking around for business opportunities, who simply want
to see what’s out there? That’s most of you. Only a handful of people who read this book will
actually go out and become a pre-foreclosure property investor.

But you know that. You’re not going to create a separate business entity for your Pre-
foreclosure business until you’ve decided that it’s actually something you want to do. Before

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you go to the expense of forming a Subchapter S corporation or limited liability corporation, go
out and actually try to acquire a house. You may become discouraged at the amount of effort
you have to put into it.

Once a homeowner decides to sell to you – then is the time to form your corporation.

Forming a separate business entity is crucial. If your business does not prove to be successful,
you may lose everything you’ve invested. If you are protected by being a corporation, your own
personal liability is limited – you will not lose your home!

In most cases, any liability incurred by the business entity is limited to the assets of your
business entity. (However, those who engage knowingly in fraudulent business practices cannot
use the business entity as a shield. Criminals abrogate the right of that protection.)

In order to learn what is necessary to incorporate in your state, you can do one of two things.
You can do an internet search on “Secretary of state --- (your state)”, which will bring you to the
website of the Secretary of State, which may or may not be set up in such a way that you can
easily find the information you need. Typically, it isn’t set up in such a way!

Instead, do an internet search on “How to incorporate in – (your state)”. Nine times out of ten,
the exact webpage you need from the Secretary of State website will come up at the top of the
search results page, and you can go directly to it.

Don’t Let Fear of Failure Stop You

You’re reading this book because you want to find a field to enter where you can make as much
money as possible with as little risk as possible. Perhaps you think pre-foreclosure investing
sounds interesting, but you are afraid to take the plunge.

There’s no need to be afraid of failure, if you do your research properly, and prepare the
ground properly – by consulting anyone else who might be effected should your business
actually fail, as for example your spouse, or family members and friends whom you wish to
invest in the business with you.

In addition, remember that by incorporating, and running an ethical business, you will save
yourself from some consequences should your business fail. And you will learn from your
mistakes and make a success of your next business attempt.

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                                          Chapter Two

Foreclosure Laws
Before you even think about purchasing your first pre-foreclosure property, you must
familiarize yourself with the foreclosure laws in your particular city and state (for they do vary).
Here’s what you need to know:

     1.      What are the laws of foreclosure in your state?
     2.      What are the procedures for the judicial and non-judicial foreclosure processes in
             your state.
     3.      What is the time period required by law between the time a home-owner has been
             notified that their home is in foreclosure, and the time when the property can be
             auctioned off.
     4.      Does your state foreclosure statute give homeowner the right to rescind or cancel a
             purchase agreement?

Foreclosure: The Definition
Foreclosure is a legal process in which property (a home) which was pledged as security for a
debt ( a mortgage, or a deed-of trust –loan), is reclaimed by the lender, because the borrower
defaults on the loan by failing to meet the agreed upon repayment terms.

Where to Find Your State's Foreclosure Statute
The foreclosure statues for every state are available online, from a variety of sources. (Many
loss mitigation firms, some of them not at all reputable, have a list of the state statutes on their
websites) . They can be found at each state’s official website – although typically buried
somewhere in the site – they are not always easy to find.

 The easiest way to find your state's foreclosure statute is to do a web search from your favorite
search engine. Type in the name of the state followed by "foreclosure statute". Or, try web

The Two Types of Foreclosures
There are two types of foreclosure actions used to repossess real estate mortgage and deed-of-
trust loans:

1.        Judicial foreclosure

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2.        Non-judicial foreclosure

Judicial Foreclosure – How The Process Works

Judicial foreclosure is a process in which the lender concerned files a lawsuit to foreclose. The
defaulting borrower is named as the defendant in the lawsuit.

The defaulting borrower and any other interested parties are then notified by the court of the
pending lawsuit.

In addition, a notice of lis pendens—suit pending—is filed with the county or public recorder or
prothonotary's office (the prothonotary is an office in only a few states, for example
Pennsylvania and Delaware) . This notifies the general public that a lawsuit is pending against
the property owner.

Once notified, the borrower and any other defendants named in the lawsuit typically have 20
days to formally reply to the suit. If the homeowner makes no reply, or if the judge rules against
the defendant's reply, the judge then orders the mortgage or deed-of-trust loan to be
foreclosed on. The property will then be sold at a public foreclosure auction to satisfy the claim
of the foreclosing lender.

Here is an outline of the whole process:

     1.      The lender files a lawsuit to foreclose on a mortgage or deed-of-trust loan which is in
             default, with the appropriate court.
     2.      The borrower responds (or makes the error of not responding) to the foreclosure
             lawsuit complaint, and a court hearing date is set.
     3.      The foreclosure lawsuit is heard in court, The judge has the option to either dismiss
             the case or order the loan to be foreclosed on.
     4.      If the judge rules against the defendant (borrower) , and orders the loan to be
             foreclosed, and a date for a public foreclosure auction sale will be scheduled for the
     5.      The public foreclosure auction sale is advertised in the newspapers.
     6.      At the public foreclosure auction, the property is either sold to the highest bidder or
             taken back by the lender if no one bids enough for the property.
     7.      After the sale, the judge may award the lender a deficiency judgment against the
             borrower, if the bid the lender accepted was for less than the loan balance owed by
             the home owner.
     8.      The borrower may exercise any statutory redemption rights after the sale.
     9.      A sheriff's deed or certificate of title is given to the highest bidder after any statutory
             redemption period expires.

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What is a statutory redemption period? In those states which offer it, a borrower has up to one
year (depending on the state) to pay money equal to the high bid. If this is done, he or she will
be allowed to keep the property and own it fully. In addition, the former home owner can also
remain in the home until the period is expired. At the time of this writing, ten states have
statutory redemption periods:

Alabama        -       12 months

Colorado       -       75 days

Kansas         -       6 to 12 months

Michigan       -       6 months

Minnesota      -       6 months

North Dakota -         12 months

New Mexico -           9 months

South Dakota -         12 months

Vermont        -       approximately 5 months

Wyoming        -       3 months. 12 months if the property lies outside the boundaries of an
                       incorporated city

Non-Judicial Foreclosure: How The Process Works

Non-judicial foreclosure requires that the foreclosing mortgage lender, or deed-of-trust
beneficiary, invoke the “power of sale covenant” in the mortgage or deed-of-trust. This gives
the lender or the trustee the right to foreclose the defaulted loan, by filing a notice of default
with the county, public recorder's or prothonotary's office.

Here is an outline of the whole process:

   1.       The trustee files a notice of default with the county, public recorder's, or
            prothonotary's office.
   2.       The public trustee's sale date is set.
   3.       The public trustee's sale is advertised, typically in newspapers.
   4.       The property is sold to the highest bidder at the auction. If no acceptable bid is
            made, the lender receives the property back.
   5.       In those states which allow it, the borrower may exercise the statutory redemption
            rights after the sale.

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   6.      A trustee's deed is given to the highest bidder after any statutory redemption rights
           have expired.

More Statutes You Need To Know About
The Home Equity Sales Contract Statute

This statute effects anyone trying to invest in pre-foreclosure property, although currently only
California has this statute.

Buyers who make an offer on owner-occupied one- to four-unit residential properties, must
include what is called a “right of rescission” or “notice of cancellation clause” in the purchase
agreements. This clause gives homeowners a period of time, typically five business days after
the contract was signed, to change their minds and cancel the purchase agreement.

The Two Statutes That Regulate California Pre-Foreclosure Property Investors

The California State Legislature has enacted two statutes in an attempt to protect homeowners
in foreclosure from "fraud, deception, and unfair dealing" by home equity purchasers,
foreclosure consultants, and loss mitigation firms:

   1.      California home equity sales contracts are covered under Sections 1695-1695.17 of
           the California Civil Code.
   2.      California mortgage foreclosure consultants are covered under Sections 2945-
           2945.11 of the California Civil Code.

If you’re going to be investing in California pre-foreclosures – and it is certainly a lucrative
market there – you must familiarize yourself with those two statutes.

The Foreclosure Process: State by State

The Foreclosure Desk Guide, published by the United States Foreclosure Network (USFN) covers
everything anyone needs to know about foreclosure, from breach letters to foreclosure notices
to subordinate liens.

The USFN is a non-profit association of law firms and trustee companies, a “resource network
serving the mortgage banking industry.” They provide business-to-business loss mitigation and
foreclosure services. (This book is available from the USFN web site:

Security instruments, foreclosure actions, and foreclosure statute numbers for each state

State                 Security Instrument             Foreclosure Action Statute Number
Alabama                 Mortgage                     Non-judicial        §35-10-1

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Alaska                 Deed of trust       Non-judicial         §34.20.090
Arizona                Deed of trust       Non-judicial         §33.807
Arkansas               Mortgage            Judicial             §51-1106
California             Deed of trust       Non-judicial         §2924
Colorado               Deed of trust       Non-judicial         §38-37-113
Connecticut            Mortgage            Strict Foreclosure   §49-24
Delaware               Mortgage            Judicial             §2101
D.C.                   Deed of trust       Non-judicial         §45-701
Florida                Mortgage            Judicial             §702.01
Georgia                Security deed       Non-judicial         §44-14-162
Hawaii                 Mortgage            Non-judicial         §667-1
Idaho                  Deed of trust       Non-judicial         §6-101
Illinois               Mortgage            Judicial             §15-101
Indiana                Mortgage            Judicial             §32-8-11-3
Iowa                   Mortgage            Judicial             §654.1
Kansas                 Mortgage            Judicial             §60-2410
Kentucky               Mortgage            Judicial             §381.190
Louisiana              Mortgage            Executive process    §2631
Maine                  Mortgage            Judicial             §6321
Maryland               Deed of trust       Non-judicial         §7-101
Massachusetts          Mortgage            Judicial             §19.21
Michigan               Mortgage            Non-judicial         §451.401
Minnesota              Mortgage            Non-judicial         §500.01
Mississippi            Deed of trust       Non-judicial         §89-1-55
Missouri               Deed of trust       Non-judicial         §443.320
Montana                Deed of trust       Non-judicial         §71-1-228
Nebraska               Mortgage            Judicial             §25-2139
Nevada                 Deed of trust       Non-judicial         §107.020
New Hampshire          Mortgage            Non-judicial         §479.22
New Jersey             Mortgage            Judicial             §2A-50-2
New Mexico             Mortgage            Judicial             §48-7-7
New York                Mortgage             Judicial            §1301-91
North Carolina          Deed of trust        Judicial            §45
North Dakota            Mortgage             Judicial            §32-19-01
Ohio                    Mortgage             Judicial            §2323.07
Oklahoma                Mortgage             Judicial            §686
Oregon                  Deed of trust        Non-judicial        §86.010
Pennsylvania            Mortgage             Judicial            §1141

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Rhode Island            Mortgage                         Non-judicial            §34-11-22
South Carolina          Mortgage                         Judicial                §15-7-10
South Dakota            Mortgage                         Judicial                §21-47-1
Tennessee               Deed of trust                    Non-judicial            §35-501
Texas                   Deed of trust                    Non-judicial            §51.002
Utah                    Deed of trust                    Non-judicial            §57-1-14
Vermont                 Mortgage                         Judicial                §4528
Virginia                Deed of trust                    Non-judicial            §55-59.1
Washington              Deed of trust                    Non-judicial            §61.12.010
West Virginia           Deed of trust                    Non-judicial            §38-1-3
Wisconsin               Mortgage                         Judicial                §846.01
Wyoming                 Mortgage                         Judicial                §1-18-101

State-by-State Foreclosure Timeline

Once a loan has been officially foreclosed, how much time does it take before the foreclosure
auction or trustee’s sale to take place? It varies from state to state.

 State                                       State
                         Number of                                  Number of

 Alabama                 3                   Georgia                3
 Alaska                  4                   Hawaii                 7
 Arkansas                3                   Idaho                  9
 Arizona                 3                   Illinois               10
 California              4                   Indiana                9
 Colorado                5                   Iowa                   7
 Connecticut             6                   Kansas                 4
 Delaware                7                   Kentucky               7
 District of Columbia    4                   Louisiana              6
 Florida                 7                   Maine                  10

                                 Number of                                   Number of
          State                   Months                 State                Months

  Alabama                    3       5       Oklahoma
                                              Georgia                   3       7
  Alaska                     4       5       Oregon
                                              Hawaii                    7       5
 Michigan                    3       3        Idaho
                                             Pennsylvania               9       9
 Minnesota                   3       4        Illinois
                                             Puerto Rico                10     12
 Mississippi                 4       4        Indiana
                                             Rhode Island               9       3
 Missouri                    5       3        Iowa
                                             South Carolina             7       6
 Montana                     6       6        Kansas
                                             South Dakota               4       4
 Nebraska                    7       4        Kentucky
                                             Tennessee                  7       3
 Nevada of Columbia          4       4        Louisiana
                                             Texas                      6       2
 New Hampshire               7       3        Maine
                                             Utah                       10      5

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 New Jersey                    10        Vermont                       10
 New Mexico                     5        Virginia                       4
 New York                      10        Washington                     5
 North Carolina                 2        West Virginia                  4
 North Dakota                   4        Wisconsin                     10
 Ohio                           8        Wyoming                        3

Become Your Own Expert
In order to become a successful pre-foreclosure investor, it is imperative that you understand
the foreclosure process in your state backwards and forwards. I cannot emphasize this enough.

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The 10-part program to invest profitably in pre-foreclosure property
Smart people learn from their mistakes. Really smart people learn from other people’s
mistakes. In my career as a real-estate investor I’ve gained a great deal of experience. I’ve made
mistakes – everyone does – and I’ve learned from them. In this book, I’m going to give you the
information you need so that you won’t make the same types of mistakes I did.

Part 1:    Locate home owners whose homes are in pre-foreclosure. (Remember, that means
           that they have been informed that their homes are about to be sold, but the home
           has not yet been so)

Part 2:    Approach the property owners about selling

Part 3:    Research the Property

Part 4:    Conduct both a physical and financial inspection of the property

Part 5:    Determine the current market value of the property

Part 6:    Negotiate with the home owners

Part 7:    Negotiate with foreclosing lenders

Part 8:    Complete purchase agreements

Part 9:    Rehabilitate the property for top resale value

Part 10:   Sell the property for as much as possible

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                                             Part One

                    How to Find Property Owners Facing Foreclosure
Most lenders consider any mortgage or deed of trust loan with payments that are 30 to 89 days
past due to be delinquent. Once a loan becomes delinquent, it is placed on the lender's so-
called troubled loan list, and the delinquent borrower is sent a loan breach letter ( see sample
in resource section) by overnight courier or certified mail, demanding that the loan payments
be brought current within 30 days. In most cases, when a delinquent borrower fails to comply
with a lender's demand letter, the lender continues to send the borrower a series of letters
demanding payment until the lender declares the loan to be in a default status by sending the
borrower a notice of intent to foreclose on the delinquent loan.

Most lenders consider any loan that is 90 days or more past due to be in default. While those
loans that are ensured by government-backed entities have, in the past, given defaulting
individuals a great deal of leeway, this is not the case for lenders of conventional loans. These
lenders send out their foreclosure notices about 5 days after that 90-day window.

After a lender decides that a particular loan is in default, it proceeds to set a variety of things in

The lender’s attorney or trustee then files a foreclosure lawsuit and notice of lis pendens or a
notice of default, in the same county where the deed to the property being foreclosed on is

After a notice of lis pendens or a notice of default is filed and recorded in the public records, it
becomes public information.

Information Usually Contained in Foreclosure Notices

Foreclosure notices typically contain the following information:

   1.      Date the lawsuit or notice of default was filed and recorded in the public records.
   2.      Names and addresses of defendant--mortgagor or trustor—whose loan is in default.
   3.      Names and addresses of the plaintiff—lender, trustee, or beneficiary—foreclosing
           on the loan.
   4.      Case or notice of default number.
   5.      Property's street address.
   6.      Property's legal description.
   7.      Property's land use or zoning code.
   8.      Property's tax assessed value.

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   9.      Original loan amount.
   10.     Date original loan was made.
   11.     Date last payment was made.
   12.     Amount of payments in arrears.
   13.     Loan balance at the time the foreclosure action was filed.
   14.     Scheduled date of the public foreclosure auction or trustee's sale.

Notice of Lis Pendens: How It Works

Lis pendens is Latin for "a pending lawsuit." It refers to the period of time between when a
lawsuit is filed and when the case is actually heard in court.

When it comes to judicial foreclosure actions, lenders file a lawsuit to foreclose on a mortgage
or deed-of -trust loan, and a notice of lis pendens. This notice is recorded in the public records
to alert the public that a lawsuit affecting a property's title has been filed in a state or federal
court of competent jurisdiction, so that any interested parties can bid on it at the appropriate

Notice of Default: How It Works

In non-judicial foreclosure actions, lenders file what is called a notice of default -- a legal notice
that is recorded in the public record to alert the public that a mortgage or deed-of -trust loan is
in default and scheduled to be foreclosed on.

