There are three reasons why many people love pre-foreclosures: 1) they are easy to find 2) they are low risk and 3) they are extremely profitable.
However, not everyone is familiar with wholesaling pre-foreclosures and how they should be approached and handled accordingly. The good news? That’s what Mr. TTP himself tackled in this episode!
If you need a brief on pre-foreclosures, Brent is your guy and this episode is for you! As always, Brent delivered all the basics of wholesaling pre-foreclosures in a way that’s easy to understand and digest, so don’t forget to tune in!
- What pre pre-foreclosure means
- What Lis Pendens means
- What REO means
- How to get a list of pre-foreclosures for free
- Best resource for updated pre-foreclosure lists
- Why being proactive is key
- How to plant seeds when prospects don’t answer your calls
- The importance of being kind and empathetic
- Why knowing and understanding the action date and pay off amount is crucial
- What you should do when there’s no equity
- Why you need to complete the transaction before the auction date
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Now let’s set the foundation first. There are four steps to the foreclosure process. First step is as soon as somebody doesn’t make a mortgage payment, that is called pre pre-foreclosure. This is now the bank is going to give that person, that property owner, 90 days to make up that mortgage payment. If they don’t, then that’s when it goes into official pre-foreclosure. Now, listen, there are some companies that will provide you with pre pre-foreclosure lists and you can certainly test them out. In my experience, they’re not really effective just because people typically aren’t going to make a decision on solving their problem. But go after it, see if you can get a hold of them. It is definitely a sign of distress.
As soon as it goes into pre-foreclosure, they record a lis pendens or a notice of default on that property. That is public record. How amazing is that? We can get a list of these as soon as they come out for free, but we can get a list of these properties. And then if they don’t make their payment for 90 days, that’s when the property goes to auction. Now once it goes to the auction, eight times out of 10, the bank takes the property back. The bank owns it and that’s what’s called REO. That’s the fourth step. The third step is the auction. The fourth step is REO. Now listen, if the bank owns the property, do not go after those properties. We want to catch it before the auction, and I’m going to show you how to make sure that the properties that you’re going after have equity and how to be profitable on every single deal that you get.
All right, let’s get in to the meat and potatoes. Let’s break down exactly how you’re going to get these wholesale deals from pre-foreclosure. Step number one, get the list of pre-foreclosures. You can get them free if you call up your title company or better yet, if they’re open, go to the title company office, tell them that you’re an extremely proactive investor. You want to bring them transactions, but you want to help people out of foreclosure, and they … Listen, they spend millions of dollars every single year on data. They have the list. Go and see if you can get it from your title company absolutely for free.
Now, the issue with it is typically, it’s not as updated as some other resources. So the best resource is ttpdata.com powered by PropStream. They update every single day, and if you have a really, really low budget, which is fine, you can trial PropStream for two weeks for free, and you can export 500 files. In those 500 addresses, you could be able to get your first deal. It’s $97 a month if you have the budget, and it’s tool that we use literally every single day in our business. It’s the number one real estate tool. But if you don’t have the budget, then just use the trial for free. Check it out. ttpdata.com.
The second part is how are you going to get a hold of these property owners? What is your marketing strategy? Are you going to mail to them? Are you going to go to their doors and door knock them? Are you going to call them or are you going to text them? I highly encourage you to be proactive. They are going to get an unbelievable amount of mail, not only from the bank, but from real estate agents, from other investors. As soon as that notice of default or lis pendens gets filed, people just automatically are sending them dozens of letters every single week. So you might just be caught up in the mix there. So I highly encourage you to get the addresses, skip trace them, backskiptracing.com, and get an accurate phone number and call them. Talk to them, have a conversation.
Now, initially they are going to avoid your calls. Keep calling, keep leaving voicemails, keep text messaging them. You are planting seeds, but every single time you do, you’re going to set yourself apart by being really, really kind, by being empathetic to the situation that they’re in. This is absolutely key because they’re going to get a lot of calls from the banks, and they’re typically not going to answer the phone for numbers that they don’t know. So make sure that you’re planting seeds with voicemails and with text messages. Once the stress is so overwhelming, so overbearing, they’re going to pick up the phone and they’re going to call you, and you’re going to get the opportunity to help somebody out of one of the most difficult situations of all time.
Three is you need to understand when is their auction date and what is their payoff amount? Now remember for a traditional wholesale deal, they need to have equity. You can get it under contract at a really solid price and be to sell it to a cash buyer for even more but there still has to be meat on the bones. Typically, the bank will send them letters with how much is left on the loan, how much they are behind and how much the penalties are. The penalties get incredible. They can add up to thousands of dollars so you need to know exactly what their payoff is because if you go and you see that a property is worth 150,000, they owe 70,000 on the loan amount, well, they could potentially owe up to 90 to 95,000 on that property because of back payments, penalties and attorney fees. You need to ask the homeowner, just to have a conversation with them and say, “What is the most recent letter that you got from your bank? What’s the most recent statement?” And typically, it’ll be on there.
Worst case scenario, put the property under contract, the title company will order a payoff statement so you’ll get the exact amount. But really, you need to know how much needs to be paid off so you know how much you can sell it for and what your profit is going to be on the wholesale side. All right. Now, if they have equity, the next step is, if they have equity, than just lock it up, put it under contract, sell that contract to a cash buyer. It’s a traditional wholesale deal. But if there is no equity, there are creative financing options. You can do a subject two and be able to actually wholesale that subject two to a cash buyer as well that wants to build up their rental portfolio, or you keep it for yourself.
And the fifth step is complete the transaction before the auction date. There is a finish line here. There’s a finish line that if you don’t get this deal done in time, the auction is going to happen, somebody else is going to own that property, and now the contract that you have doesn’t mean anything because they foreclosed on the property. So you need to make sure that you are staying on top and understand exactly when that auction date’s going to happen. Listen, I’m telling you, we have … Here’s a little story for you. We had a guy reach out to us seven days before his auction date, seven days. We had to get the transaction done. We had to open up title. We had to get everything signed. We had to get it sold to a cash buyer, get their funds in all within seven days. Luckily we were able to do it in 72 hours. The property owner, the seller, couldn’t have been happier.
So it was a really great situation, but this is common. People will wait to the very last minute to make a decision, so you got to be quick on your toes when it comes to pre-foreclosures. But those are the steps. Get the list. Get the list. Figure out how you want to get ahold of them. Make sure you understand what their payoff is. Make sure that they have equity, and if they don’t, then switch tactics and then make sure you get it done before the auction date. You follow those five steps, you will absolutely do the most amazing deals this year. You can do amazing deals this month, you follow these steps. So get going, start taking action today. You’re amazing. I love you. Until next time. Talk to you soon.