4 Key Differences in Today’s PreForeclosure Home Equity Market

With so many more homes with equity – the pre-foreclosure equity buying business is back in full force. After years of growing foreclosures, dropping prices and non-existent equity – this is very welcome news! If you’ve been out of the market for a while and now jumping back in – it’s important I warn you to NOT use the methods that worked during our last upcycle – a lot has changed!

The 4 Key Differences in Today’s PreForeclosure Home Equity Market:

1. Online Resources:

Of course your hunt for great deals all starts with your search on Foreclosures.com. And today’s members have much more complete data than years past (mortgage history, foreclosure history, sales and rental comps and more. Check out a free test drive here.) With the ease of the web, you can now gain so much information on your person in default before you even speak to them. Starting with free phone number search engines (whitepages, 411, and others) to get your listed phone numbers quickly. Then searching google you can find out if their house is for sale or not, if their business or work is online, you will find their contact information listed. And if they are on facebook, linked in or other social media sites, you can send them a friend request or private message and hope they get back to you. You can even search their names on county recorder websites and find out the status of their foreclosure, what other loans or liens they may have, and if they have solved their foreclosure program – or not – in most cases for free.

Bottom Line: We have a lot more information at our fingertips, that will help us better understand the owner and their situation, before we offer them a recommendation. But do you know the best course of action that the owner should take now (that is not motivated by your goal to buy the property) and why?

2. Phone Numbers:

How many people do you know that have kept their home (land) phone numbers? Very few. Most folks now have dropped those and now cell phones – which are not listed. So if you are looking to make calls, you will find out quickly that most numbers are disconnected. You will need to call neighbors and relatives if you want to reach the owner. And again, your only viable leads are those with a listed land line (which are becoming less and less). And if you think you can short cut this process with mailers, think again. The last thing defaulted owners are doing is going to their mailbox. That is where the bad news lies. Expect your mailer to go in the trash along with everything else.

Bottom Line: If you are not successfully Door Knocking, your odds of finding a great equity deal are slim to none.

3. Objections from Owners:

A few years back, our biggest objection was the owner refinancing themselves out of the problem with a subprime loan – which would cost them a fortune – and they would end up stripping their equity and remove the options of selling and putting cash in their bank. Well, we all know what happened to the subprime lender market (say good bye after 2005 implosion). Today, our biggest objection is the owner getting a Loan Modification from their existing bank and keeping them home. Ideally, it would be great if that was a viable option for the owner – as we always solve for what’s best for the owner (not ourselves) – right?? There are many questions around this objection – how much time do they have until the auction? How far along are they in the process of loan modification? What have they completed (and not done) to get the lenders approval? Has the lender made an offer? When should they “cut bait” and move onto a sale before they lose all their equity at the auction?

Bottom Line: I’m seeing lenders are LESS likely to accept a loan modification with an owner in default who has equity – than with a short sale – because they know the sooner they foreclose, the sooner they get paid in full. Do you know how to get them to get “unstuck” and lead them to a sale to you?

4. Process to Close the Deal:

In the past, it was pretty easy to get the bank to give the owner a postponement of the auction, so you had time to close the deal. Today, with so many Short Sales (homes that owe more than the house is worth), lenders are more compliant to give an owner an extension IF they have no equity. Makes sense, they don’t want the house back and if they can do a Short Sale and get it sold now, it’s much cheaper and better for the lender than taking the house back through foreclosure (REO) and then selling it later (in much worse condition). But if you have an owner with equity, the lender will be QUICK to go to auction, so they can recover 100% of their monies. Expect getting a postponement to be a challenge.

Bottom Line: You must clearly explain the process to the owner so they know what to expect on your purchase. And if you are close to the auction date, do not expect a postponement. Do you know how to close a “subject to” financing equity purchase agreement in just a few days?

As you can see, there’s a lot changes that have happend since the last pre-foreclosure with equity market. If you are now jumping back in, I HIGHLY suggest you get up to speed first. Please join me for my “Foreclosure Investors: Make Fast Profits Now” Live Webinar this Wednesday, June 26th, 6pm PDT. I’ll share with you what you need to know, so you can start closing some great wholesale deals in your backyard – now – this summer – and put $30,000 or more in your pocket.

Talk to you then!