Nationwide County. Recorder Office Information - Available Online

The National Recorders Directory web site lists all county recorder offices nationwide:

Foreclosure Notices Are Required to Be Published in a Newspaper of Record

State foreclosure statutes require lenders to publish legal foreclosure notices in a newspaper
that is circulated within the same county where the foreclosure notice is recorded.

In most counties, these newspapers must be ones approved by the courts. A newspaper of
record is one that has countywide circulation and is read by the majority of residents within the
county. (This is done because in the past, such notices were placed in small, out of the way
papers so that no one knew about them. At the subsequent auction, interested persons could
purchase the property with little or no completion.)

Call the office of your local county clerk of the court to obtain the names of the newspapers of
record for your county.

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Court and Commercial Newspapers: Where To Find Them

Links to court and commercial newspapers nationwide:

Online Foreclosure Reporting Services

Most foreclosure reporting services have an online presence now, and easy access to
foreclosure notices is available.

Subscribe to an online foreclosure reporting service if at all possible. Subscription rates vary --
depending on the number of foreclosure filings listed and the frequency of publication. When
selecting such a service, make note of how frequently— daily, twice a week, weekly, biweekly,
or monthly—the report will provide listings.

This is important because you need your information to be as current as possible.

Web sites that provide foreclosure notice information online for various locations nationwide:

   •   Atlanta Foreclosure Report:  
   •   Record Information Services:           www.public-record.corn/market/foreclose.htm
   •   Chicago Foreclosure Report:  
   •   Foreclosure Access:                    www.foreclosureaccess.corn
   •   The Daily Record:            
   •   Houston Foreclosure Listing Service:
   •   PropertyTrac:                
   •   Foreclosure Data NW:         
   •   Foreclosure Reporting Service:
   •   Jacksonville Daily Record:   
   •   Daily Business Review:       
   •   Information Resource Service:
   •   New York Foreclosures:       
   •   REDLOC:                       
   •   ForeclosureTrac:             
   •   Bates Foreclosure Report:    
   •   Foreclosure Report:          
   •   Real Data Corp:              
   •   Midwest Foreclosures:        

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     •    Foreclosure Listing Service:
     •    Foreclosure Disclosure Weekly:
     •    RETRAN:                   
     •    County Records Research:            www.countyrecordsresearch.corn

Use Classified Ads to Find Property Owners with Delinquent Loans

Until property owner are actually declared in default of their loans, there is no way to find them
by searching the public records. What you must do instead is have them come to you. Place
classified ads, in daily and weekly newspapers that directly target property owners who are one
loan payment away from default:

                                  Trouble Paying Your Mortgage?

                                Call (XXX) XXX-XXXX Today for Help!


            Can't Afford Your Mortgage Payments? Call (XXX) XXX-XXXX Today for Help!

Most people who respond to these ads are those who want someone to lend them money, so
that they can get caught up on their mortgage payments. Do not loan them any money – your
purpose is to find those individuals who are so far behind on their payments that they simply
want out of the house entirely, and will gladly let you purchase it from them.

To prevent any misunderstandings, try rewording the ad:

             Tired of being behind on house payments? Sell it to me. Call (XXX) XXX-XXX


                About to be foreclosed on? Let me buy your house. (XXX) XXX-XXXX

You may get less calls this way, but at least the callers will know what you’re really offering. On
the other hand, you don’t want to limit your calls, as even those who initially want you to lend
them money may decide that they’ll let you buy their house.

Questions to Ask Those Who Respond

     1.      When did you make your last loan payment?
     2.      How much do you owe your lender in back loan payments, accrued interest, late
             payment charges, and legal costs?
     3.      Have any of your creditors filed a judgment lien against you?
     4.      Have you filed a bankruptcy petition?
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   5.      Has your lender started foreclosing on your loan?
   6.      How much equity do you have in the property?
   7.      Are you willing to sell your property before your lender forecloses on your loan and
           you are evicted?
   8.      When can we get together to further discuss your situation?

How to Locate the Owners of Abandoned Properties

There are plenty of properties out there that have not been abandoned. However, sometimes
you come across a property that has been abandoned, but which fits your criteria for purchase.
How then to find the owner?

   •    First, simply do an internet search on the individual, using the white pages feature to
        start with , and then branching out and just doing a general search on the web. If that
        doesn’t work, and you have the time or the interest, go to the local public records office
        and check the: County voter registration records.
   •    City and county public library patron records.
   •    City and county business license records.
   •    City and county jail inmate records.
   •    State fishing and hunting license records.
   •    State professional license records.
   •    State department of motor vehicles.
   •    State bar association membership records.
   •    State vital statistics records.
   •    State prison inmate records.
   •    Federal prison inmate records.
   •    Social Security Administration's Death Index.

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                 Part 2:       Approach the property owners about selling
Contacting Property Owners in Foreclosure: How To Do It

 Imagine for a moment that, through no fault of your own (as for example, your job was
outsourced and you were unable to find another job that paid even half as well) you are about
to lose your house, that you’ve lived in for ten years, to foreclosure. Along comes a total
stranger saying, “Hey, I’ll buy your house from you. But all I’m going to pay is a percentage of
the equity you have in the house, perhaps twenty percent.” How would you react?

People whose homes are in foreclosure, or are about to go into foreclosure, are under an awful
lot of stress. Obviously they’d rather keep their home than sell it to you, or anyone else for that
matter…at least under the circumstances that are necessary to enable you to make a profit on
the deal!

It’s important, therefore, that you do no cold-calling, and certainly don’t pop up unexpectedly
on their doorstep – especially when they’ll be wondering how you even got their name. You
don’t want to see a prospective client until you’ve reached the point where they are actually
prepared to seriously discuss selling you their home.

The solution is to introduce yourself using the U. S. mail.

Put together a direct mail package which you will use to send letters to prospective clients.
Don’t settle for just one letter… you may have to send follow-up letters at regular intervals,
perhaps every other week, to homeowners before they finally decide to contact you and see if
you can help them.

Persistence is the key. You may see your postage costs mount up incrementally on a monthly
basis, but it’s a necessary expense.

Don’t get discouraged. As with any other direct mail campaign, the percentage of response is
quite low. If you send letters out to 200 property owners, chances are you will only get a
response from five of them… if that.

However, if you end up buying (and selling) a home from one of these individuals, and make
your profit, you’ll soon forget the poor response percentage!

Most homeowners are besieged by advertising circulars, requests for money from charities, and
so on. Most unsolicited mail goes in the trash. You must make your recipients open your
envelope…and then read the contents and want to contact you on the strength of it.

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Use Direct Mail to Contact Property Owners in Foreclosure

   1. Once you are organized, direct mail is very easy to use. Any sophisticated word
      processing software can merge names and addresses with letters. Most can also print
      out letters (although I suggest different methods later on.)
   2. The process is relatively inexpensive – although the Post Office’s constant rate increases
      do us no favors – and it can be time consuming to fold, stuff, stamp and mail letters.
   3. The process is fast. It’s possible to get responses from interested owners within a few
   4. The process is the most effective way to contact distressed home-owners. .

Professionally-written letters are imperative

If you’re trying to purchase the home of someone in pre-foreclosure, it is imperative that they
trust you and believe that you can do what you promise. They are hardly likely to put their trust
in you if your letter is poorly written – with grammatical errors and confusing statements.

Postal Zip Codes: Use Them to Target Profitable Properties

Get a listing of all the zip codes in your county by logging onto:

From there, choose only the zip codes of homes you know to be in stable, middle-class

There’s no point in purchasing a home in pre-foreclosure if you are not going to be able to
make a profit when you re-sell it. Homes in poor neighborhoods are typically not worth buying.

Absent Homeowners: Where to Find their New Addresses

You can’t send a letter to a distressed property owners or lien holders if you don’t know where
they live. On many occasions, the property owner may have abandoned it, or be In the process
of abandoning it .

Look for their new addresses online at:

   •   Internet Address Finder:   
   •   lookupusa:                 
   •   Switchboard:                         www.switchboard.corn
   •   Skipease:                  
   •   Social Security Administration Death Index:
           o /rectype/vital/ssdi/main.htm

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     •   Street Address Information:
     •   Reverse Telephone Directory:         www.reversephonedirectory.corn

Letters That Get the Best Response

1.       Keep in mind that property owners in fear of foreclosure are going to be distraught. If
         you want them to respond to your letter you need to make it clear to them from the
         very beginning what you will offer:Relief from overwhelming debt.
2.       Cash for their equity – albeit at a discount
3.       Foreclosure relief – they will be able to save their credit score.
4.       Help in finding another place to live.

Help in finding another place to leave could be the tipping point, as many people in foreclosure
have no idea where they will go!

Formatting the Letters

You’re sending out mass mailings…but you don’t want them to look like they are massed
mailings. You want each recipient to believe that you are concerned with their home only.

Although you will be printing your letters on a printer, of course, you need to have the form
letter set up so that the individual’s name goes into the salutation. You also want to sign each
letter by hand. If you have the time and the hand-strength, or can hire someone to do it for low
wages, have someone handwrite the To addresses on the envelopes as well. (Of course, the
From address should be your logo and business address._

Send Your Letters via First-Class, Stamped Mail

Another way to prevent your letter from being dumped into the circular file (aka the trash bin)
is to use first-class stamps, rather than metered mail from a post office. It takes longer to apply
the stamps, yes, but it’s the personal touch that will influence your possible client.

In addition, put the phrase "ADDRESS SERVICE REQUESTED" a little bit below your return
address. If the post office has to return your letter because the home is abandoned, typically
they will affix a label that gives the new address.

Some pre-foreclosure investors suggest that these letters should not have a business name on
them, just the return address, because this “arouses curiosity” and causes the recipient to open
the letter. My own experience is that if you do not have the name of your business on the
letter, it will be thrown away immediately.

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Current advertising theory advises to mail your letters on Thursday or Friday, so that they arrive
at their destination on a Saturday, when more people are inclined to open their mail.

Follow-Up Letters Keep You In The Picture

Even if you receive no response from your initial letter campaign, continue to send letters on a
regular basis…perhaps every two weeks, or at least once a month. Each subsequent letter must
be written in a different manner, to acknowledge that previous letters have been sent.

The reason for this is simple. For a while the distressed homeowner will desperately be trying to
save their home. After they have exhausted all avenues, they may well turn to you, to allow
them to at least salvage some money out of the necessary loss of their home.

When a property owner finally decides that he or she has to sell, the window of time to do so is
usually very small, so it’s necessary that you have the funds available to close the deal as
quickly as possible.

The Blunt Approach is the Best Approach

Make your letters to distressed home owners very clear, and very direct. Don’t hold back any
surprises (i.e., that you will only pay then 50 cents on the dollar for their equity) – that may
scotch the deal should they finally agree to talk to you.

Here’s what you have to make clear:

1.     You want to buy their house that very day.
2.     You will give them a cashier's check within five business days after they agree to sell the
3.     You will handle all of the details of the sale.
4.     You will help them find another place to live.

Direct Mail Campaign: The Organization

Organization and method. Those are the watchwords of Hercule Poirot and they are my
watchwords as well!

The easiest way to keep track of your direct mail campaign is to create separate files for each of
the letters that you are going to send.

Don’t name your files cryptically!

Update the files immediately when and if you get a response.

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In the meantime, don’t forget to start a letter campaign for yet another zip code, so that for
each month you are adding a zip code to your direct mail campaign. The more letters you send
out, the more chances that someone will contact you who is willing to sell their house.

Wordsmith skills: Do you have them?

If you are skilled in composing business letters, by all means write them yourself. However,
considering how important these letters are, perhaps you should consider hiring a professional
wordsmith to create the campaign for you.

No Cold-Calling!

I’ve already advises you not to make cold calls to property owners in foreclosure – either by
telephone or in person.

In the first place, cold-calling is very time consuming, and has less of a chance of succeeding
than direct mail. Homeowners typically hang up on strangers as telemarketers anyway, and of
course calling on an individual in person can be dangerous, depending on the mood of the

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                               Part 3:   Research the property

                                  Is A House Worth Buying?
Perform Due Diligence on Pre-Foreclosure Properties

 Just because information on a property appears in the public records, this is no guarantee that
it is up-to-date, or completely accurate. When you are conducting research on a property, you
need to do in-depth research on each property. This is called “due diligence.” If you don’t do
your research, and get bit in the butt unexpectedly, you will have only yourself to blame.

With today's technology, it is possible to perform due diligence research online. Indeed you’ll
be surprised to know how much personal information, on practically anyone in the country, is
available online if you know where to look.

Public records regarding property typically contain the following information:

   1.      Ownership.
   2.      Liens.
   3.      Sales history.
   4.      Tax-assessed value.
   5.      Neighborhood environmental hazards.
   6.      Neighborhood crime rate.
   7.      Neighborhood demographic and economic information. 8. Neighborhood real estate
           market conditions.

Use a Pre-Foreclosure Property Checklist

Below is a checklist that will help you learn everything you need to know about any property
before considering busying it:

   1.      Property records search: Check your county property appraiser or assessor's
           property records for relevant ownership information.
   2.      Property tax records search: Check your county tax collector's property tax records
           for relevant tax information.
   3.      Comparable sales search: Check your county's property appraiser or assessor's
           records for recent sales of comparable properties within the same area during the
           past six months.
   4.      Neighborhood crime search: Check the crime risk rating for the property's address
           with local law enforcement agencies.

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     5.      Flood zone map search: Check the property's address on local flood maps to
             determine if it is located in a flood zone.
     6.      Hazardous waste search: Check the address for environmental hazards with local,
             state, and federal environmental protection agencies.
     7.      Demographic and economic data search: Check demographic and economic data for
             the property's address.
     8.      Code violation search: Check the address for code violations with your local code
             enforcement department.

Find the Names of All Property Owners in Your County

The property tax roll, on file at your county property appraiser or assessor's office, lists every
parcel of land in a given county. Depending on where you live, each parcel is assigned a
separate tax identification number, either an assessor's parcel number (APN) or an appraiser's
folio number. This list also provides you with the names of the individuals who own or are
purchasing the homes (or have defaulted on them).

Search Property Records Online

The web sites below list the county property appraiser and assessor offices that have their
property records available online:

     •    Public Record Finder:      
     •    Public Records Sources:    
     •    Access Central:            
     •    Real Estate Public Records:
     •    Search Systems:            
     •    Tax Assessor Database:     —cap440/assess.html
     •    Public Records Online:     
     •    National Association of Counties:
     •    Public Records USA:        
     •    International Association of Assessing Officers:
     •    Public Records Research System:

Non-Disclosure States: Who They Are

The sale price of real estate transactions is not publicly disclosed in the following six non-
disclosure states:

1.        Indiana
2.        Kansas

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3.       Mississippi
4.       New Mexico
5.       Utah
6.       Wyoming

Non-Disclosure States: Private Companies Maintain Real Property Ownership Records

If you are trying to business in a non-disclosure state, you will be able to get the sales data from
a private company that maintains real property ownership records for the county in which
you’re interested, or from real estate licensees who have access to the local multiple listing
service records.

These web sites list companies that maintain real property ownership record databases:

     •   First American Real Estate Solutions:
     •   DataQuick:                  

County Property Records Not Available Online?

Some counties have not yet put their data online. The solution is to contact the appropriate
property appraiser or assessor's customer service department by telephone, to see if they
provide such information over the phone. Give the property appraiser or assessor's customer
service department a property's street address, and they should be able to give you the
following information (although it might cost you for their time):

     •   The parcel or folio number
     •   The owner's name and mailing address, and if it is different from the property's,
     •   When and for how much the property was last sold
     •   The property's current tax-assessed value.

Government Offices are There to Help You

Don’t be reluctant to call up the various public records offices and request them to answer
questions about a property. That’s what they are there for. If you visit them in person,
introduce yourself and ask for as much help as possible.

Parcels of Land: How They Are Identified for Tax Purposes

The vast majority of counties are divided up into map or plat books. Each of these books is
given a separate number, and each parcel of land is given a separate tax identification
number—an assessor's parcel number (APN), or an appraiser's folio number.

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The property appraiser or assessor assigns a folio number or assessor's parcel number to each
parcel of land in the county. These numbers are used to compile the yearly property tax
assessments, which are usually available online.

They are also used to list each parcel owner's name, address, and the assessed value of both
the parcel and any improvements. In some counties, lot and block numbers are used along with
the subdivision's name.

Grantor and Grantee Indexes: Why and How To Use Them

You are trying to determine the name of the current owner of a certain piece of property, that
is in default. All you know is the name of the last person who sold the property, and the year in
which it was sold.

Well, when a deed is recorded in the public records, it is indexed in both a grantor (seller) index
and a grantee (buyer) index. These indexes are maintained in both alphabetical and
chronological order.

They are generally alphabetized according to last and first names. To find the name of the
current owner, all you need to do is go to the grantor's index book and go to the year the title
was transferred to locate the buyer’s name.

The seller’s index lists, in alphabetical order, all grantors named in documents recorded during
a certain calendar year. Beside each grantor's name is the name of the grantee as named in the
document, along with the official record book and page number where a photocopy of the
recorded document can be located in the public records.

