Hi Rochelle,
I live in just the area you have mentioned....lots of foreclosures and high rental demands. I regularly approach home owners facing foreclosure. Although not a specialist in real estate law, my business partner is a lawyer and from our close scrutiny of the law in our state - we learned that you MUST be honest and cannot approach homeowners misleading them of your intentions. It is not wise to solicit them as if you are "helping them get out of their foreclosure situation" ~ because this tends to imply that you are aimed at preventing the foreclosure so that they may keep and remain in their home. I am very clear when I approach homeowners. I tell them that through public records I noticed that they may be facing foreclosure. I sometimes even mention the specific date that I believe their house is expected to be auctioned at the trustee's sale. I am a real estate investor. I am interested in potentially buying their property and would love to chat with them about scenarios I may be interested in offering them. I let them know that clearly my aim is to make money but it is important to me that they (as the seller) is comfortable and satisfied with the deal terms I offer. It can be challenging because people who are facing foreclosure tend to be very emotional. I have had people yell at me over the phone, slam doors in my face or simply listen to my 5 minute spill with absolutely no interest. Other people have felt really grateful for me approaching them. I know my market really well and find it really easy to quickly evaluate the risk etc. I usually suggest to the homeowners that they first approach their lender to see if they can workout a solution without my help because I may not be their best option. While - this has led me to miss out on some GREAT deals... (because the bank worked out a solution for them such as a loan modification or payment plan) ...it does build rapport between myself and the homeowner and I stay in contact incase they fall into a similar situation or know of a friend who may be interesting in selling their property. You learn a lot of interesting stories about how people end up in that situation.
Here are a few suggestions...DO NOT enter into an agreement that which BOTH of you are owners. It is not necessary and you don't know that person and it is likely to cause you headaches and lots of money in the future. Just buy it. If you have cash - offer the cash. If you can afford and qualify for a loan - get a loan. If you have challenges getting a traditional loan - find a hard money lender. If the deal is really great - you might make some friends here on BP who may be interested in the deal. Worse case - if you are limited on cash and really just have the funds to pay the delinquency - purchase the property subject to the existing mortgage. There are risks in this situation, but with current interest rates at an all time low, lenders are less likely to act upon "due on sale" clauses. One other bit of advice though - if you do decide to go with a "subject to" mortgage - be sure to get a "limited power of attorney" over the mortgage so that the lender can communicate directly with you regarding payment and any further correspondence. I learned some great information about "subject to" mortgages here on BP. It helped me land a great deal.
Another suggestion, do your research on this industry. Someone listed some great keyword searches. Don't say things that you are unsure about. Don't tell homeowners how much their house is worth unless you are an agent, broker, appraiser or real estate attorney. Just let them know what you are offering. Don't make them feel that they may be better off doing the deal because you would be providing them with extra cash to move. In reality in some cases, they may have more to gain going forward with a foreclosure. Here is an example, CA is a state that does not hold homeowners liable for any amounts not recovered through a trustee's sale. Another interesting fact that many people do not realize is that if the property is auctioned for more than the liabilities of the lender, the homeowner is due that extra money. I have witnessed situations where a homeowner was due nearly half a million after a trustee's sale. So again...research and continue to seek out the advice. I'll try my best to answer any further questions that I can. Good luck!
