#10 - More than One...

Number 10 is actually more than a "technique", it is a series of techniques that are lumped together under the label, "Foreclosure Strategies". Not to be confused with being a Maryland Foreclosure Consultant (Strategy #5). A Maryland Foreclosure Consultant is a bird dog , who operates within the Maryland law (f/k/a SB-761) and would assist both home homeowners and investors dealing with properties going through the foreclosure process.

Within the "bucket" of foreclosure strategies you have post-foreclosure techniques and "pre-foreclosure" techniques. A post-foreclosure technique is simply to acquire the real estate once it moves from the "foreclosure" side of the house to the REO (Real Estate Owned) side of the house of most large lenders. Many lenders will outsource the management of properties once they become REO to an outside (or captive) firm called an asset manager. Typically the asset manager will be required to hire a real estate agency to "widely market" the property. So, if you have a good Realtor(r) on your team, you should not be missing out on anything if you work this niche.

Pre-foreclosure strategies include such techniques as taking over the payments subject-2, or using lease/options whereby the homeowner moves out and leases the house to you and you then make up back payments and send in payments. Most investors I know who do pre-foreclosure investing do not like to use lease./options because of the continued problems the prior homeowner can get in to that may attach to the property. They much prefer using Subject-2 (please see my comments on using Sub-2 in the prior post).

In addition to the strategies for getting the deed, there are also strategies for reducing the amount of the indebtedness to the lender through something call a "Short Sale". In a short-sale, the investor convinces the lender to take a payoff for less than the book value of the loan. Say a loan is $100,000 and the borrower has fallen seriously behind to the point the lender is now ready to foreclose. Because of the fees, penalties and charges, the lender is now owed $110,000. Rather than foreclosing and hoping to recover $110,000 through the foreclosure and resale process, the lender may in fact accept a pay-off figure of something remarkably less, say $65,000 or $70,000. Why?

Maybe the market has gotten soft, and the lender realizes that it have a significant holding period while waiting for a new buyer to come along. Or maybe the current owner has thrown himself/herself a "getting out of Dodge" party and one of the party (parting) games was to get all of their "Iron Man" friends to come to the house and see who could throw the biggest appliances out the second floor window - without opening the window. Another variation of this game is to not use a window at all, but see if you can in fact throw them through the wall and out onto the back yard. Or, quite possibly after a further review, the lender determines that the original loan was made under fraudulent terms and the property was never worth any where close to what the loan is.

Bottom line: every foreclosure has a real and hidden cost, and foreclosure us the VERY LAST THING most lenders want to have to do. There is the real cost of attorney's and court fees, as well as other professionals involved in a foreclosure and resale, as well as the "hidden cost" of what happens to a piece of real estate that sits empty. Therefore, it is often times in the lenders best interest to discount the amount of the mortgage and accept a discounted payoff, rather than going down the foreclosure path.

There is one exception to this philosophy of lenders not wanting to foreclose and that is of course in situations where the asset is worth more than the mortgage, Often times a lender will then sell the delinquent note at a discounted amount. The major difference is of course when the lender sells a note, it will no longer be the lender, and it has in fact transferred this "problem loan" another lender in exchange for cash. The new lender will be picking up a note, normally at a steep discount to the loans book value, and in many cases at a value way below what the asset would sell for, once fixed up.

This of course, leads us to strategy #11...

Sherman Ragland - Thank you for reading...