The grantee index is arranged by grantee names and gives the name of the grantee and the
official record book and page numbers where a photocopy of the recorded document can be

Some County Records May Only Be Available As Microfiche Files

Before the internet, county or public recorder's offices used a microfiche or microfilm index
system to record and maintain property title documents. Some counties have not made the
transition to online files, so you’ll have to visit the office and use their microfiche reader.

Homeowners in default still have a chance to save their homes

Even though a home-owner has received a notice of foreclosure, they still have a period of time
to bring the loan current. Unfortunately for them, in order to bring the loan current they not
only have to pay the missed payments they missed, but also the accrued interest, late payment

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charges, legal costs, and any additional costs incurred by the lender while the loan was in
default. Usually, they have right to reinstate their loans up to five days prior to the foreclosure
or trustee's sale.

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                        Part 6:     Negotiate with the Home Owner
When you decide that the pre-foreclosure property is worth buying, it’s time to start
negotiating with the home owner to purchase it. This is the difficult part, as you are not going
to pay the homeowner all of the equity that he or she has in the home.

Later on in this book I’ll explain how you figure out how much equity a home owner has, and
how much you should offer the home owner for that equity.

How to Finance the Purchase of a Pre-Foreclosure Property

Everyone dreams of being able to purchase a pre-foreclosed property and having to pay
nothing-down. That’s not going to happen.

 Although it is not necessary to have a six-figure income, a large bank account, and a -high
credit score to become a pre-foreclosure investor, it certainly helps! Failing that, in order to
purchase your first property, you will need to pay enough money to reinstate the defaulted

Depending on the repayment terms of the mortgage or deed-of-trust loan, the total amount
that the lender needs to recover – from you -- could be between $5,000 and $10,000.

Three Potential Sources of Startup Capital

Depending on the price range of the pre-foreclosure property that you plan to pursue, you will
need as much startup capital as possible, in order pay the original home-owner their agreed
upon discounted-equity, for loan reinstatement costs, any necessary property repairs, closing
costs, and the cost of marketing the property for resale.

Three sources of startup capital are:

   1.      Fixed-rate, low-interest lines of unsecured credit.
   2.      Home equity loans.
   3.      An investment fund created with family and/or friends.

Use Fixed-Rate, Low-Interest Lines of Unsecured Credit to Buy Owners' Equity

The best way to obtain owner’s equity is to acquire a fixed-rate, low-interest lines of unsecured
credit. These are lines of credit issued through unsecured credit cards.

If you have zero consumer debt and a credit score that is in the top five percent, you should be
able to acquire an unsecured line of credit from between $40,000 to $80,000. (Perhaps by
getting two lines of credit, if necessary.) With the increased credit restrictions banks are placing

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on making loans, the fact that you have zero consumer debt is always a plus. If you are in debt,
you may find it difficult to acquire such unsecured lines of credit.

If necessary, you can get a secured credit line, such as a home equity line of credit (HELOC),but
then of course your own home will be on the line should you not be able to pay the loan back.
In addition, acquiring such loans require that you pay closing costs – money you’ll need for your
own purposes!

Some consumer financial experts will advise their clients not to use unsecured lines of credit.
However, there is little risk involved when these unsecured credit lines are used responsibly.

Consider Monthly Installment Payments for Owner’s Equity

If you are unable to come up with either an unsecured or a secured line of credit, here’s a
possible solution. Simply pay the former home owner monthly payments for their equity.

To do this, you offer to buy their equity for a set number of monthly payments. For example, if
you wanted to buy an owner's equity for the discounted price of $4,500, you would offer six
monthly payments of $750 per month.

Sign a separate promissory note, outside of the closing, for the amount that the owners have
agreed to sell their equity in the property.

In this way, you will not need that huge lump sale typically needed on the same day that the
deal closed.

Even though you are paying the former owner on a monthly basis – it is imperative that you not
let them continue to live in the home as a tenant after you close the purchase. To prevent them
from even asking about this, tell them that you are moving in yourself.

If you do allow them to stay in the home, they may well decide to remain in the home, even
after you’ve paid them for their equity. Indeed, they might even go to court and claim that you
had fraudulently deprived them of their home. In order to prevent that, make sure that a
lawyer is present who clearly explains everything to the former owners, and can testify that
they grasped the entire concept of the sale and its ramifications.

It is imperative that you not use high-pressure tactics to encourage people to sell their home to
you. This is not necessary and will lead to problems in future with “seller’s remorse,” and again,
a potential lawsuit. To prevent such lawsuits, make sure that the former owner understands
and agrees to everything about the process – by having it put in writing and signed in front of

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Residential Real Estate Loans: the Three Types

There are three types of residential real estate loans:

   1. Conventional: A loan that is not guaranteed or insured by the U.S. government.
   2. FHA : A loan insured by the Federal Housing Administration (FHA).
   3. DVA: A loan guaranteed by the Department of Veterans Affairs.

Loan Programs : Available Nationwide

Loan information on the various types of residential loan programs available nationwide may
be found at the websites below:

   •   Fannie Mae:
   •   Freddie Mac:
   •   FHA:    
   •   DVA:    

(Note that websites frequently re-arrange their pages. If any of the above URLs are broken,
simply back the URL up to the main website (i.e. and conduct a website
search from there.

Most Lenders Cannot Foreclose on FHA and DVA Loans

Because of the nature of FHA or DVA loans, a lender that services them cannot foreclose on
them. Before a loan of this type can be foreclosed, it must be reviewed by the regional FHA or
DVA loan office that has jurisdiction over the state where the property is located. There is an
exception: certain direct endorsement lenders have been authorized to foreclose on loans they
have made.

Depending on the workload at the regional office, the loan review process could take up to
several months.

The Wheels of Foreclosure Sometimes Grind Slowly

When it comes to FHA or DVA loans, some homeowners who are delinquent for several months
don’t receive a foreclosure notice at all.

How Investors Can Legally Assume FHA Loans

Because of problems in the past, in which a few fraudulent investors abused the privilege, real
estate investors can no longer assume FHA and DVA loans. S

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Since 1989, the only way in which a pre-foreclosure investor can legally assume an FHA
mortgage that is in default and facing foreclosure is as an owner-occupant – someone who
purchases the property and intends to use it as his or her principal residence.

However, once you become the owner of the house, bear in mind that there are no published
restrictions on how many times that home can be bought and resold – as long as the person
doing the buying intends to use the home as a principle residence – at least for a little while. In
addition, while the original borrower had to meet a residency requirement, , there is no
published residency requirements for the new owner which require that individual to stay in
the property for a set period of time before it can be used as a rental property.

An owner-occupant buyer needs to pass only one financial test in order to assume an FHA loan,
and that is a creditworthiness review. This type of review, conducted by HUD or a direct
endorsement lender, is not supposed to take more than 45 days (Although, with HUD’s
current workload, sometimes these do take longer.

Because pre-foreclosure properties of this type have an easily assumable loan, they appeal to a
variety of homebuyers, including those who may have difficulty qualifying for a conventional
loan. An investor can quickly resell the property by having a creditworthy buyer assume the
existing loan, and thus avoid the time-consuming loan qualification process.

Note that, The HUD Handbook 4330.1 REV-5 Administration of Insured Home Mortgages lists
loan assumption requirements. In the case where an owner-occupant is assuming an FHA loan
from another owner-occupant, the creditworthiness review requirement stays in effect for the
life of the loan.

Do not commit loan fraud by stating to HUD and the lender that you are buying a pre-
foreclosure property to be used as your primary residence when, in fact, you are buying it as a
non-owner-occupied investment property.

The Problem with Assuming DVA Loans as a Non-Veteran Owner-Occupant

Owner-occupants who are not veterans can legally assume a DVA loan. However, there is a
catch. The Department of Veteran Affairs will not release the original property owner from his
or her liability for repayment of the loan when it is assumed by a non-veteran.

If the new, and any subsequent, owners fail to make their loan payments and wind up in
foreclosure themselves, it is the original owner who will still be on the hook for the loan.

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The Due-on-Sale Clause in DVA Loans: What It Means

The “due-on-sale clause” contained in DVA loans. Section 12 of DVA Circular 26-90-37,
September 25, 1990, is the clause that makes the original holder of such a loan responsible for
it regardless of whether they sell the home to another individual.

Sale Agreements Not Subject to 38 U.S.C. 1814. When a borrower sells on an installment
contract, contract for deed, or similar arrangement in which title is not transferred from the
seller to the buyer, this is not considered a "disposition" of residential property securing a GI
loan as stated in 38 U.S.C. 1814, and therefore does not require approval by VA or the loan
holder prior to the execution of such an agreement. However, any borrower considering a sale
in this manner should be cautioned that under such an arrangement he or she remains liable for
repayment of the loan. (My italics.)

Even if the agreement calls for the contract purchaser to make payments directly to the GI loan
holder, the holder is not required by VA to change its records, and the contract seller is
responsible for forwarding payment coupons and other information to the contract purchaser.
Depending on the particular circumstances of a case, a holder may agree to change the account
address to read in care of the contract purchaser, although the contract seller must promptly
advise the holder of any change in his or her address.

Contracts for Deed (CFD) and Agreements for Deed (AFD)

When you purchase a pre-foreclosure property using a contract for deed (i.e., by installment
sale) or land contract (i.e. agreement for deed), you obtain an interest in the equity of the
property, and have all of the rights of equitable ownership This includes the right to deduct
loan interest payments and property depreciation on your federal tax returns.

However, under these types of loans, the title to the property is not transferred to the new
owner at the time of purchase. Instead, it is transferred after the buyer has met all of the terms
spelled out in the land contract.

Require That Loan Payments Be Made through a Licensed Loan Servicing Company

If you find it necessary to purchase your pre-foreclosure property under an installment plan,
make sure that you do not fall victim to an equity-skimming scam. In order to do this, make
sure that the loan payments you make are paid directly to a licensed loan servicing company.
The company in turn pays the money to the lender. By so doing, you will receive proof that
each month’s loan payment has been made, and there will be no possibility that your will be
funding the original owner’s equity-skimming scam.

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Loan Servicing Companies

Here are two licensed loan servicing companies that provide service across the country:

   •   North American Loan Servicing:
   •   PLM Lender Services, Inc.:

Hold All Documents in Escrow When Buying on an Installment Sale Contract

If you are purchasing a home from an owner with a DVA loan, make sure that you have the
owner sign all of the necessary title transfer documents, such as a warranty or grant deed, and
place them in escrow with a reputable third party , such as a title insurance or escrow company
or a real estate attorney.

This precaution is necessary because if the individual from whom you are buying the property
decides not to transfer the property's title into your name, after you’ve already paid your
money, you would become embroiled in a costly and time-consuming legal battle in an attempt
to get the deed to the property.

Once you have the money necessary to satisfy the repayment terms of the installment sale
contract, go to the third party holding the deed in escrow, and give them a cashier's check
made payable to the owner. You get the signed deed in return. Make sure this is recorded in
the public records on the same day the final payment is made.

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How to Purchase a Pre-Foreclosure Property Subject to an Existing Loan

In order to purchase and take title to a pre-foreclosure property that is subject to an existing
mortgage or deed-of -trust loan, make sure that you insert a subject-to clause, similar to the
example below, into your purchase agreement:

Subject to that certain mortgage dated __________, and executed by ____________, as
mortgagor, to __________, as mortgagee, in the original amount of ________________
($____________), which mortgage was duly recorded in the office of the _______________ of
_________________- County, State of ___________, in book _____________, on page
__________, of the public records of _____________-- County, ___________ (state).

Notify Lenders That You Plan to Take Title to Their Loan

There is a potential risk associated with taking title to a pre- foreclosure property that is subject
to existing loans To avoid such risks, ask the lender who holds the mortgage to modify the loan
agreement so that you can formally assume the loan. Assuming they find you creditworthy and
with an appropriate level of income, the lender will generally approve this loan assumption
without changing the terms of the loan itself.

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                Part 4:    Conduct a Physical and Financial Investigation
When you desire to purchase a pre-foreclosure property, you need to investigate it physically to
ensure that it can be made habitable. You also need to investigate it financially, to see if there
are any liens against the property which you will have to pay off before you can then turn
around and sell it to someone else.

The Public Record: Documents Must Be Notarized

All states require that any official real estate document be witnessed and notarized by a notary
public before it is recorded in the official public records.

When recorded, property title documents are considered part of the public record, and are
available to that public. Interested persons therefore can discover a party's interest, claim, and
right to, or in, a specific property.

Real Property Liens: Two Types

Real property liens are legal claims placed against the property of a debtor or lienee by lenders,
creditors, and government agencies. In true government legalize, these entities are known as

The most common type of real property lien is the equitable lien, and is what is given when a
person makes an agreement to buy a piece of property.

   •       Equitable liens: These liens, also called consensual liens (i.e. mortgage and deed-of-
           trust liens) are placed against the title to real property with the owner's consent.
   •       Statutory liens: These liens, also called non-consensual liens (i.e. judgment,
           mechanics', and federal and state tax liens), are placed against the title to real
           property upon legal action by a creditor, lender, or government agency.

Specific Liens and General Liens Real property liens::

   •       Specific liens: Attach only to a debtor's specified piece of real property.
   •       General liens: Also referred to as name liens, attach to all of a debtor's real and
           personal property located within the county where the lien was recorded.

Lien Priority

When attempting to figure out which lien has the first right of redemption to a piece of
property, it all goes in priority, or seniority, order. If there is more than one lien against the
same piece of property, the lien that was in place first gets first crack at redemption, and then
so on down the line.

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For example, a mortgage or deed-of-trust recorded on August 15, , 2005, would have priority
over another mortgage or deed of trust recorded on August 16, 2005..

Bear in mind however that liens from the government such as property and special assessment
tax liens, have priority over previously recorded mortgage or deed of trust liens. That’s the
(local) government for you!

However, judgment liens, mechanics' liens, and even federal tax liens (i.e. the federal
government) do not have seniority over previously recorded mortgage or deed of trust liens
and are considered to be subordinate or junior liens.

Verify That All Recorded Liens Are Uncovered

Foreclosure lawsuits and notices of lis pendens and notices of default contain lien holder
information. However, do not assume that they contain all the lien holders!

You must still research the pre-foreclosure property's title information and check the public
records at the county records library to verify that all recorded liens placed against the property
and owner have been uncovered.

This means checking for both voluntary liens and involuntary liens. Contact your county
courthouse to find out exactly who in your county maintains records on real property and
judgment liens.

Here’s where to look when searching the public records for real property liens:

   1.      County recorder or prothonotary's office: Check the grantor and grantee or
           mortgagor and mortgagee indexes, federal tax lien index, public assistance liens,
           conditional sales contracts such as contracts for deed, agreements for deed and land
           sales contracts, notices of lis pendens index, writs of attachment, judgment liens
           such as mechanics' and materialmen's liens, and property tax liens.
   2.      Clerk of the county and circuit court: Check the defendant's judgment index, state
           income tax liens, state inheritance tax liens, state franchise tax liens, judgment liens,
           homeowner's association liens, suits to quiet title, suits for specific performance,
           estates of deceased persons, guardianships of minors and incompetents,
           termination of life estates, termination of joint tenancies, and condemnation of
   3.      U.S. Court: Check for federal judgments such as federal tax liens and judgment liens
           resulting from defaults on government-guaranteed FHA, DVA, SBA, and student

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   4.      Municipal clerk's records: Check for liens resulting from unpaid bills for municipal
           services such as water and sewer services and code enforcement fines.

