Buying Foreclosure Property Directly from the Owner

Sometimes the best way to buy foreclosed property is to help the homeowner prevent the foreclosure from happening. By paying attention to your local municipalities lis pendens, you will have a bird’s eye view of what is happening with the properties in your area. While many investors will be waiting for the foreclosure auction to take place, you can beat them to the punch by quietly purchasing the property directly from the owner before it goes to auction. Many homeowners are willing to negotiate a great deal with an investor in this way because it prevents them the embarrassment and turmoil of having to go all the way through the foreclosure process. By contacting the homeowner directly, you can eliminate the possibility that you might lose the property that you want at auction.

There are several ways to approach a homeowner who is about to have their home foreclosed. The first is by sending direct mail. When the foreclosure is announced as public record, then you simply glean the name and address of the owner from the announcement and send a short, professional note stating that you would like to purchase their home before it forecloses and leave your contact information. You should be prepared with all of the pertinent information concerning the amount owed and who the creditor is before meeting with them.

Another way to approach them, and this only works in certain areas, is to do a cold call. Knocking on doors is effective if you have the ability to think on your feet and enjoy talking to people. Just knock on the door and very politely explain who you are. Make sure that you make it clear from the start that you are not a creditor, but that you can actually help them avoid the impending foreclosure. You won’t legitimize yourself by being dishonest. Tell them who you are and that you see their home as an investment opportunity, but that you’d be helping them out of their predicament at the same time. When done correctly, this can be an effective way to purchase a house for just the amount that is owed on it.

Once the homeowner agrees to sell to you directly, then you need to act quickly to get the sale done before the auction. You may have as little as 20 days to complete the entire deal. If you feel like there isn’t enough time to complete everything, there are ways to hold up the process from the judicial end. This should give you the time that you need in order to complete the sale directly from the owner.

There are several forms that you can file which will cause a delay in the foreclosure process. The main purpose of filing these forms is the amount of time that they take to process. If some take as many as sixty, or even ninety days, then the court can’t sell the property until they have cleared. This will give you the time that you need in order to complete the sale.

These can also be useful ways to tie the homeowner into agreeing to sell you the property. A standard purchase to sale agreement will guarantee them the cash that they need in order to pay off the outstanding mortgage. A residential lease with Option of Purchase may also be a very attractive option to homeowners, as they won’t necessarily have to move. You would buy their house and lease it back to them with an option to buy. If, somewhere down the road they were in a financial position to buy again, you would sell it back to them at fair market value. This is a win/win as they get their house back and you glean the equity.

Some forms are simply meant to stand as proof of sale or are necessary for you to perform due diligence on the property. An authorization to release information, seller’s property disclosure, a bill of sale, and an affidavit and memorandum of agreement are a few examples of such documents.

As with any property that you purchase at auction, you must make sure that you have all of the documents that you need in order to perform due diligence. Don’ t get so wrapped up in beating the auction that you fail to thoroughly inspect the property and the house. Use the forms to access the information about the property’s history and past owners to make sure nothing will creep up later that could drive down the value of your investment. If you are able to gain peoples trust then buying directly from the owner of a distressed property can be a great way to beat your competition to prime real estate.

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