General, How to Find Deals

How To Find And Buy Foreclosures Before The Auction

Published Tuesday, June 8, 2021
By Kevin Amolsch
Foreclosure Notice

Certain Experts Suggest Foreclosures Will Increase

Foreclosures are coming! Many experts believe that we will see waves of foreclosures starting in September. Although I do not agree, I want to be ready if I am wrong.

There are three phases to a foreclosure process, and opportunities to buy foreclosures in all three. First, you have your pre-foreclosure phase. This is everything leading up to the actual auction where the property is sold to the highest bidder. Following, you have the foreclosure auction. Finally, there is post-foreclosure, which is when the lender owns the home.

Many investors believe that the best opportunities to buy killer deals are in the pre-foreclosure phase.  The reason for this is you, as the investor, can negotiate directly with the owner. These owners are typically extremely motivated to sell because they are losing their home and ruining their credit. You also do not need a lot of cash to buy houses in the pre-foreclosure phase.  It is common for investors to borrow money to purchase these homes, including borrowing money for repairs. Pine Financial specializes in this type of lending.  Learn more about our rehab lending programs at https://pinefinancialgroup.com/borrowers/rehab-loans/.

Finding Foreclosures Before They Go To Auction

The key to finding foreclosures before the auction is to locate owners that have recently fallen behind on payments. Once the lender files the foreclosure, which is typically 3 to 6 months after the first missed payment, it becomes a public record and is easy to find.  Many times, you can get these foreclosure lists from title companies for free or get them directly from the county websites. Because this information is so easy to get, everyone chasing foreclosures will have it. I have gone into homes to meet with sellers and noticed stacks of letters and postcards from investors sitting in huge piles or spread out across the kitchen table. That stack of marketing pieces is your competition, and that much competition can be intimidating.

Truly the best way to find these deals is to locate the seller BEFORE it becomes public knowledge.  The problem with that, of course, is it is not easy to do.  The most successful approach is to create and follow a plan.  You will want to use some marketing to reach out to homeowners that may be in financial trouble to let them know you can help. Anytime you start a marketing campaign, you will want to set a budget, track the results, and tweak the campaign to maximize results. I have always had the best luck in the pre-foreclosures phase with direct mail.

Tips For Marketing To Pre-foreclosure Homeowners

Here are some tips to increase your chances of success:

  • Send a minimum of five letters or postcards to each seller. Seven or eight is even better!
  • Be sure to hit them at least one time per week.
  • Focus your message on helping them financially by buying the house. You can also use terms such as stop foreclosure or save your credit. That type of message should resonate with someone wanting help.
  • Make a risk-free offer. Something like a free consultation, free report, or video on how to deal with their situation can be enticing.
  • Don’t forget the call to action. Tell them what you want them to do and how to do it.

There are several ways to find mailing lists to send letters to. As I mentioned, there are foreclosure lists you can buy or potentially get for free. It will be a heavily worked list so you will need to find ways to stand out, but it is an easy list to get. Other lists that might work in finding foreclosure before anyone else knows about them could include, recent interest rate changes on the loan, code violations, tenant evictions, divorces, defaulted property taxes, and sometimes you can get recent payment default lists.

There are some alternatives to mailings. I have found some great deals in pre-foreclosure through yard signs or signs on the side of the road. Some investors do not like these signs because they don’t look good, and many municipalities consider them litter and can issue fines. That is why they are known in the industry as bandit signs. For me, they worked super well so I stuck with them for years. They work because when someone headed into foreclosure sees it, they may reach out for help before anything becomes public knowledge. You can gear your message to foreclosure leads by saying something like, “We Buy Houses” or “Stop Foreclosure” with your number. Or some variance of this.  If you don’t like the idea of leaving signs up, you could always hang them on a Friday and take them down on a Sunday.  Some of the most successful investors also try to separate themselves by physically knocking on doors.  The entire idea of a marketing campaign is to get invited into the home where you can make an offer.  What better way than to physically shake a hand on their front porch? You can use the foreclosure list but instead of sending letters, like everyone else is doing, you can go try to meet them in person.

Setting Appointments With Pre-foreclosure Sellers

As you start getting phone calls from your marketing, you will want to set appointments with the sellers to view the home and to discuss their options. Obviously, your goal is to help them with their situation by buying their home.  In most cases, that is the best option for them. Leave some contracts in the car but be prepared to run out and grab one if you can agree on price and terms in this initial meeting.

Things To Know: Foreclosure Protection Act

Not being an attorney, I cannot give advice on this, but when you are dealing with foreclosures like this, there may be some additional hoops for you to jump through before you can close. For example, in Colorado, there is the Foreclosure Protection Act which dictates specific language and disclosures that must be included in your contract as well as a cool-down period for the seller to think about the transaction before fully committing. I would highly recommend spending some money for an hour or two of a real estate attorney’s time to be sure you are staying compliant with your contract and buying process. You can always rely on a real estate agent as well if that makes you more comfortable.

Things To Know: Due Diligence

Once you have the contract signed, you can dig into your diligence. This could include items such as verifying the fixed-up value, rental rates if you plan to keep it, creating a repair budget, and property inspections. I highly recommend at a minimum that you inspect the sewer, as that is one item that cannot be seen and can be very expensive to repair.  Once you are comfortable, you want to move forward, open escrow with a title company or an attorney and then contact your lender.

Don’t Forget: Your Loan Lender Is A Great Resource

As the title company does its research, you should be finishing up with your loan. In most cases, the money side is easy, if you have already been pre-approved. The lender can also hold your hand through the closing process, so lean on them for some advice. Your lender is a great resource to keep you safe. They will most likely not loan you money unless the deal is good, so rely on them as a second set of eyes to help verify your project’s viability.

With all this said, it is important to be approved for the loan before you spend the time on your marketing, meeting with sellers, and doing your diligence.  Pine Financial offers no risk, FREE pre-qualifications.  Get started here.  https://pinefinancialgroup.com/borrowers/apply/

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