Fifteen Liens to Check When Researching Pre-Foreclosure Property Titles

Below is a listing and brief description of the 15 most common liens encumbering the titles to
pre-foreclosure properties:

   1.      Real property tax liens: Real property tax liens are placed against properties by local
           taxing authorities and city and county tax collectors when property owners fail to
           pay their property taxes. This results in the local tax collector placing a tax lien
           against the property in the amount of delinquent taxes owed, plus interest and
           penalties. If the tax lien is not paid, usually within a two- to three-year period after
           the first default, the tax collector then forecloses on the tax lien and sells the
           property at a tax deed sale. Check with your clerk of the circuit court, tax collector,
           or county recorder or prothonotary's office.
   2.      Federal tax liens: In order for federal tax liens to attach to the title of real property,
           the IRS must file a Notice of Federal Tax Lien under Internal Revenue Laws, Form
           668, in the designated office of the county or state where the property subject to
           the lien is located or with the clerk of the U.S. district court for the judicial district in
           which the property is located. If the IRS fails to properly file a federal tax lien with
           the applicable office, the federal tax lien doesn't attach to the property's title.
           However, if a foreclosing lender fails to uncover a federal tax lien, which has been
           properly filed in the same county where the property being foreclosed on is located,
           the tax lien remains against the property's title. And the new owner would have to
           pay off the amount of the tax lien, plus interest and penalties in order to get it
           removed from the property's title. Check the federal tax lien file index in your county
           recorder or prothonotary's office or the clerk of the circuit court's office
   3.      Mechanics' liens: Mechanics' liens are statutory liens that allow mechanics,
           contractors, materialmen, architects, surveyors, and engineers who have furnished
           work or materials for the improvement of real property to file a lien against the
           debtor's real property that's being worked on. The lien generally takes effect as of
           the date the labor or material was initially furnished. In most states, the lienor must
           show that the improvement was made at the request of the owner or the owner's
           agent. Check with your county recorder or prothonotary's office or the clerk of the
           circuit court's office.
   4.      Judgment liens: Judgment liens result from lawsuits awarding monetary damages.
           Once recorded, a lien is placed against both the real and personal property of the
           debtor until the judgment is paid. Judgment liens usually attach only to property

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           located in the county where the judgment was recorded. In most states, failure to
           voluntarily repay a judgment lien can result in the creditor getting the court to issue
           a writ of execution, allowing the county sheriff to seize and sell a sufficient amount
           of the debtor's property to pay the debt and expenses of the sale. When recorded
           with the appropriate county office, judgment liens awarded by federal courts attach
           to both the debtor's real and personal property. Check the defendant's judgment
           index at your clerk of the circuit court's office or the county recorder or
           prothonotary's office.
   5.      Mortgage and deed-of --trust liens: A mortgage or deed of trust lien is a voluntary
           lien that is created when real property is pledged as security for the repayment of a
           debt. If the debt secured by the mortgage or deed of trust lien is not repaid, the
           lender can foreclose on the security instrument—mortgage or deed of trust—and
           sell the property at public foreclosure auction or trustee's sale. Check the grantor
           and grantee or mortgagor and mortgagee indexes at your county recorder or
           prothonotary's office.
   6.      State inheritance tax liens: Most states have an inheritance tax, which is levied
           against the estates of deceased persons. The amount of inheritance tax owed
           becomes a lien against the estate. Check your clerk of the circuit court's office or the
           county recorder or prothonotary's office.
   7.      Corporate franchise tax liens: In states with a corporate franchise tax, corporations
           are taxed for the right to do business within the state. When corporations fail to pay
           their franchise tax, the state files a lien against any real property within the state
           that belongs to the corporation. Check with your clerk of the circuit court's office or
           the county recorder or prothonotary's office.
   8.      Bail bond liens: A lien is created when real property is pledged as a bail bond in
           order to allow a person arrested on criminal charges to be released on bail pending
           trial. Check with the clerk of the circuit court or the county recorder or
           prothonotary's office.
   9.      Code enforcement liens: A lien is placed against a property's title by local code
           enforcement boards when a property owner has been fined for failing to comply
           with code enforcement citations and does not pay the fine. Check with your county
           recorder or prothonotary's office or the clerk of the circuit court's office.
   10.     Municipal liens: A lien is placed against a property's title by local governments when
           a property owner fails to pay for municipal services such as water, sewage, and trash
           removal. Check with your county recorder or prothonotary's office or the clerk of
           the circuit court's office.
   11.     Welfare liens: A lien is placed against a property's title by state and federal
           government agencies when a property owner collects welfare payments that he or

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           she is not legally entitled to. Check with your county recorder or prothonotary's
           office or the clerk of the circuit court's office.
   12.     Public defender liens: A lien is placed against a property's title by federal, state, and
           local governments when a property owner fails to pay for a court-appointed public
           defender. Check with your county recorder or prothonotary's office or the clerk of
           the circuit court's office.
   13.     Marital support liens: A lien is placed against a property's title by state and federal
           government agencies when a property owner fails to pay court- ordered marital
           support payments. Check with your county recorder or prothonotary's office or the
           clerk of the circuit court's office.
   14.     Child support liens: A lien is placed against a property's title by state governments
           when a property owner fails to make court-ordered child support payments. Check
           with your county recorder or prothonotary's office or the clerk of the circuit court's
   15.     Homeowners' association liens: A lien is placed against a property's title by a
           homeowners' association when an association member fails to pay homeowners'
           dues as per the deed to their property. Check with your county recorder or
           prothonotary's office or the clerk of the circuit court's office.

Undiscovered Liens: How It Happens

County recorders can be slow to index or place recorded documents into the public records.
With the cutbacks in services over the last few years, this problem will only be exacerbated.

It is because of this that a recorded and valid lien may not show up during a lien search of the
public records. It’s imperative for you to find out from your county recorder or prothonotary's
office how long it usually takes between the time when a document is recorded and when it is
actually indexed into the county's public records.

In addition, frequently check the lis pendens index at your county circuit court clerk's office to
see if any additional lawsuits have been filed against the property's title.

To assist you in deciphering the Latin/legalize which continues to infest legal documents, below
is a list of common abbreviations in property title documents.

Common Abbreviations Used in Property Title Documents

   1.      Est.          —     Estate
   2.      Et al.        —     And others
   3.      Et vir.       —     And husband
   4.      Et ux.        —     And wife

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   5.      Jt.           —     Joint tenants
   6.      Qc.           —     Quit claim deed
   7.      Lov           —     Gift transfer
   8.      Dot.          —     Deed of Trust
   9.      Grantor       —     Seller
   10.     Lt.           —     Lot
   11.     Corn prop.    —     Community property
   12.     Ten in com.   —     Tenants In Common
   13.     Pd.           —     Parcel
   14.     Tr.           —     Trustee
   15.     Sec.          —     Section
   16.     Blk           —     Block
   17.     Pt.           —     Part
   18.     Tr            —     Tract
   19.     Att.          —     Attachment
   20.     Ftl.          —     Federal tax lien
   21.     J1.           —     Judgment lien
   22.     Ln.           —     Lien
   23.     Ml.           —     Mechanic's lien
   24.     Stl.          —     State tax lien
   25.     Ttl.          —     Town tax lien
   26.     Cm.           —     Committee deed
   27.     Cn.           —     Conservator deed
   28.     Ex.           —     Executor deed
   29.     Gn.           —     Guardian deed
   30.     Mtg.          —     Mortgage
   31.     Pr Mtg.       —     Prior mortgage
   32.     Tcd.          —     Tax collector deed
   33.     Td.           —     Trust deed
   34.     Wd.           —     Warranty deed

Title Companies: How They Index Documents in Their Property Records Databases

County recorders and prothonotaries index property title documents by name. Title insurance
companies, on the other hand index documents by the legal description that is printed on the
recorded document. (FYI, these property records databases are called title plants. Don’t ask me

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They do this because it is supposed to be faster and cheaper. The problem with doing it this
way is that any documents that contain errors in their legal descriptions, end up being
improperly indexed.

For this reason, it is best that you conduct your title searches (or cause them to be conducted)
at the public records library in the county where the title to the pre-foreclosure property is
recorded. It’s the only way to be sure that you’ll get all the liens recorded against a particular

Property Title Searches

The two most common types of property title searches are:

   1.      Current owner and encumbrance (O&E) title search: Sometimes referred to as an
           owner and encumbrance title of property report, this is a search of the public
           records from the date the property's title was transferred to the current owner to
           the present time.
   2.      Full title search: This involves an in-depth search of the property's chain of title from
           the date the current owner took title back to a maximum of 60 years.

Experienced Title Abstractors Search For Liens For You

Rather than conduct a property title search yourself, consider hiring a professional to do it for
you. You simply do not have the time nor the expertise to go through the public records library
of a particular county and understand what you’re reading.

Here’s why this is so important. If you purchase a property, and then a lien is discovered on it…
guess what? You are responsible to pay that lien. You – not the person from whom you bought
the house.

Researching property title information can is a complex task. Leave it to the professionals.

Abstracters Resource:

   •    Abstracters Online: 
   •    Abstractor Connection:

Crime Statistics Search

Even though you are going to confine yourself to purchasing pre-foreclosure properties in good
neighborhoods…neighborhoods are always in flux. To ensure that the home you are thinking of
purchasing is not in a neighborhood that is quickly deteriorating, search the crime statistics:

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   •   Neighborhood crime check: /index.html

Demographic Information

Discovering the demographics of a particular neighborhood is also important.

A variety of websites give you this information:

   •   FFIEC Geocoding System:
   •   U.S. Census Bureau FactFinder: /BasicFactsServlet
   •   U.S. Census Bureau Gazetteer:
   •   U.S. Census Bureau QuickFacts:
   •   U.S. Census Bureau zip code statistics: .html

Insurance Claims History Against the Property

It is imperative that you conduct an insurance claims history against any pre-foreclosure
property you are thinking of purchasing

Have your insurance broker (an insurance broker should be part of your resources) check out
any claims against the property, using the Comprehensive Loss Underwriting Exchange

C.L.U.E. is an insurance claim history information data exchange. Insurance companies use this
data to calculate insurance premiums when underwriting policies.

The last thing you want to do is buy a pre-foreclosure property, and then discover that you
can’t insure it, or can only get limited insurance because it’s in a flood plain or something

To learn more about C.L.U.E., go to:

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            Part 5:      Determine the current market value of the property

Estimate the Current Market Value of a Pre-Foreclosure Property - Accurately

Perhaps the most difficult part of investing in pre-foreclosure properties is figuring out how
much of a profit it is possible to make on the property. To do that, you have to be able to assess
the property’s current market value – not always an easy thing to do. If you underestimate how
much a buyer will pay you for the house, bang goes your profit margin.

Typically, most people who wish to become pre-foreclosure investors drop out after purchasing
their first house and seeing not only their profit disappear but also some of their investment.
Let me repeat. Estimating a property’s current value – especially in these depressed times – is a
very tricky business.

Let’s say, for example, that you estimate the current market value of a pre-foreclosure property
to be $345,000, so you buy it for $300,000. Then you spend $50,000 for repairs and so on. But,
when you try to sell the property a year later, you find that it is still only worth $345,000.
Someone buys it from you at that price, so you make what you might think is a $45,000 profit.
Not so – because you spent an additional $50,000. You have in fact sold the home for a $5,000

Estimating Property Values is an Art

It will be your responsibility to accurately estimate the current – and future - market value of
pre-foreclosure properties.

Thanks to the internet, you have real estate price information at your fingerprints. At least in
those counties where all property ownership, sale, and tax assessment records are available
online. (Unfortunately, this is not always the case – as for example in non-disclosure states.)

Equity: The Definition

Equity, as far as real estate is concerned, is defined as "the difference between a property's
appraised value and the amount of any liens recorded against the property's title." So, let’s
assume you are the owner of a property with an appraised value of $177,000, and you have an
existing loan balance of $140,000. This means you have $37,000 worth of equity in the

Market Value: The Definition

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The Uniform Standards of Professional Appraisal Practice, as approved by the Appraisal
Foundation, defines market value as: "the most probable price a property should bring in a
competitive and open market under all conditions requisite to a fair sale, the buyer and seller
each acting prudently and knowledgeable, and assuming the sale price isn't affected by undue
stimulus." This definition assumes that the following conditions are met:

   1.      The buyer and seller are motivated.
   2.      Each party is well informed and acting in his or her own best interests.
   3.      A reasonable amount of time is allowed for the property to be exposed on the open
   4.      Payment is made in cash in U.S. dollars or in a comparable financial arrangement.
   5.      The price represents the normal consideration of the property sold and is unaffected
           by special or creative financing or sales concessions granted by anyone associated
           with the sale.

Assessed Value Versus Appraised Value

The assessed value of a property, and the appraised value of a property, are two different

The tax-assessed value of a property is the value established by the local taxing authority for a
parcel of land and the improvements made on the land for property tax purposes.

Depending on the state, an owner-occupied single-family house is generally assessed at about
30% less than what is considered its fair market value by the county property appraisers.
(Although this may change as cities and states need to raise taxes to meet their budget

A property's appraised value, on the other hand, is the estimated value given to a property by
a licensed property appraiser

Property Appraisal Information Sources

The following web sites have information on property appraisers and the appraisal process:

   •    Appraisal Foundation: 
   •    Appraisal Institute:  
   •    American Society of Appraisers:

Methods Used by Appraisers to Estimate Property Values

Professional appraisers typically use one of three methods b to estimate property values:

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   •   Comparison sales: This method bases a property's value on the recent sales prices of
       properties that are within the same area and are comparable in size, quality, amenities,
       and features.
   •   Income: This method estimates the value of an income-producing property based on the
       net income the property produces.
   •   Replacement cost: The replacement cost method is based on what it would cost to
       replace the improvements on property using similar construction materials and
       construction methods.

The Comparison Sales Method

As far as residential property is concerned, the Comparison Sales Method is the method used.

As stated above, the comparison sales method estimates a property's value based on the
recent sale prices of properties within the same area that are comparable in size, amenities,
and features.

However, there are difficulties with the comparison sales method. Sometimes, nearby
properties were purchased at unrealistically low prices or on overly favorable financial terms –
terms that are not readily available to the public (as it might be if a local politician is given
favorable terms by someone who wants a favor in return, or simply because the home was sold
at a foreclosure auction.)

In any event, when comparing prices of comparable houses, typically one must throw out the
very lowest prices paid, and the very highest, use an average of the remaining sales prices.

Comparable Residential Property Sales Data Sources

The websites below provide comparable sales data for residential properties:

   •   DataQuick:                        www.dataquick.corn
   •   HomeGain:               
   •   REAL-COMP:              
   •   HomeRadar:              
   •   Domania Home Price Check:
   •   Yahoo Real Estate:      
   •   OFHEO House Price Index:
   •   Home Price Forecasts:             www.cswcasa.corn/products/redex/home
   •   NAR Existing Single-Family Home Sales: /Pages/EHSdata

Free Building Replacement Cost Estimates

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In order to learn how much the replacement cost of the home would be (which is important not
only for purposes of valuing but also to know how much you should insure the home for) call a
local independent insurance broker who represents insurers that specialize in providing
property and casualty insurance coverage for residential buildings.

Inform the broker that you desire a replacement cost quote. The cost to replace a home is
calculated by using a formula based on the property's geographical location, as well as its:

           •   Street address
           •   Age
           •   Type of construction
           •   Number of stories
           •   Type of roof
           •   Current use
           •   Heating and cooling system
           •   Square footage

Replacement Cost Calculators

Find construction replacement cost calculators at :

   •   Construction Cost Calculator:
   •   Construction Material Calculators: /calculators.html
   •   Building Cost Calculator:

Pursue Only Pre-Foreclosures That Have Relatively Low Debt-to-Value Ratios

Only purchase pre-foreclosure properties that have a debt-to-value ratio of at least 80 percent.
This term refers to the total amount of debt owed against a property in foreclosure, versus the
property's current market value.

For example, let’s take a property in foreclosure. The total debt is $90,000, which includes the
principal left on the loan, all the loan payments that are in arrears, all late payment charges,
legal costs, and subordinate liens with a current market value of $125,000 would have a debt-
to-value ratio of 72 percent ($90,000 in debt divided by $125,000 in current market value
equals a debt to value ratio of .72 or 72 percent). Don’t try to purchase a pre-foreclosure
property unless it has a debt-to-value ratio below 75 percent.

The Pre-Foreclosure Property's Current Market Value

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Many experts define a pre-foreclosure property's current market value as: “the value of the
property in its current financial and physical condition, after deducting all of the costs
associated with removing (or “curing”) the default and reinstating the loan, paying off all the
subordinate lien holders, and repairing the property to a marketable resale condition.”

Estimate a Pre-Foreclosure Property's Current Market Value - Accurately

In order to accurately estimate the current market value of a pre-foreclosure, you must first
know several pieces of information:

   •       The existing loan balance
   •       Total amount of loan payments in arrears.
   •       Total amount of accrued interest, late payment charges, and legal costs owed by the
           current owner.
   •       Total amount needed to erase the default and reinstate the loan.
   •       Total amount of all judgment liens, if any, recorded against the property's title.
   •       Total cost of all the repairs needed to put the property in a marketable resale
   •       Market value, of the property, using the comparison sales method.

In order to calculate the value properly, use the following worksheet:

Current Market Value Worksheet.

           •   Tax assessed value
           •   Appraised value
           •   First mortgage or deed-of-trust loan balance
           •   Second mortgage or deed-of-trust loan balance
           •   Amount of loan payments, accrued interest, and late payment charges in arrears
           •   Amount of legal fees owed
           •   Total amount needed to cure the default and reinstate the loan
           •   Amount of liens and judgments liens recorded against the property
           •   Amount of property taxes owed
           •   Amount of all outstanding city, county, and state fines
           •   Total amount owed against the property
           •   Property's estimated repair and clean-up costs
           •   Property's estimated current market value
           •   Cost to purchase the owner's equity at a discount of 50 percent or more
           •   Property search, acquisition, and closing costs
           •   Estimated equity in property after purchase

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Estimating a Pre-Foreclosure's Current Market Value:

   •   You’ve found a pre-foreclosure property that you feel has potential.
   •   Log onto the appropriate County Property Appraiser's web site and type in the street
       address of the property.
   •   From this street address, you obtain the owner's name, mailing address, sale price, and
       dates for the latest and prior sales and the tax- assessed value of the property broken
       down by land and improvements. A
   •   You will also note down the tax account or folio number assigned to the property.
   •   Then conduct an online search of the entire street on which the property is located, to
       see if there have been any sales within the past six months. More than that, search
       adjacent streets for recent comparable sales as well.
   •   Next, Iog onto the appropriate County Tax Collector's web site and type in the
       property's street address or tax folio number to obtain property tax information about
       the property. This should include any tax exemptions claimed, special tax-district
       assessments, and the tax payment status.
   •   After compiling this information, call your insurance broker to get the current per
       square foot replacement cost for residential properties within the same area.

