So I have a list of Pre-Foreclosures- Now what?

Question

Aloha All,

Pardon my ignorance as I'm new to the foreclosure and pre-foreclosure process. I recently acquired a listing of them in my area, and I'm not sure where to begin.

Do I just call these people up and say, "Hey I can buy your house!"?

Can someone please explain to me what "Amount of Default" means? Is this the amount that is owned to the lender that the borrower is unable to pay? There are some properties on this listing that are as low as 20k for a place here on Oahu.

Any help would be greatly appreciated.

Thanks!

-Joey

Michael Borger · Answer

Aloha @Joseph Ferrer. Great questions. I've done many pre-foreclosure deals on Oahu and am doing more of them right now islandwide as I type this response.

The "Amount of Default" is how much they are behind in their payments, also called the arrears. This may be more than the sum of the missed mortgage payments - it may also include the accrued interest, penalties and legal fees that the lender wraps up into the amount owed them to bring the mortgage back into good standing. It is NOT how much the home could be cleanly sold for.

Regarding your plan of action right now, you have a few options:

• Initiate a direct mail campaign, i.e. yellow letters, typed letters or postcards. Offer the benefits you can provide - debt relief, avoiding a foreclosure on their record, cash in hand (if they have equity).
• Call them. Of course, this means having their phone number. If you don't have their number, you can try a skip tracing service to find them.
• Go knock on their doors. This one takes a bit of courage in the beginning, but it's the best way to actually make sure you reach them. As the above poster mentioned, you can ask them what their current plan is.

Just as important, though, is understanding your exit strategies. With a pre-foreclosure list, you'll be speaking with homeowners who are underwater, have lots of equity or have little equity. You need to know how to handle each of these situations -- short sale (and who will negotiate it for you), subject-to and cash out. These are always good to have in your tool belt but are even more important when working a pre-foreclosure list.

Let me know if you have more questions or need help with any deals you're looking to take down!

Corey Boone · Answer

Hey Joey,

Good job taking the first step. It depends on what you are doing. I have a preforeclosure list and they are people that are about to go to foreclosure so they SHOULD be motivated but that is not always the case.

If you want to doorknock, you go to there house. If you want call them you find their number and give them a call. If you are doing yellow letters you send them a letter to their address, but the main thing is you don't have much time because most will be auctions in about 6 weeks or less.

What I say is, "You may have already taken care of this but you home is on the foreclosure list and what wondering your plan?" Listen..."I buy homes cash and can possible save your credit" Now, I must say, I am about 3 months old and this hasn't work as of yet but I will post my success story when it happens. You normally buy the property for 70% of ARV or less.  Hope this helps, let me know if you have further questions.

Jay Statzer · Answer

If mailing be sure to include "Return Service Requested" The best is to search and/or skip for cell numbers. Nothing beats knocking neighbors of a vacant house. Sometimes you don't get info but luck your way into a different deal! Just happened to me.

Michael Borger · Answer

@Lilia Kozuma Don't get overwhelmed - you have to start somewhere, and you're doing so by joining these forums. In your example, you could conceivably make it work - of course, it all depends on your cost of borrowing and what you're going to charge for the other rooms. I'm not in the Hawaii cash flow game, so I can't speak specifically to how that would likely look, but it's possible. If you buy the property cheaply enough, your cost of borrowing decreases, so maybe you should be looking at distressed multi-family properties instead of what's on the MLS and paying market value. Foreclosures (REO) are one source, but you can also market to pre-foreclosures, probates, inheritance, absentee landlords, etc..... the typical lists.@Michael Brito Jr. I suggest working backwards from what you feel is a fair profit based on the resources you expect to have tied up into a deal for 4-6 months. Would you do a flip with an ARV of 700k in order to make 40k? I wouldn't, but that would of course bring your MAO/70% up. Do you need to do that deal to make 150k? Again, likely not. Use the calculators, but massage them a bit so that your MAO hits your sweet spot.... then take that figure and compare it to the ARV and you'll have your new MAO %.

Joseph Ferrer · Answer

I really appreciate the responses guys, good to know there are other people out there doing what I plan on accomplishing soon.

I'll try calling/ door knocking first as I don't have a large marketing budget. (Wish me luck!)

Just visited your website @Michael Borger, very well done, looks like you are killing it here on Oahu!

When you find someone who's interested in selling their home, what sort of formula do you use to determine the offer price? I've heard 70% of the ARV, minus repair and closing costs is that the type of range you're looking for? At what point would you go lower/higher?

Trista Fenner · Answer

@Joseph Ferrer, how did you acquire the list of pre-foreclosures?  I live in the Kansas City area and would be interested in that for my area if it exists.

Michael Brito Jr. · Answer

@Michael Borger sounds good. Appreciate the input. I'll give it a try.

Michael Brito Jr. · Answer

@Michael Borger have any suggestions on the type of adjustments we can make to get that deal? I've been putting out offers at the 70% but no takers yet. I'm thinking about adjusting it higher, but the calculation on my profit always becomes smaller. Is there a certain percentage that you've had a higher success rate of closing at for homes here in Hawaii?

Lilia Andrew · Answer

@Michael Borger Hawaii's market still doesn't make sense to me.  Should I be looking for foreclosures?  I am currently looking to buy a property to maybe live and rent out other portions of the property for cash flow...but realistically, is that even possible?  For example, there is a property in Kalihi for $679,000 with three living areas, 5 bedroom and 3 bathrooms.  Let's say I rent out 2 bedrooms and live in the other 3 or lets say I rent out all three living areas.  I still don't see mathematically how it would make sense.  I think I need to learn how to analyze...what is the best resource to learn how to analyze properties...I need some practice!  do you use the BP calculators?  I find them overwhelming!

Michael Borger · Answer

The 70% ARV rule is good for mid-lower markets, but in Hawaii where prices can easily eclipse 600k, it could mean walking away from good deals, so adjust it accordingly.

So I have a list of Pre-Foreclosures- Now what?

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