Buying Foreclosure Homes - You Win by Offering the Homeowner
Options
In teaching workshops on how to buy foreclosure homes (often
listed on a foreclosure auctions report), I often write on the
markerboard in big bold letters, "Gain They're Trust to Close
More Deals".
The principle of gaining the trust of the homeowner threatened
with foreclosure is a deal-maker. If they trust you, they are
more likely to accept your offer. Besides that, if you have
earned their trust by explaining their options to them, then if
they choose to let the home go to auction where it will likely
end up on a foreclosure auctions report (and you win it) they
are much more likely to vacate the property without a fight.
1. Work with their Current Lender
Forbearance: An agreement between the lender and the borrower
that reinstates the delinquent loan because the homeowner will
put up an initial lump sum of the total delinquency and pay the
rest over a period of time.
Loan Modification: A change in any of the terms of the original
note. This includes decreasing the interest rate, re-amortizing
the remaining balance, extending the term of the note.
2. Work with a New Lender
Refinance: Where a new lender loan the borrower monies to pay
off existing debt. This option is generally open to borrowers
that face a temporary setback in their financial situation and
can prove that they can afford the new mortgage payment. Most
financial institutions will not loan to people unless they have
the above mentioned criteria and at least 20% equity in the
residence.
Junior Mortgage: Where a new lender will offer a second loan or
junior lien in order to make up any back payments, late fees and
other charges necessary to reinstate the loan. Rates are
typically 12%-18% and terms are 5 to 10 years.
3. File Bankruptcy
Bankruptcy is a way for people who owe more money than they can
pay right now, to either work out a plan to repay the secure
creditors over time in Chapter 13 filings, or wipe out
(discharge) most of their bill in a Chapter 7 filing. While the
debtor is working out a plan, or the trustee is gathering the
available assets to sell, the Bankruptcy Code provides that
creditors must stop all collection efforts against the debtor.
What happens to your bills, debts and house will be controlled
by the Bankruptcy Code and the Federal Rules of Bankruptcy(the
owner will NO longer have control over any of their assets).
Bankruptcy will have a serious impact on the credit lives for
the next 10 years.
4. Sell Their Home
List with a Realtor on the MLS (Multiple Listing Service)- Due
to the short foreclosure period in Texas, listing their home
with an real estate broker and being able to close within 21
days is a very unrealistic task due to the new buyers financing.
The process of lenders approving the buyers credit, appraising
the house, completing underwriting, reviewing title, getting a
new survey, getting payoff demands and drawing documents--can
take 3-4 weeks to complete (assuming no problems pop up). Just
because the property is under contract and scheduled to close
will NOT stop the auction.
Sell to an Investor- Selling their house to an investor who
offers " cash at closing"; no new loan contingencies; no repairs
to be made (AS IS); fast escrow; a for sure sale providing a
fresh start with reputation and integrity intact would be their
best option. Although the investor's price is less, the investor
can salvage the seller's credit, bring loans current, rebuild
seller's credit by paying the sellers debt on time every month.
This is a much BETTER solution than doing nothing and losing
everything at the foreclosure auction.
5.Giving Up and Letting it Go:
Deed-in-Lieu: Borrower voluntary conveys the title (property)
back to lender in lieu of the lender foreclosing. Most lenders
would rather go through with the auction and clean title by
extinguishing inferior liens.
Let it Go to Auction: Obviously, nothing good can come from
this, the owner loses their home with no money, credit problems,
hard to find new housing due to past history and the lender can
sue for any deficiency.