Calculate the Amount of Equity That an Owner Has in a Pre-Foreclosure Property

After you have estimated the current market value of a pre-foreclosure property, as accurately
as possible, you will then be able to calculate how much equity the distressed owner has in the

To do this, first deduct the total amount of money you will need to pay to reinstate the loan,
pay off all of the recorded judgment liens, and repair the property to a marketable resale

Here’s an example:

1. You have found a pre-foreclosure property with a fair market value of $160,000
2. has a loan in default that requires $6,7,000 to reinstate. There’s also a federal tax lien that
   will take $1,300 to pay off, along with an estimated $5,000 in needed repairs.
3. As a result, the property has a current market value of approximately $147,000 ($160,000
   fair market value minus $13,000 in costs equals $147,000 in current market value).

Once you perform these calculations, and determined the property’s current market value,
deduct the existing loan balance from that amount. This gives you the amount of equity the
home owner has in the home.

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4. In this case, let us assume that the property being discussed has an existing loan balance of

5.To calculate the owner's equity, you would simply subtract the $120,000 existing loan balance
from the property's $147,000 current market value, which equals $27,000.

You cannot afford to pay the owner the complete $27,000. Typically, offer her or him 50 cents
on the dollar for this equity, which would be $13,500 (50 percent of $27,000 equals $13,500).
(Some pre-foreclosure investors wish to pay much less than 50 cents on the dollar – that is
something you must decide for yourself.) In any event, however much you pay for the equity, it
is more than the owner will get in any other way.

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                    Part 7:    Negotiate with the Foreclosing lenders

     Negotiating with Foreclosing Lenders and Their Attorneys and Trustees
What You Need to Know about Loss Mitigation

In the old days when market values were booming and only people with good credit were able
to buy houses, individuals who fell behind on their mortgages and were foreclosed on had little
recourse. If they could not bring their loans current, they lost their homes.

Within the last few decades, people with poor credit were allowed to buy homes that they
could not afford, and as a result foreclosure rates have skyrocketed. In an effort to stem the
tide of foreclosures, lenders were pressured by the government to perform loss mitigation – to
work with the distressed borrowers to see if by renegotiating the terms of their loan they could
manage to keep their homes. (Unfortunately, most people who have their loans re-negotiated,
end up defaulting again, one reason why banks were always reluctant to do this kind of thing.)

Nevertheless, loss mitigation departments work to provide alternatives to foreclosure. The
alternatives included: forbearance plans, loan modifications, restructuring of loan payments,
short payoff sales, and deeds-in-lieu-of foreclosure.

Lenders may call this loss mitigation department by a variety of names:

1.     Loan loss mitigation department
2.     Default management department
3.     Loan workout department
4.     Loan resolution department
5.     Nonperforming assets department
6.     Foreclosure department
7.     Collections department
8.     Special loans department

Loss Mitigation Departments

When you deal with a loss mitigation department in your efforts to buy a pre-foreclosure
property, be aware that sometimes, as in all things, you will deal with people who are eager to
help, and sometimes you will deal with people who will stonewall you all the way.

If you cannot get cooperation from one of the lower level loss mitigation specialists, move up
the food chain…going to the President of the bank if necessary!

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How to Contact the HUD Nationwide Loan Loss Mitigation Department

The HUD nationwide loan loss mitigation department is located at their National Servicing
Center, which can be contacted by telephone at (888) 297-8685 or by e-mail at hsg- You will need the FHA case number and the lender's loan account number
when calling them about a loan that is in foreclosure. Their mailing address is:

Department of Housing and Urban Development National Servicing Center

301 Northwest 6th Street, Suite 200

Oklahoma City, OK 73102

Negotiating with L Loss Mitigation Departments

When you first met with the owner who is in foreclosure, you asked for a variety of pieces of
information. In addition, you should have the owner sign a letter which authorizes the lender to
release the loan information directly to you. This letter you will in turn give to the loss
mitigation department.

Go into a meeting with your homeowner’s loss mitigation specialist with the attitude that you
are there to solve their problems. You wish to take a nonperforming loan off their books and
get it generating revenue again.

Here’s how the interview should go:

Introduce yourself as a professional pre-foreclosure property investor.. Don’t just tell the agent
that you are credit worthy – bring your financials with you so they can be examined.

Explain that you are prepared to buy the property that very day, but that in order to do this,
you need the agent’s help. You wish to take over the loan without violating the due-on-sale

It may take you a while to be put in touch with an individual who can actually help you help
them. In this way, you will be able to take over what was once a non-assumable loan, once you
do everything necessary to reinstate the loan.

Attorneys and Trustees Have No Real Incentive to Work with Investors

Although things have changed very recently, after the passage of the Recovery Act For
Homeowners (passed in 2009) attorneys or trustees representing a lender or beneficiary in a
foreclosure lawsuit usually had little incentive to work with an investor wanting who wanted to
purchase the property.

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This was simply because it was out of their job description. They were paid to foreclose on
properties, not try to save them. (It costs money to do any kind of loss mitigation, and
foreclosing was less expensive.) Faced with these types of individuals, distressed owners – even
those who could have saved their homes with a little cooperation, were generally stonewalled
and lost their homes.

Now, things are different, but the homeowner still needs to work with you to get in touch with
his lender. Indeed, have the owner call an agent in the lender's loss mitigation department --
the one who signed the last letter sent to him, or who, that warned against foreclosure.

The owner will then tell the agent that he, or she, has a potential buyer with good credit and
the cash needed to reinstate the loan. Then, you get on the phone and explain that you are a
serious buyer, but that you first need to see how much it is going to cost you to bail the owner

The agent will obtain that information (perhaps stating that they will call back with it). Once he
or she tells you the total cost of reinstating the loan, ask the loan loss representative to mail the
property owner a loan rein-statement packet via overnight courier.

Subordinate Lienholders: Persuade Them To Discount Their Liens by 50 Percent or More
Your Profit Margin: Contingent on Subordinate Liens
The amount of money you are going to earn on your pre-foreclosure property -- your profit margin – is
contingent on your ability to get junior lienholders to allow you to satisfy their claims at a discount.

Many individuals in pre-foreclosure have much more than missed mortgage payments looming over
their heads.

Just as you have to purchase the original home-owner’s equity at a discount, so you have to clear these
liens at a discount, in order to make your profit. If you cannot persuade these lien holders to accept 50
cents on the dollar or less, it will eat substantially into your profit margin.

Here’s what you need to do:

  1. Identify all subordinate lienholders of record who claim to have a valid lien claim against the
      property's title.
  2. Verify the validity of each subordinate lien claim. (Very important!)
  3. Contact each valid lien holder.

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  4. Negotiate to purchase the liens for 50 percent or less of their face value.
  5. Contest fraudulent liens in a court of competent jurisdiction, if necessary.
  6. Have all purchased subordinate liens removed from the property's title.

Judgment Lien and Consensual Lien: The Definitions

A judgment lien placed against a debtor's property for failure to repay a debt is different than a
consensual lien, such as a mortgage or deed-of-trust. Everyone who makes arrangement to
purchase a home receives a consensual lien, because they’re agreeing to having it placed
against the property’s title.

A judgment lien is a formal written decree issued by a court - that has the jurisdiction to do so,
declaring a debtor to be indebted to the creditor. For example, the IRS can have a federal tax
lien recorded against a property's title, if the owner hasn’t paid their federal income taxes. This
is a judgment lien.

Again, the consensual lien is, well, consensual! It’s a legal claim a creditor places against the
title to real property, as security for the repayment of a debt, with the approval of the owner of
this real property.

Negotiating with Lienholders: Working Against Time

When negotiating with lien holders to purchase the liens as inexpensively as possible, time is
against you. The clock is ticking as you attempt to locate them, and start the negotiations
before the scheduled sale date on the foreclosed property.

On the other hand, time can sometimes be your friend. When the house is sold at
auction…that’s it. The lienholders will get nothing for their lien from that sale! The only way
they will get up to half of the amount that they are owed is if they agree to deal with you.
That’s a powerful incentive.

Subordinate Liens That Attach to Real Property: Five Types
   When checking liens against pre-foreclosure properties, you’ll find that five of them are the most

       1. Second and third mortgage or deed of trust liens.
       2. Judgment liens.
       3. Mechanics' liens.

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        4. State and federal welfare, medical, and child support liens.
        5. 5. Local, state, and federal tax liens.

Subordinate Lienholders Must Be Notified of Foreclosure Actions
Foreclosure statutes in each state require that all subordinate or junior lienholders of record be notified
when a senior lienholder files a foreclosure lawsuit or notice of default to foreclose on a mortgage or
deed-of -trust loan.

This requirement is designed to protect these subordinate lienholders from losing out on receiving the
money owed them.

Frequently, however, not all subordinate lienholders are sent such notification. This usually occurs
because of a flawed titled search conducted by the foreclosing lender’s minions.

(When this happens, such lienholders who have been left out of the process have occasionally sued the
lender for negligence for failing in their notification duty.)

Foreclosure Lawsuits: Subordinate Lienholders are Included as

After the lender files a foreclosure lawsuit, all subordinate lienholders of record are named as
defendants in the complaint. A notice of lis pendens is served to each, along with a copy of the
foreclosure lawsuit.

Obtain the names and addresses of these subordinate lienholders-defendants by going to the
office of the clerk of your county's circuit court and requesting the foreclosure case file.

When a foreclosure lawsuit is filed, the clerk of the court assigns it a case number, such as
2004-166, which means that this is the 166th case filed in that particular court during the year
2004. Most court clerks' offices have public reading rooms where individuals can go to conduct
research on the documents filed with that court.

Subordinate Lienholders Must Receive Copy of Notice of Default
In addition, most state foreclosure statutes require that trustees who are foreclosing on deeds-
of-trust must send a copy of the notice of default to each subordinate lienholder of record.

The names of subordinate lienholders are not listed on notices of default, which makes this
notification necessary. The three parties that are listed on a notice of default are the
borrowertrustor, beneficiary-lender, and the trustee foreclosing on the deed-of-trust.

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Subordinate Lienholders: Some Not Found in Search

Do not assume that all subordinate lienholders of record have been notified about the
foreclosure, as is required by law. Frankly, it has happened on more than one occasion that one or
two of these lienholders are missed because of shoddy research work on the part of the lienholder,
or a variety of other reasons.

If one of these junior lienholders comes forth after you have purchased the property – you are on
the hook to pay that lienholder.

This is why you must hire a professional to perform a title search for you. Typically, such
searches cost $125 to $175. (Sure, you can sue the lender for not having done their job properly
in finding this lienholder, but that will require hiring a lawyer yourself, and the money will just
add up and up. Better not to have it happen in the first place.).

Become Familiar with Your State's Lien Law
Investing in pre-foreclosure properties is your profession – your livelihood. Approach it in a
professional manner by becoming an expert with the lien law of your state – and indeed, any
state in which you might be interested in acquiring property.

These are the things you must know:

    1.   How long do judgment liens stay attached to real property titles.
    2.   How long can judgment liens be renewed for.
    3.   Which parties are authorized to file a mechanic's lien.
    4.   How long do mechanic's lien stays attached to real property titles.
    5.   5. How long can a mechanic's lien be renewed for.

Unlicensed Contractors Have No Lien Rights in Most States
Most state construction lien laws do not allow unlicensed contractors and repairmen to file any type of
lien. It seems unfair, but there it is. This is important to remember, because some unlicensed
contractors do file a lien, which is duly recorded by the clerk of the court. If you don’t do your research
to discover that this particular lien was filed illegally, you’ll be paying money that you don’t need to pay.

If you discover that a lien has been fraudulently placed against the property, you will need to file a
lawsuit of your own to get the lien expunged. Typically, a process server will serve the individual with a

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complaint and a summons. If the individual does not answer the suit within 60 days (which usually
happens) the lien is removed from the title.

Most Local, State, and Federal Government
Agencies Will Not Discount Their Liens
You’ve heard the phrase – the only certain things in life are death and taxes. Well, it’s true.
There’s no getting away from paying taxes…and the local, state and federal government
agencies that want these taxes are not going to discount them – they want to be paid in full.
However, depending on your people skills, and depending on the circumstances, individuals
occasionally are able to negotiate such discounts.

How to Have a Federal Tax Lien Removed from a Property's Title
Many pre-foreclosure properties have federal tax liens recorded against their titles.
In order to take care of them, you must contact the IRS on the owner's behalf and
attempt some negotiation. Occasionally you are able to make them accept payments of
from 60 to 80 cents on the dollar.
Do this by writing a detailed hardship letter that explains the owner’s financial plight, and
the fact that they are about to lose their homes.
IRS publication number 783, "Certificate of Discharge of Property from Federal Tax Lien,"
provides step-by-step instructions on how to go about having a federal tax lien removed from
the title of a pre-foreclosure property and is available at

Contacting the Internal Revenue Service on Behalf of a Property Owner
in order to negotiate with the IRS on the behalf of your distressed homeowner, you must have
the owner complete and sign IRS Form 8821, "Tax Information Authorization," which
authorizes you to receive the owner's tax records directly from the IRS office that recorded the
federal tax lien. Once you receive this information, you can verify the lien directly with the IRS
and then begin negotiating a discounted payoff with the agent handling the case. To obtain a
copy of IRS Form 8821, log onto

For a listing of IRS office locations nationwide, log onto

                       Do Not Pursue Pre-Foreclosures That
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                          Belong to Owners in Bankruptcy
There are a few pre-foreclosure homes that you do not want to pursue. As I stated before,
don’t buy homes in poor neighborhoods. Very, very rarely will they return anything on the
investment. A second type of home you do not want to pursue is one in which its owner has
declared bankruptcy.
Because the property is under the control of a court-appointed trustee who must approve the
sale of the property, it just makes it too complicated and time consuming. It is not worth your

                               Where to Research Federal
                                Bankruptcy Cases Online
If you decide not to follow my advice and want to pursue such bankruptcy cases, you can research
them online. The Public Access to Court Electronic Records (PACER),an electronic public access
service that allows users to obtain case and docket information from federal bankruptcy courts.
Log on to PACER at

                           Research All Judgment or Name
                          Liens to Determine Their Validity
A “name lien” is a judgment lien that is recorded and indexed in the public records under the
name of the debtor, rather than under the legal description of the real property.

Because the name of a debtor listed on a lien document may have the exact same name of the
borrower in foreclosure (yes, this can happen) you simply need to verify who is who.

If the judgment lien document has the debtor's Social Security account number or driver's
license number listed on it, you can use that to verify the judgment debtor's full legal name. Or,
if there is a legal description listed in the lien, compare it to the legal description listed on the
deed of the property in foreclosure.

If a judgment lien document lists only a street address, compare the street address to the street
address of the property in foreclosure.

It can be tough to determine the validity of judgment liens, as you can see above. All the more
reason to hire a competent title search professional to do title searches for yous.

                                 Recording a Fraudulent
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                           Lien Constitutes Slander of Title
In most states, but for some reason not all, individuals who record a fraudulent lien against the
title to real property are considered to have slandered title. This is a civil offense.
People who are convicted of recording fraudulent liens may be liable to the owner for damages,
court costs, and attorneys' fees and end up with a third-degree felony on their record for life.
Why would anyone do this? Well, sometimes your competitors in the pre-foreclosure
investment arena try this in order to block you from getting a property. Sometimes,
unscrupulous individuals do it just as a scam

                                    Validity of a
                           Judgment Lien: How to Contest It
You must contest any judgment lien that you suspect is fraudulent. The validity of a lien can be
contested by filing a notice of contest of lien (like the sample copy in the resource section) in a
court of competent jurisdiction. Once a notice is filed, the lienholder concerned has 60 days to
file a counterlawsuit to enforce the lien. If the lienholder fails to respond within the 60-day
period, or fails to prove the lien's validity in court, the judge will issue an order removing the lien
from the property's title.

         What to Do When a Lienholder Is No Longer in Business
When investigating subordinate lienholders, it is not uncommon to find they they are no longer in
business. On these occasions, what you must do is file a lawsuit to quiet title. In this, you as the
plaintiff name the defunct business entity as the defendant. Once the lawsuit is filed, must publish
public notices of this lawsuit in the county's legal newspaper of record,.

By publishing the news in the appropriate newspaper, it’s possible that someone who reads it
will be able to find the owners of the defunct business and inform them of the lawsuit, so they
can respond.

Unfortunately, filing this type of lawsuit can be costly and time consuming. Most pre-foreclosure
investors don’t even pursue properties that have such liens.

                    What to Do When You Find a Loan That Is
                     Owned by a Bank That No Longer Exists
In theory, when one bank purchases another, all of the assets of the purchased bank are assigned

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to the entity acquiring itk. However, in some cases the paperwork is mishandled, and some
loans are not transferred. Or, to put it bluntly, lost.

Because these loans are not assigned and remain the property of a bank that no longer exists, he
first thing to do is contact your state's department of banking (or the equivalent). For example, in
Florida, you contact the Florida Department of Financial Services. If your state's banking
department cannot help you, call the Federal Deposit Insurance Corporation (FDIC) at (800) 378-
9581, and ask to speak with the department that handles loans owned by banks that are no
longer in operation. The FDIC web site is at

COUNTY OF __________
John Doe 15 Fake e Street,

Daytona Beach, FL 43444

You are hereby notified that the undersigned contests the claim of lien filed by you on Month/day/year, and
recorded in Official Records Book 1111, Page 111, of the public records of ____ County, Florida, and that the time
within which you may file suit to enforce your lien is limited to 60 days from the date of service of this notice.

Dated on this twelfth day of April, 2008.

                                                       John Smith Plaintiff

STATE OF ________
COUNTY OF ___________________

I hereby certify that a true and correct copy of the foregoing Notice of Contest of Lien has been mailed to the lienor,
John Doe, at the address shown above by First Class United States Mail on this twelfth day of April, 2009.

                                                       CLERK OF THE CIRCUIT COURT B                   y       :
                                                       As Deputy Clerk

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                     Use a Worksheet to Compile Information
                        about Each Subordinate Lienholder
Throughout this book, I recommend that you use checklists to ensure that you cover all your
bases on any given task. The same applies when you are dealing with subordinate lenders. Use
the sample worksheet located in the resource section.

                    Contact SubordinateLienholders by Letter
Once all of the subordinate lienholders of record have been identified, send each one a letter like
the sample in the resources section, by U.S. Postal Service Priority Mail, with Delivery
Confirmation so you have proof they received the letter. Offering to buy their lien at a
discounted price of 50 percent or more.
Other ways to send these letters are by 1 or 2-day air using FedEx or UPS, which looks more official
and more urgent. But, the price is more than three times what it costs you to send the letter by

                             Negotiating With Lienholders

Most lienholders are not located within the same county where the pre-foreclosure
property is situated. You will therefore not typically be addressing these lienholders face to
face, but rather by phone or email.

Your goal in talking to a lienholder is to get them to discount the lean to 50 cents on the
dollar or more. To do this, you must emphasize that the time they have to recoup any
money from the lien is running out, as the house in question is soon to be sold at a
foreclosure auction. And if that occurs they will receive nothing. Their lien will be
It is is in their best financial interest to sell you their lien, you must make them understand this.

                 First lienholder's name __________________________________________
                 Mailing address _________________________________________________
                 Telephone number _____________________________________________
                 Facsimile ______________________________________________________
                 E-mail address _________________________________________________

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                Type of lien ___________________________________________________
                Amount of lien ________________________________________________
                Date lien recorded _______________________________________________
                Date lienholder contacted _________________________________________
                Comments _____________________________________________________

                Second lienholder's name _________________________________________
                Mailing address ________________________________________________
                Telephone number ______________________________________________
                Facsimile ______________________________________________________
                E-mail address _________________________________________________
                Type of lien ___________________________________________________
                Amount of lien ________________________________________________
                Date lien recorded _______________________________________________
                Date lienholder contacted _________________________________________

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                                         SAMPLE LETTER

April 1, 2003

Mr. John Smith
323 Graham Avenue
Toller, FL 33609

Dear Mr. Smith:
I am writing to you in regard to your $1,000.00 judgment lien recorded against the title to
Mr. Jim Brown’s property located at 213 Para Sala, Temple, FL 33655.

You should have already been notified that the Bank of Shamu has filed a foreclosure
lawsuit against Mr. Brown, in Shamu County Circuit Court, to foreclose their mortgage
loan which is secured by the property located at 213 Para Sala, Temple, FL 33655.

The public foreclosure auction sale is scheduled for August 31, 2003, at 1 P.M., on the
third floor of the Shamu County Courthouse.
If Mr. Brown is unable to bring his mortgage payments current and the Bank of Shamu
does foreclose on his loan, your judgment lien will be extinguished and you will receive
I am currently in negotiations with Mr. Brown to purchase his property, before the Bank
of Shamu forecloses on their mortgage loan.

The only way that I can purchase Mr. Brown’s property is if judgment lienholders, such as
yourself, are willing to sell their liens to me at a 60 percent discount.
Please let me know as soon as possible if you will accept my offer to purchase your
judgment lien for S500.00.
I will send the satisfaction of lien form along with instructions and a cashier's check for
S500.00 to you by overnight mail.
Please call me at (111) 123-4567 or e-mail me at if you have any

 I look forward to hearing from you soon and to working with you to come to a mutually
 beneficial resolution to your situation.

 Sincerely, Sarah Thomas

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                             What to Do When a Lienholder
                               Rejects Your Initial Offer
Occasionally, a lienholder will reject your offer. They will not sell for anything less than the full
amount of the lien, Should this happen, you have five options:

  1. Make a final offer of 10 percent more than your initial offer.
  2. Keep making counter-offers until one is accepted (not recommended).
  3. Pay the full amount of the lien.
  4. Buy the property with the lien still attached to its title.

  5. 5. Do not buy the property at all.

                              The Most Important Advice in
                                   This Entire Chapter
It is imperative that you do not pay off any subordinate lienholders until after the title to the
property has been transferred into your name and recorded in the public records.

When you do pay off these lienholders, have them sign a satisfaction or release of lien or judgment,
in the presence of a notary public. This release must be in a Recordable form, which means that
the document meets the standards set by your state's recording statute to be recorded in the
official public records.

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                          Short Payoff Sale: The Definition
A short payoff sale is generally defined by loan loss mitigation professionals as:

       A sale in which a lender allows the property securing a mortgage or deed of trust
       loan to be sold for less than the existing loan balance, due to factors such as the
       borrower's financial circumstances, the property's physical condition, and local
       real estate market conditions.

                             The Four Parties Usually
                        Involved in a Short Sale Transaction
When working toward a short sale transaction, the people involved are:

  1.    Property owner who is in distress.
  2.    Investor buying that property.
  3.   Third party servicing the loan owner’s loan on the property.
  4.   Investor who owns that loan.

                Short Sale Requests Are Processed by Lenders'
                      Loan Loss Mitigation Departments
Once a borrower begins to miss loan payments on a regular basis, the ” nonperforming
loan” – as it is termed – will typically be turned over to the lender's loss mitigation
department. Most lenders also use their loss mitigation departments to process borrowers' short
payoff sale requests. So, you can follow the same advice that I just gave you earlier when
negotiating short payoff sales with lenders.

                  Short Payoff Sales Are Lenders' Last Resort
                     before Proceeding with Foreclosure
Most lenders will approve a short payoff sale only as a last resort, when the property meets the
following criteria:

  1. The property was purchased or refinanced at the top of a seller's market at an overinflated
       price and has since had a substantial drop in value.
2.     The property was refinanced at 125 percent of its value, which was based on an
       overinflated property appraisal report.

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3.    The property is located in an area where property values have dropped due to a dramatic
      change in local economic conditions.
4.    The property's value has decreased to an amount that is below the loan balance due to local
      and national economic conditions that are beyond the borrower's control.
5.    The property's as-is condition has deteriorated to the point where it is not financially feasible for
      the lender to put it into a marketable resale condition.
6.    The proposed purchase price is more than the lender would be able to sell the property for
      after foreclosing on the loan.
7.     Any sales commission the lender must pay is less than what the lender would have to pay to
      sell the property after foreclosing on the loan.

                 Borrowers Must Pass Stringent Hardship Test
Also, most lenders have a very stringent hardship test that borrowers mustpass.. In most cases,
the borrower must be experiencing one or more of the following financial hardships:

  1. The borrower or an immediate member of the borrower's family has experienced a
     catastrophic illness that has depleted his or her personal finances.

  2. The borrower's spouse has died or divorced, and the borrower has insufficient income to
      make the loan payment.
  3. The borrower's employer has transferred the borrower out of the area, and he or she is
      unable to sell or rent the property.
  4. The borrower has been called to active duty military service for an extended period and lacks
      the monthly income to pay the loan.
  5. The borrower has suffered a disabling injury that precludes him or her from ever working
  6. The borrower is unemployed and has no realistic expectations of finding employment in the
      foreseeable future due to local economic conditions that are beyond his or her control.
  7. The borrower has become financially insolvent, and there is no realistic expectation that his or
      her financial condition will improve within the foreseeable future.
  8. The borrower has been incarcerated and no longer has the income to pay the loan

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                 Twelve Factors Lenders Consider during the
                    Short Payoff Sale Approval Process
When deciding whether to approve a short payoff sale, lenders consider the following 12 factors:

  1. The number of nonperforming loans that the lender has in his or her portfolio.
  2. The lender's overall financial condition.

  3. The financial condition of the third-party investor who owns the loan.
  4. The loss mitigation policy of the third-party investor who owns the loan.
  5. The loss mitigation authority of the lender servicing the loan.
  6. The loss mitigation policy and procedures of the government agency insuring or
     guaranteeing the loan.
  7. The borrower's overall financial condition.
  8. The property's as-is value.
  9. The cost to put the property into resale condition.
  10. The property's as-repaired value.
 11. The cost of securing and maintaining the property while it is being marketed for
 12. The cost of marketing and selling the property.

                        How Private Mortgage Insurance
                         Can Affect a Short Payoff Sale
Private mortgage insurance (PMI) is purchased by the lender—and paid for by borrower—
to insure the lender against loss if the loan has to be foreclosed on.

Lenders require borrowers to pay premiums for this coverage because conventional
residential loans have a high loan-to-value (LTV) ratio, which does not give them a sufficient
equity cushion to compensate them when a loan is foreclosed.

With this insurance, if the lender recovers less than the balance owed from the proceeds of
a public foreclosure auction or trustee's sale, the private mortgage insurance company must
pay a claim up to the amount of the coverage. Once a lender declares a loan covered by this
insurance to be in default, the insurer could:

  1. Advance the borrower the funds needed to remove the default and reinstate the loan.

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  2. Purchase the loan from the lender and modify the repayment terms to match the
     borrower's current income.
 3. Approve the short sale and reimburse the lender for the lender's loss up to the amount
      of the coverage.

                        Final Short Sale Approval Comes
                       from the Investor Owning the Loan
: n almost all cases, the lender or loss mitigation company that services a particular loan is
not authorized to approve a short payoff sale, because final approval usually must come from
the investor – as for example Fannie Mae or Freddie Mac – who actually owns the loan.
It can take 30 days or longer for this investor to approve a short payoff sale. Pre-foreclosure
investors have told horror stories about having to wait more than three months to learn whether
or not such a sale was approved.
Of course, with the passage of the Homeowner Recovery Act in 2009, it may be possible that
these investors will be able to pick up the pace and approve these sales in a more timely manner.


Less than 5 percent of all properties in foreclosure qualify for a short payoff sale. If you are
bound and determined to get a property by this method, first find out the following pieces of

  1.   Total amount of all liens recorded against the property's title.
  2.   Lender's loss mitigation policy.
  3.   Borrower's current financial condition.
  4.   Type of loan in default.
  5.   Current status of the loan in default.
  6.   Property's as-is market value.
  7.   Property's as-repaired value.
  8.   Local economic and real estate market conditions.

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                   Obtain the Borrower's Written Authorization
                           to Release Loan Information
If the owner's financial situation and the property's physical condition have a better than
average chance of meeting a lender's short payoff sale approval criteria, have the borrower
sign a letter-of-authorization to release loan information, like the sample letter previously
mentioned that authorizes the lender to discuss the borrower's loan information with the
third party – you - named in the letter.

       Investors Need Cash to Finance Short Payoff Sale Transactions
All short sales are cash sales. This means that you must have the cash on hand to finance the
transaction. In addition, most lenders require the buyer – you - to submit a verifiable proof-of -
funds letter stating the source of the funds needed to finance the purchase of the property at
the same time they submit their offer to purchase.
Keep in mind that 99%of lenders will not sign a purchase agreement that contains an
assignment clause.

                                   Short Payoff
                      Sales Must Be Arm's Length Transactions
Almost all lenders require that all sales be arm's length transactions. What this means is that a
family member, relative, or close friend of a property owner in default cannot be a party to the
short payoff sale. If you try to work your way around this, and it is discovered, legal penalties will
ensue. So don’t do it!

                     Two Main Reasons That Property Owners
                      Will Not Agree to a Short Payoff Sale

  1.     In addition to the difficulties with getting a lender to agree to a short sale, you also have to
        persuade the homeowner, and that is problematical as well for the following reasons:
        Lenders do not allow property owners to receive any proceeds from a short payoff sale.

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  2. The amount of debt cancelled by the short payoff loan is subject to federal income tax as
     ordinary earned income. (However, cancelled debt is not taxable when the borrower is
     bankrupt or deemed insolvent by the IRS.)

Offer to Pay Property Owners a Separate Relocation Allowance

In the past, investors (the ones who have given pre-foreclosure property investing a bad name)
have attempted to bribe property owners to agree to a short payoff sale.

Rather than attempt to bribe the home owner, merely “sweeten the pot.” Make a separate
written offer to pay the property owner an agreed upon relocation allowance on the day that the
short payoff sale closes.

Be generous – have the allowance cover the cost of renting a medium-size truck and gas for an
in-town move, the first month's rent and security deposit for a medium-priced apartment, and the
deposits needed to have water, electric, and gas utilities turned on. That may come to about
$1,600 or $2000 – is the property worth it?

Inform the Property Owner of the Tax Consequences of a Short Payoff
When discussing a potential short payoff sale, tell the property owner upfront that the amount of
debt that the lender cancels will be taxed as ordinary income, unless he or she is bankrupt or
insolvent also. In addition, give the owner copies of IRS Publication 544, "Sales and Other
Dispositions of Assets," and Publication 908, "Bankruptcy Tax Guide."
(Not only is this an ethical practice, but it also might save you a potential lawsuit later, if the
owner comes back and sues you after having found out about the tax consequences from the tax
man instead of you. In today’s litigious society, full disclosure – and proof that you made full
disclosure – is the only way to go.
When a lender accepts a short payoff on a mortgage or deed of trust loan for $600 or more, the
lender must report the sale to the IRS on Form 1099C, Cancellation of Debt. IRS publication
544, "Sales and Other Dispositions of Assets," available at http://www.irs .gov/pub/irs-
pdf/p544.pdf, explains in detail how cancelled debt is taxed.

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                       Insolvency: The Definition of the IRS
The IRS considers an individual to be insolvent when: "You are insolvent when, and to the ex-
tent, your liabilities exceed the fair market value of your assets."

                              The Broker's Price
               Opinion is Used to Determine a Property's Value
The term broker's price opinion (BPO) refers to the appraisal format used by real estate
licensees to appraise property for lenders. Most major lenders have their own BPO forms that they
require the licensees to use. However, most lenders will not order a broker's price opinion or
property appraisal report until after they have received a complete short payoff sale package --
to include all of the documentation that is required to support the borrower's financial condition.
Lenders order these reports to determine a property's:

  1. As-is value.
  2. As-repaired value.

                                    Things to Include
                               in the Short Sale Package
   •   Always include a short payoff sale proposal letter, like the sample in the resources section,
       in the borrower's short payoff sale package that is submitted to lenders.
   •   Submit a net sheet as part of their short payoff sale package. Net sheets are used to
       calculate how much money they will net from the proceeds of a proposed short sale. A
       word of caution: When calculating a net sheet, make certain that the seller's net proceeds
       from the sale are zero. Lenders will not approve a short sale from which borrowers will

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May 18, 2005
Ms. Paula Winship
Loan Loss Mitigation Department Bank of Shamu3322 Fred Avenue
Temple, FL 33227
Reference Loan Number: FL 111111111, John Smith, Mortgagor, 235 Paso Doble, Temple,
                   Florida 34554

Dear Ms. Winship:
Please find enclosed the short payoff sale package for loan number FL 111111111, John Smith,
mortgagor, 235 Paso Doble, Temple, Florida 34554.

My proposed purchase price of60,000 is based upon the following facts:
1. Based on the recent sale of comparable properties within the same area, the as-is sale
    price for the property is between 890,000 and 590,000 (see the attached listing of
    comparable property addresses).
2.   Based on repair cost estimates from three licensed home repair contractors, it will cost
     between $17,000 and $27,000 to repair the property to a marketable resale condition
     (see the attached repair cost estimates).
3.   The borrower is insolvent.
4.  Property values within the area surrounding the subject property have declined by over 25
    percent in the past two years.
Please note that I have the funds on hand to close on the purchase of the property within 24
hours' notice.

Please call me at (111) 123-4567 or e-mail me at if you have any

Sincerely, Emma Raines

               HUD 1 Settlement Statement Available Online
Fill out a HUD 1 Settlement Statement online at my web site at:

                               Use a Checklist To Prepare
                               a Short Payoff Sale Package

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As usual, use a checklist when assisting a property owner in the preparation of a short payoff
sale package. The checklist should include the following:

  1.   Buyer's letter of short payoff sale proposal.
  2.   Borrower's signed letter of authorization for the lender to release financial information
       about the loan in default to the buyer.
  3.   Borrower's completed and signed short payoff sale application.
  4.   Borrower's hardship letter.
  5.   Borrower's financial statement.
  6.   Borrower's payroll check stubs from employer.
  7.   Borrower's financial history.
  8.   Borrower's unemployment compensation insurance coverage payment history.
9.     Borrower's state and federal income tax returns for the past two years.
10.    Borrower's bank statements for the past six months.
11.    Copies of the borrower's consumer credit files from Equifax, Experian, and Trans Union
       credit reporting agencies.
12.    Summary of any medical illnesses, to include treatment costs for any illnesses that the
       borrower may be currently suffering from.
13.    Copies of any divorce decree showing borrower's financial obligations for child support
       or alimony payments.
14.    Completed and signed purchase agreement.
15.    A listing of comparable sales of similar properties within the same area.
16.    HUD 1 Settlement Statement.
17.    Itemized listing of repairs and the cost of putting the property into a marketable resale
18.    Pictures of the property's as-is condition.

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 Fifteen Steps Necessary to Complete a Typical Short Payoff Sale Transaction
Here are the 15 steps that an investor must take to complete a typical short payoff sale

    Step 1: Buyer contacts property owner in foreclosure, and determines that the borrower's
    financial situation and the property's physical condition make it a potential short payoff
    sale candidate.
    Step 2: The borrower gives the investor written authorization to contact the loss mitigation
    department currently servicing the loan.
    Step 3: Buyer contacts the loss mitigation department listed on the latest correspondence the
    borrower received from the lender to obtain the name, e-mail address, and telephone and fax
    numbers of the person in charge.
    Step 4: Buyer sends this individual a fax of the borrower's authorization to release loan infor-
    mation letter.
    Step 5: Buyer then calls this individual to discuss the current status of the borrower's loan
    and to request a short payoff sale package for the borrower.
    Step 6: The borrower receives the short payoff sale package

    Step 7: The borrower obtains all of the documentation that the lender requires to support
    his or her financial hardship.

    Step 8: Buyer obtains the repair cost estimates from three licensed home improvement

    Step 9: Buyer obtains the addresses and sale prices of similar properties located in the
    same area that have sold within the past six months, along with the addresses and asking
    prices of properties that are currently for sale.
    Step 10: Buyer returns the short payoff sale package to the lender via courier. The package
    includes a signed purchase agreement to buy the property for 40 percent less than what is
    owed the lender.
    Step 11: The lender reviews the short payoff sale package and orders a broker's price opinion
    or property appraisal report to determine the property's as-is and as-repaired values.
    Step 12: The lender makes a decision to accept or refuse the short payoff based on the
    property's value and physical condition.
    Step 13: The lender refuses the buyer's initial short payoff offer based on the BPO.
    Step 14: The buyer makes the lender a counteroffer that is either accepted or refused.
    Step 15: The buyer closes on the short payoff transaction 30 days after the offer was

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                      Federal Housing Administration Short
                     Sales Are Called Pre-Foreclosure Sales
Both HUD and the Federal Housing Administration (FHA) refer to short payoff sales as pre-
foreclosure sales.

Pre-foreclosure sales of FHA-insured loans are covered in HUD Mortgagee Letter 00-05, dated
January 19, 2000. The only lenders authorized to approve a short payoff or pre-foreclosure sale of
an FHA-insured loan are loss mitigation lenders that have been approved by HUD. To be eligible for a
pre- foreclosure sale, the:

  1. Property securing the loan in default must be owner-occupied.
  2. Loan must be at least 90 days in arrears.
  3. Borrower must have a bona fide financial hardship.
  4. Borrower must receive counseling from a HUD-approved agency.
The toll-free telephone number for the FHA National Loan Servicing Center is (888) 297-8685.

Department of Veterans AffairsRegional Loan Centers
      The following is a listing of DVA regional loan centers and the states they serve:

Atlanta, GA
(888) 768-2132
Georgia, North Carolina, South Carolina, Tennessee
Cleveland, OH
(800) 729-5772
Delaware, Indiana, Michigan, New Jersey, Ohio, Pennsylvania
Denver, CO
(888) 349-7541
Alaska, Colorado, Idaho, Montana, New Mexico, Oregon, Utah, Washington, Wyoming
Houston, TX
(888) 232-2571
Arkansas, Louisiana, Oklahoma, Texas
Manchester, NH
(603) 666-7502

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Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, Vermont

Phoenix, AZ
(888) 869-0194
Arizona, California, Nevada
Roanoke, VA
(800) 933-5499
District of Columbia, Kentucky, Maryland, Virginia, West Virginia
St. Paul, MN
(800) 827-0611
Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota,
St. Petersburg, FL
(888) 611-5915, x 7500
Alabama, Florida, Mississippi
(808) 433-0480
Puerto Rico
(787) 772-7313

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                                   How to Prepare Your
                                   Purchase Agreements

There are a variety of boiler-plate purchase agreements available online. My advice is not to use them.
Real estate law varies from state to state, and if the boiler plate purchase agreement does not have
verbiage pertaining to the correct state – havoc could ensue!

Poorly written purchase agreements can have disastrous financial consequences for you.

Unlike conventional real estate transactions that are conducted between willing sellers and
willing buyers, pre-foreclosure property sales are almost always conducted between reluctant
sellers and buyers who probably are like you – in it for investment purposes only.

Prepare your purchase agreements so that they:

   1.   Conform to your state's foreclosure and real estate sales statutes.
   2.   Do not include any provisions that could be deemed unconscionable in a court of law.
  3.    Are valid and legally enforceable in a court of competent jurisdiction.
  4.    Fully protect your position as buyer in a pre-foreclosure property transaction.

Consult a lawyer skilled in real estate to draw up the purchase agreement for you.

Fourteen Key Provisions That Must Be Included in Your
Purchase Agreements
Make sure the 14 provisions below are included in your purchase agreement to clearly define
the terms and conditions of the agreement and the rights and responsibilities of both the
buyer and the seller:

 1. Parties to the agreement: Designate all parties to the purchase agreement as buyer and
        seller and include their legal status as to whether they are a single individual, husband
        and wife, or a business entity such as a corporation or limited liability company.

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 2. Earnest money deposit: State that if the buyer fails to perform this agreement within
     the time herein specified, the full amount of earnest money deposit made by the buyer
     shall be forfeited as liquidated damages, and such forfeiture shall jeopardize the seller's
     right to sue for specific performance.
 3. Legal description of property: Use the exact legal description that is written on the
     recorded deed of the property in the purchase agreement.
 4. Purchase price: State the firm purchase price of the property.
 5. Terms of purchase: Specify exactly how the purchase of the property is going to be
 6. Marketable title: Specify that the buyer must be able to obtain an owner's title
     insurance policy commitment letter from a title insurer in order to close on the
     purchase of the property.
 7. Assignment of the purchase agreement: Include a clause that the buyer has the right
     to assign or sell the purchase agreement to a third party.
 8. Default by buyer: Specify that the earnest money paid is the sole and exclusive remedy
     in the event that the buyer fails to close on the purchase of the property.
 9. Default tilt by seller: State that the buyer shall have the right of specific performance in the
    event the seller defaults on the agreement by refusing to sell the property.

 10. Eminent domain: Specify that the buyer shall be entitled to a full refund of the earnest
      money deposit paid, plus any accrued interest, in the event the property is condemned by
      eminent domain prior to the closing date.
 11. Buyer's right of entry: State that the buyer or the buyer's assigns have the right, upon
      giving the owner 24 hours' notice, to enter the property and inspect, repair, market, and
      show it to third parties prior to the closing date.
 12. Risk of loss: Specify that the buyer is entitled to a full refund of the earnest money deposit
      paid, plus accrued interest, in the event the property is damaged or destroyed by fire, storm,
      or earthquake prior to the closing date.
 13. Rig/it to examine records: State that the buyer has the right to examine all of the financial
      and tax records associated with the property prior to the closing date.
 14. Seller must vacate property: Require that the seller completely vacate the property and
     grounds prior to the closing date.

                     Three Contingency Clauses That Must
                    Be Included in All Purchase Agreements

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I’m sure you’ve read the warning labels that companies put on their products these days. They
give common sense advice that you’d think anyone would know without having to be told. For
example: don’t put a cup of hot coffee between your legs while you’re trying to drive, and so on.
But, they have to do this because of our litigious society, and the fact that most companies settle
such frivolous lawsuits because it’s cheaper than to fight them.

What’s this got to do with pre-foreclosure properties? Well, the same thing applies. You’ve got
to cover every possible contingency so that the individual from whom you bought the house
can’t come back and sue you for something. To prevent this, you must be open and above-board
at all times, and make sure that the owner who signs a paper reads it before they sign it, for
example. If you’re dealing with someone who does not speak English as their native language –
even if they speak it better than a native – have an interpreter on hand who can talk to them in
their language, so they cannot come back later and say they could not have been expected to
understand what was said to them.

Include the following three contingency clauses in each and every purchase agreement that you
sign with an owner in foreclosure:

1     Buyer must approve of the property's title status and marketability before this transaction
     can be closed.
2.   Buyer must approve of the status of the property's existing loans before this transaction can be
3.    Seller must completely vacate the property and grounds before this transaction can be

                      Do Not Use the Same Purchase
                 Agreements That Real Estate Licensees Use
Don’t use the same real estate purchase agreements that are used by real estate licensees in your
state to document the purchase of a pre- foreclosure property. These agreements do not contain
the kind of verbiage you need. Again – have a real-estate lawyer conversant with real-estate law
in the particular county in question draw up the papers.

                     Make Certain Your Purchase Agreement
                     Does Not Violate Your State's Statutes
When buying homes from homeowners with mortgage or deed of trust loans that are in default
and facing foreclosure, you must make certain that your purchase agreement does not violate any
provisions in your state's foreclosure and real estate sales contract statutes. For example, some
states, most notably California, have home equity sales contract statutes, which allow

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homeowners in default the right to rescind or cancel a home equity purchase agreement, usually
within five business days, excluding weekends and holidays, after the purchase agreement was
signed. Such statutes were enacted by state legislatures to give financially distressed homeowners
a respite from the high-pressure buying tactics used by some predatory pre-foreclosure investors.
The sample purchase agreement on pages 205-206 is for instructional and informational purposes
only. I highly recommend that you seek the assistance of a board-certified real estate attorney
who is licensed to practice law in your state to help you prepare a purchase agreement to buy
properties from owners in foreclosure.

                     Make Certain That All of Your Purchase
                      Agreements Are Properly Witnessed
The number of witnesses required to attest to signatures on documents vary with each state. Most
of the time it is two people, but check to make sure.
Purchase agreements that are not properly witnessed may not be enforceable in a court of law.

                     Have the Owner Complete and Sign a
                        Property Disclosure Statement
Finally, at the same time you and the owner are signing your purchase agreement, also have the
owner complete and sign a property disclosure statement that is approved for use in your state. At
a minimum, the disclosure statement should ask the following 10 questions:

     Question 1: Are there any hazardous substances at, on, under, or about the property? The
     term hazardous substances shall mean and include those

Until your right to cancel this contract has ended, (name) or anyone working for (name),
CANNOT ask you to sign or have you sign any deed or any other document.

The contract required by this section shall survive delivery of any instrument of conveyance of
the residence in foreclosure and shall have no effect on persons other than the parties to the
You may cancel this contract for the sale of your house without any penalty or obligation at
any time before (date and time of day).

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                                      Notice of Cancellation

                                   (Enter date contract signed)

You may cancel this contract for the sale of your house, without any penalty or obligation, at
any time before (date and time of day).

To cancel this transaction, personally deliver a signed and dated copy of this cancellation
notice, or send a telegram to (name of purchaser), at (street address of purchaser's place of
business) no later than (date and time of day).
I hereby cancel this transaction (date).

    elements or compounds that are contained in the list of hazardous substances and
    toxic pollutants adopted by the U.S. Environmental Protection Agency or under any
    hazardous substance laws.

    Question 2: Have any documents ever been filed in the public records that adversely
    affect the title to the property?

    Question 3: Are there any liens against the property for unpaid bills owed to
    architects, surveyors, engineers, mechanics, laborers, and material men?

     Question 4: Are there any actions, proceedings, judgments, bankruptcies, liens, or
     executions recorded among the public records or pending in the courts that would
     affect the title to the property?
Question 5: Are there any unpaid taxes or claims of lien or other matters that could constitute a
lien or encumbrance against the property or any of the improvements on it?
Question 6: Have any improvements been placed on the property in violation of applicable
building codes and zoning regulations?
Question 7: Are there ongoing legal disputes concerning the location of the boundary lines of the
Question 8: Is any person or entity other than the owner presently entitled to the right to
possession or is in possession of the property?
Question 9: Has the title or ownership of the property ever been disputed in a court of law?
Question 10: Are there any unrecorded mortgages or deed of trust loans and promissory notes for
which the property has been pledged as collateral?

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                         Hire an Experienced Board-Certified
                        Real Estate Attorney in Good Standing
You need a good real estate attorney in order to be successful with your pre-foreclosure
investment business…so choose that attorney very, very carefully.

You must hire an honest, competent, board-certified real estate attorney in good standing, who
has experience with foreclosure actions in your state.

Interview several lawyers (hopefully they give free consultations!) and choose the one who:

  1. Specializes in the daily practice of real estate law.
  2. Is well versed on how the foreclosure process works in your state.
  3. Has ample experience preparing purchase agreements.
  4. Is affiliated with a reputable title insurance underwriter.

  5. 5. Is licensed to sell title insurance in your state.

                          Standard Qualifications for an
                    Attorney to Be Certified in Real Estate Law

The basic qualifications for attorneys to be certified in real estate law are pretty
standard nationwide. In general, attorneys certified in real estate law must have
practiced law for at least five years, with 40 percent or more of their time spent in the practice
of real estate law during the three years immediately preceding their application for
certification. In addition, attorneys applying for certification must have passed a peer review, com-
pleted 45 hours of continuing legal education within the three years immediately preceding their
application, and passed a written examination.

In most states, an attorney in good standing is defined as:

     Those persons licensed to practice law who have paid annual. state bar associa-
     tion membership dues for the current year and who are not retired, resigned,
     delinquent, inactive, or suspended members of the state bar association.

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                          How to Find a Board-Certified Real
                            Estate Attorney in Your State
Contact your local bar association lawyer referral service, or your state's bar association lawyer
referral service, in order to find a list of names. Once you have the names of board-certified real
estate attorneys in your area, do an online search of your state's bar association membership
rolls to verify that each attorney is licensed to practice law in your state and to check whether any of
the attorneys have been disciplined or had their license revoked for misconduct. And once you do find
an honest, competent, board-certified attorney who is willing to work with you, treat him or
her fairly, and stick with him or her throughout your investment career.

                           Online Attorney Locator Services
The following web sites provide online lawyer locator services that allow you to search for an
attorney by specialty and location:

    •   Martindale Hubbell Lawyer Locator:    .html
    •   Findlaw:                             
    •   Lawyers:                             

                    How to Close on thePurchase of a Pre-Foreclosure Property
The crucial factor working against any investor trying to close on the purchase of a pre-
foreclosure is time. Once a date has been set to auction off a home, there is no changing it. You
must get all your ducks in a row before that day…or all your hard work will have been in vain.

It’s a tense time – if you don’t like living in suspense for a couple of months… investing in pre-
foreclosure properties is not for you.

                       Expect the Unexpected When Closing
                          on a Pre-Foreclosure Property

Quite frankly, you never know what can happen prior to actually sitting down at a table with
lawyers and lenders and your distressed home owner, ready to close the deal. Sometimes, a
lawsuit against the property owner can be filed the day before the closing, for example, which can
ruin everything! Or, the property owner may balk, as perhaps he or she has been approached by
someone who has offered him a better deal. (It’s been known to happen.)

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                                  Three Things Not To Do
There are dishonest pre-foreclosure property investors, sure. But there are also quite a few
dishonest property owners out there as well, property owners who will try to take you for a ride.
Do not do any of the following until after you have closed on the purchase and the property's title
has been transferred into your name or the name of the business entity -- such as the corporation
or limited liability company that formed:

  1. ay any lender to reinstate a loan and personally send the payment directly to the lender via
      courier service.

  2. Pay off any judgment lien.
  3. Pay property owners for their equity only after they have removed all of their possessions
     from the property and grounds.

                Title and Escrow Agents Are Third-Party Facilitators
   Title and escrow agents act as impartial third-party facilitators in real estate transactions.
   They do not look attempt to “look out for” the best interests of the parties involved – tha tis
   not their function.

   The only thing that the title or escrow agent is concerned about is that all the closing
   documents are signed and that the proceeds from the sale are disbursed.

   These agents are legally prohibited from:

      1. Providing legal, accounting, and financial advice.
      2.   Acting as a negotiator between the parties involved in a transaction.

      3.   3. Acting as a mediator between the parties involved in a transaction.

                            Most Title and Escrow Companies
                               Are Not Investor-Friendly
   By the very nature of their business, title and escrow companies dislike any type of real
   estate transaction that is out of the ordinary routine – the typical, easy-to-close residential
   sale with a buyer and seller and two real estate agents.

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A ‘transaction between principals” is what these people call it wWhen you buy a pre-
foreclosure property directly from an owner in foreclosure, and there is no third party, such as
a real estate broker, involved in the transaction.
The average title or escrow agent does not understand how unconventional transactions are

                  Use a Board-Certified Real Estate Attorney
                        to Close All Your Transactions
 Because of the reluctance of title insurance and escrow companies to deal with pre-foreclosure
 investors, it is best that you allow honest, competent, board-certified real estate attorney to act as
 your legal counsel and closing agent in all real estate transactions. This way, you will have
 someone working for you who:

   1. Has a working knowledge of real property statutory regulations and case law.
   2. Is experienced in solving complex legal problems related to real estate transactions.
   3. Understands the mechanics of how lien, judgment liens, and foreclosure actions work.
   4. Has a fiduciary obligation to act in his or her client's best interest.

                                       The Real
                          Estate Settlement Procedures Act
 The Real Estate Settlement Procedures Act, ( RESPA), is a federal consumer statute enacted
 into law in 1974 to protect the property-buying public from being taken advantage of by
 the real estate industry, which consists of title insurers, escrow companies, mortgage and deed
 of trust lenders, mortgage brokers, real estate agents, and attorneys who perform real estate
 settlements or closings. HUD is responsible for enforcing RESPA nationwide. And according to
 HUD, the purposes of RESPA are: "To help consumers become better shoppers for
 settlement services and to eliminate kickbacks and referral fees that unnecessarily increase
 the costs of certain settlement services."
      To learn more about RESPA, log onto /respa_hm.cfm.

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                         Review Your HUD 1 Settlement
                    Statement on the Day before the Closing
 Under RESPA, the buyer and seller are allowed to review their HUD 1 Settlement Statement
 24 hours in advance of the scheduled closing date. Make sure you do review it, so that you can
 make sure no fees are tacked onto it that you did not know about in advance!

                      Double-Check all Closing, Loan, and
                     Title Transfer Documents for Mistakes
 Do not automatically assume that all of the information contained in closing, loan, and property
 title transfer documents is accurate and up-to-date. Prior to sitting down at the closing table,
 you must take the time to double- check all of the documents used to close on the purchase of
 a pre-foreclosure for:

   1. Mistakes made in computing prorations.
   2. Mistakes made in transposing numbers and letters.

   3. 3. Mistakes made in spelling and typing.

If you do not want to take the time to do this type of double- and triple-checking, then the
profession of pre-foreclosure investor is not for you. Triple-checking must become second
nature to you.

                      Prorate the Property Taxes Using the
                                365-Day Method
The 365-day method of proration is based on the assumption that every year has 365 days. For
example, if the annual property tax bill for a pre-foreclosure property is $2,000 and the
seller owned the property for 260 days, the seller's prorated portion of the tax
would be $1,627.40 ($2,000 ÷ 365 days = $6.027 per day x 260 days =
$1,627.40). However, if the property taxes for the current year can't be ascertained,
stipulate in the closing statement that any tax proration based on an estimate
shall be readjusted upon receipt of the tax bill.

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                               Have All Utility Meters Read on the
                                    Day before the Closing
  On the day before the closing, have all of the meters read by the public and private utility
  companies that provide the services which the property owner is responsible for paying. You
  must notify utility service providers that the property is under new ownership so that you
  don't get billed for utility services that were provided to the previous owner.

                               Do a Final Walk-Around Inspection of the
                                  Property on the Day of the Closing
  On the day of the closing, before the actual meeting! Conduct a final walk-around inspection
  to double-check for any last-minute changes that may have occurred to the property that
  could have an adverse effect upon its value. Use the following property inspection checklist:

              FORM 18.1 Sample Walk-Around Property Inspection Checklist
  1.   Are there any condemnation notices posted on the property? ( ) Yes ( ) No
  2.  Are there bodies of standing water on the property that cannot drain? ( ) Yes (
  ) No
  3.   Are there any visible signs that the property is infested with termites or
       rodents? ( ) Ye s ( ) No
  4.   Are there any visible signs of environmental hazards on the property? ( ) Yes ( )
  No 5. Are there any code violation notices posted on the property? ( ) Yes ( ) No

                                Use a Buyer's Closing Checklist to Avoid
                                  Overlooking Anything at the Closing
       Use the checklist below to avoid overlooking any aspect of closing on a pre-foreclosure
       property, which could result in costly mistakes.

                           Sample Buyer's Closing Checklist
         1.   Review the title insurance policy.
         2.   Review the survey of the property.

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         3.    Verify the property's legal description.
         4.    Verify the property's zoning designation.
         5. Check with government agencies for building, fire, safety, and health code
         6.    Review the hazard insurance policy.
         7.    Review the termite inspection report.
         8.    Verify the property's tax payment status.
         9.    Compute the mortgage interest proration.
         10.   Compute the real property tax proration.
         11.   Check with government agencies for environmental hazard citations.
         12.   Review the bill of sale for personal property.
         13.   Review the deed.
         14.   Review the promissory note.
         15.   Review the mortgage.
         16.   Review the loan assumption documents.
         17. Review the closing statement.
         18. Verify that a current certificate of occupancy has been issued for the

Record the Deed and Mail All of the Checks to Lenders and Lienholders
 Do not pay off any lenders or subordinate lienholders until after the property's title has been
 transferred into your name or the name of your business.
 I cannot emphasize that strongly enough.
 The reason for waiting until after the deal closes is that some property owners could refuse to
 close on the sale of their property – as for example if they got a better offer, and you would be
 out any money that you had prematurely paid to lienholders.
 Here’s the strategy for paying off subordinate lienholders
  •   Never close on Monday or Friday. Mondays are always bad. If you close on Friday and
      there’s a problem, the weekend will prevent any quick solution
  •   Make sure your closing takes place at 11 A.M, sharp. If there are problems, this gives you
      the rest of the day to fix them. And it will give you plenty of time to go to the county’s
      clerk of court’s office and have the deed recorded.

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  •   Once this is done, then mail cashier’s checks to the lender and all subordinate
      lienholders. You can do this by Express Mail, or overnight delivery with UPS or FedEx.

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                Part 9: Rehabilitate The Property To Make Your Profit
If you’re going to be a successful pre-foreclosure investor, it will help if you have a background
in carpentry, electricity, plumbing, drywall, masonry, and such things as painting and stucco

If you don’t, then don’t try to fix up your new property on your own. Hire professionals to do
so. If you try to do it on your own, you’ll be wasting time that you could better spend going out
and finding more properties to purchase.

You want the house to look nice, and should pay for quality repairs that will last. On the other
hand, don’t be extravagant and pay for things that will provide you with no value, such as very
fancy bathroom finishings, expensive rugs, or even putting mirrors on the walls. You want the
walls to be pristine, and painted a neutral color, so that potential buyers will then be able to
decorate it the way they see fit.

Your Property Fix-Up Plan: Key Elements

As always, think about maximizing your profits. This consists of getting a quality clean-up and
repair job done within the budget that you set.

   •       Establish a bottom-line budget before you start the job.
   •       Estimate as closely as possible how much the total fix- up is going to cost. (It’s
           always better to over-estimate rather than under-estimate.)
   •       Hire professional tradesmen and contractors to do any and all repairs and cleaning
           for you. Research everyone you hire to ensure that they do their jobs well. Check
           them out with the Better Business Bureau.
   •       Will the individuals you hire have a supervisor who will ensure that the job gets done
           on time? If not, and if you are not up to the task, hire someone who does such work
   •       Have all of the completed work inspected by appropriate personnel to ensure that
           all repairs must meet building codes and use proper construction methods.
   •       Set a work schedule to complete the entire job. Coordinate all jobs if possible so that
           everyone that can take place simultaneously does take place.
   •       Put completion dates in all your contracts and hold everyone accountable to those

Don’t Be Ripped Off by Unscrupulous Repairmen and Contractors

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Unfortunately, the buildings trades have their fair share of rip-off artists. Don’t fall pretty to

   •       Hire only properly licensed and insured repairmen, tradesmen, and contractors.
           Investigate their qualifications, in particular at the local Better Business Bureau site,
           to ensure they have no complaints lodged against them.
   •       Require written estimates for all jobs.
   •       Require that everyone who provides labor and materials on your job sign your
           state's version of a waiver and release-of-lien-upon-final-payment form.

How to Choose Contractors Who Will Do The Job Right, On Time and On Budget

Step 1: Require that all repairmen and contractors provide copies of their license or certificate
of competency, occupational license, workers' compensation insurance certificate, workers'
compensation exemption certificate for sole employees, general liability insurance certificate,
and automobile liability insurance certificate.

Step 2: Require that all repairmen and contractors provide four customer references – which
you will then verify.

Step 3: Conduct an online search of your state's contractor license database to verify that the
contractor has a valid license.

Step 4: Contact all of the insurers listed on the insurance certificates to verify that the policies
are valid and in effect.

Step 5: Contact your local city and county building departments to check for a history of
complaints against the repairman or contractor.

Step 6: Contact your local Better Business Bureau to check for a history of complaints against
the repairman or contractor.

 Step 7: Log onto your state attorney general's consumer investigations web page to check to
see whether the repairman or contractor is under investigation.

Use Competent Professional Tradesmen to Work on Your Properties

If you want to have competent people work on your property, but don’t want to pay exorbitant
prices, give a thought to hiring retired tradesmen. For the most part, these individuals do
excellent work at reasonable prices, that are typically much less than what a contractor would

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However, it is more important than ever with these individuals to require references and to
verify them. They should also be fully ensured and so on. If there’s an accident at the job site –
you do not want to be liable for it!

Building and Repair Cost Calculators

Use the following websites to get estimates on building and repair costs:

       •   Construction Cost Calculator:
       •   Construction Material Calculators: www.constructionworkcenter.corn
       •   Building Cost Calculator:

Save The Exterior For Last

Once you’ve acquired your pre-foreclosure property, you will very likely have a lot of work to
do on both the interior and the exterior. Many investors suggest cleaning up the exterior first.
For myself, I suggest you take care of the interior. You’re not going to want anyone to come
inside until the interior is finished anyway, so why have an enticing exterior when a potential
buyer will just walk into a mess and become discouraged?

A clean home is a saleable home. You must thoroughly clean the property's exterior. This
includes the roof and all walkways and parking areas.

Use an industrial-strength pressure washer with a minimum capacity of 3500 PSI at 3.5 GPM.
Pressure washing will remove all dirt, grime, soot, oils, and other pollutants from all exterior

Again, this is a job that requires a professional. They have state-of-the art equipment and use
the correct chemicals. No need to scrape paint off the sides of the home after a good pressure
wash – just caulk where necessary, apply primer, and then give it a good finishing coat of
exterior paint. Bear in mind that a thorough pressure washing will expose any rotted wood and
other building materials that need replacement.

Eliminate Indoor Odors

After the interior of the home has been thoroughly cleaned and any repairs made, then is the
time to use some kind of odor eliminator to ensure that all traces of fresh paint aroma, old pet
smell, new carpet smell and so on are totally eliminated.

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Some experts recommend NI 712 Orange Odor Eliminator. It comes in a refillable spray
container and has a very strong and long-lasting orange citrus scent.

Check out to see their vast array of cleaning products.

Paint – Quick, Easy, Lovely

When you acquire a pre-foreclosure property, it will probably have aging paint on the outside
(or perhaps aging siding) and the interior rooms will show the marks of a thousand little
fingerprints. A good coat of paint, applied by a professional, will make each room look 100%

A professional applied coat of paint can add thousands of dollars to a property's resale value.
It’s that important.

As for the brand of paint – you need the best quality. I recommend Behr brands of exterior and
interior paint. They cost more than most other brands, but that’s because they are of the top
quality. You certainly don’t want to install top-of-the-line chandeliers in every room, but you
most certainly want to use top of the line paint – and have it applied professionally. .

Do You Have The Artists’ Eye?

I have a variety of interests, and each one of the rooms in my home is decorated with a
different theme. One has a marine motif, anothera space motif, and so on. When it comes to
decorating your pre-foreclosure property, you can’t indulge your own personal tastes. You need
to choose a décor that will fit any taste…or that will allow the new purchaser to decorate it the
way they want with a minimum of fuss.

Have you ever driven past a row of houses and had your eye caught by an absolutely awful
color scheme – perhaps a dark blue or a lime green. They may be your favorite colors but they
aren’t going to do the exterior of your home any good.

Choose a color that will not stick out like a sore thumb from the rest of the homes on the
street. I’d even go so far as to consult a professional exterior and interior decorator to see
what they advise as to the color.

Again, the interior walls and ceilings should be painted in light neutral colors, which make them
look larger and lighter than darker colors. Use an interior flat latex paint for these walls. Use a
latex semi-gloss enamel paint for the interior trim and doors.

Textured Coatings Save Rough Interior Wall and Ceiling Surfaces

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If your new pre-foreclosure property has rough surfaces on the walls or ceilings, no need to
sand or take drastic steps. Just hire a professional to apply a textured coat of paint to them.
This type of paint is very difficult to apply so that it looks nice, so don’t stint on hiring that

Professional Carpet Cleaning Service to Clean the Carpets

If your pre-foreclosure property has carpeting, then they must be professionally cleaned.

Again, however, do research into each business to find the best one for the best price. Check
with the BBB to make sure there are no complaints against them, ask to talk to previous clients,
and so on. If your carpets are not properly cleaned – if they are over--wetted, for example, the
carpets could shrink or develop mildew.

Finally, make sure that you get a written estimate to clean all the carpeted rooms in the
property – one that they will commit to

Clean, Repair, or Replace as Needed

Here’s a checklist of items on your property that need to be taken care of:

   •       Walkways and parking areas: Clean, repair, patch, and seal all walkways and parking
           areas as needed.
   •       Mailboxes: Clean, repair, or replace all mailboxes as needed.
   •       Exterior doors: Clean, repair, or replace all exterior doors, hardware, and locksets as
   •       Windows: Clean, repair, or replace window frames, glass, and locks as needed.
   •       Exterior lighting: Clean, repair, or replace all exterior light fixtures and bulbs as
   •       Interior doors: Clean, repair, or replace all interior doors, hardware, and locksets as
   •       Kitchen cabinets: Clean, repair, or replace all cabinet doors, hardware, and
           countertops as needed.
   •       Interior lighting: Clean, repair, or replace all interior light fixtures and bulbs as
   •       Plumbing fixtures: Clean, repair, or replace all sinks, tubs, showers, faucets,
           commodes, and vanities as needed.
   •       Heating and cooling systems: Clean, repair, or replace all heating and cooling
           systems as needed.
   •       Floor coverings: Clean, repair, or replace all carpets and floor coverings as needed.

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   •       Exterior and interior paint: Clean, prepare, and paint all exterior and interior
   •       Landscaping: Prune, cut, trim, and mow the property's landscaping and lawn as
   •       Gutters and downspouts: Clean, repair, or replace all gutters and downspouts as
   •       Roofs: Clean, repair, or replace as needed.

Always Conduct a Walk-Through Inspection before Making the Final Payment

When you hire your contractors – for whatever purpose – make sure they understand that they
will receive no payment until you determine that the work has been satisfactorily done.

Depending on the type of work, have a professional individual investigate the work to make
sure it is up to code, or conduct a walk-through yourself to ensure it. Check the quality of the
materials and workmanship.

When you conduct this inspection, make lists of any and all discrepancies you find. Give them
to the appropriate contractor or tradesman to correct.

When making your final payments, ensure that you get a release-of-lien form signed by all
contractors or tradesmen, which states that they have been paid in full for all labor and
materials used on your property.

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                Part 10: Selling the Property to Maximize Your Profits
Once you’ve received title to your new property, and have it all fixed up, and it has passed all
appropriate inspections, the time comes to sell it.

Since you’ve kept track of all the expenses that it took to get the home ready to sell, you can
add those all up together and add them to the amount of money you wish to recoup from the
sale of the home, in addition to the amount of money that you paid for it.

The final price is of course contingent on how much comparable homes in the same area are
going for.

When you sell the home, the best thing to do is ensure that you get the full price for the home.
Let the new buyer make arrangements with a lender to make installment payments. This is a
much better method than accepting installment payments from the buyer yourself.

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Keep in mind that advice given in books is no substitute for talking with a good real-estate
lawyer and an accountant. Indeed, you will need both in order to run your business properly.

If you’re going to be purchasing property in a variety of different states, remember that the
foreclosure laws vary from state to state. It is your responsibility to familiarize yourself with the
laws in all of the states in which you intend to conduct business. Finally, remember that your
success is up to you. The information, the advice, the tactics have all been given to you, but you
need to make them work.

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