All Forum Posts by: Robert Davidson

Dave,

First I am not an attorney, just an investor who invests in houses when the bankruptcy fails.  When someone files BK, the law grants an immediate "stay" i.e. halt to all collection efforts.  No creditor can phone, write or otherwise attempt collection until the BK is finalized in some way. 

A creditor would request a Motion  for Relief of Stay, typically when plan payments are delinquent.  The lender would file the motion and a hearing is held.  If the judge grants the motion, the stay is lifted and the house debt no longer has the bankruptcy protection and the lender can pursue collection, including foreclosure.

The Trustee can also file motions for dismissal for a variety of reasons, often the creditor has caused unreasonable delay which is prejudicial to creditors' rights or has failed to file required documents timely.

Having said that, I would really not recommend BK investing for someone new.  It can be complicated, time consuming, and expensive.  You have to periodically check on the federal court site www.pacer.gov to see the status of the case so you know if and when a request for dismissal or Relief of Stay has been filed AND granted.  Pacer charges $0.10 per page.  Doesn't sound like much but it adds up fast.

Almost certainly she filed Chapt 13 since there are assets involved. It is extremely difficult to buy a house out of bankruptcy. The Trustee has final say. Remember that the Trustee's primary goal is do see that all creditors receive as much cash as possible. He has no interest in you getting a good deal. Normally for the Trustee (and therefore the court) to approve the sale, it would have to be at a minimum of 90% of a BPO of FMV done by a licensed realtor, so there goes your wholesale deal. It's much better to wait and see if the BK falls out, most do, and then you can approach the owner direct. Most BKs are either dismissed, typically for failure to make plan payments or to file docs timely. Or, the lender can file a Motion for Relief of Stay. If the court grants it then the house is removed from the automatic bankruptcy stay and the lender can proceed to foreclosure. This is your other opportunity to approach the owner prior to the auction.

With only $10K I would not consider a long term investment like a rental or trust deed.  Your primary goal, IMO, is turn that cash as fast as possible while increasing the amount.  The best way is to do wholesale flips.  Find a property, put it under contract, and flip the contract to a rehabber for an assignment fee.  A flip can be done in 10 days or less.  But there are many ducks to get in order.  First develop a buyers' list, through joining a real estate investment club and getting to know people, especially the owner/moderator.  craigslist is a good source but there are good people and untrustworthy people there.  Know what type of property and criteria each person wants.

Second, develop a targeted marketing plan. For, example, pre-foreclosures with equity. There are various sites that provide lists of pre-foreclosures and notices of auction sales for around $49 per month. Get the right contracts, private not realtor's. Your marketing costs will be minimal; door knocking, phone (use Skype), and gas. Don't let anyone tell you there is no money out there. If the deal is good (you MUST buy at the right wholesale price) it doesn't take much to find private money (not hard money pretending to be private) but true private investors. Joining one or two real estate investment clubs again is a good source and in my area costs about $20 per month, less paid annually. After your first one or two successful deals money gets even easier. I have five private investors for short term (less than a year) cash. One of my doctors, a restaurant owner where we eat regularly, a neighbor, and two other real estate investors I met at the real estate club. You are really being a bird dog for rehabbers who are always looking for deals, albeit for a fair assignment fee to you. Learn MAO, subtract your assignment fee, and never, never, never violate MAO.

Another low marketing budget area is probate houses.  There is an excellent probate thread here on Bigger Pockets.

Also, Mike LaCava posts regularly on Bigger Pockets on House Flipping and has an outstanding (no phony GURU pitches) House Flipping website.  Study what he teaches. 

Start small, stay focused, be persistent, don't give up.  You can do the above without borrowing anywhere near $10,000 and the interest that goes with it.  $500 will give you a great start and I rarely spend $500 a month.

Worst mistake you've made is to not have brought an attorney in at the beginning.  Having said that, an attorney maybe could now (depending on the specifics) file a motion for dismissal with a 180 day prohibition on the creditor and spouse filing another bankruptcy.  That would give you time to foreclose.

It's very possible but not for someone new.   I market to this group, but several things to remember.  It's very time consuming, expensive and complicated.  You will never get a wholesale deal from someone currently in bankruptcy because the BK Trustee will insist that any sale be at a minimum of 90% of a BPO.  The only purpose of the Trustee is to see that as many creditors are paid as possible.  They have no interest in you getting a good deal. You will have to learn the federal PACER system www.pacer.gov which charges $0.10 per page to view the file documents.  Trust me, this can add up very fast if you don't learn specifically what to look for.  My first quarter billing was over $2,000.  Now it's about $500.  The only way to succeed is to market to people who have either had their BK case dismissed by the court (usually for failure to file documents timely) or if a lender files a Motion For Relief From Stay (because plan payments are not being made) AND the court grants that motion.  Just filing the motion doesn't count.  If either of these two happen the court is no longer involved, at least with the house.  You can now market to them like a classic wholesale purchase.

The big problem with car decals are that they cause damage to the modern finish of cars.  One person I know that tried that stopped after the second small claims suit and judgment for a complete paint job.  Also, you never want the decal on older cars or cars with visible damage.  Not a great image of a professional business.

Personal opinion, (others may differ) I wouldn't use the Ready, Fire, Aim method.  Pick one or two methods to try for at least six months to test market.  Any shorter and you won't know what could have been very successful.  Keep in mind that Response Rate is meaningless, close rate is what is important and many people forget that.  Minimize the looky loos as much as possible.

Radio ads are expensive and not targeted.  Thousands will hear the ad but few will remember the phone number to call.  Cost per deal could be high.

Direct mail - Can be very successful but $1K per month is too low.  Pick a very specific list.  Probate, 50% or more equity, owns private notes, non-owner occupied, etc..  Then by Zip code, age, owns multiple properties, etc.  Direct mail works only if done consistently for many months.  It is true in real estate that most of your business will come from the 5th - 8th contact (letters, postcards, phone calls.)

Facebook OK if you are marketing to the under 55 crowd which won't be the high equity group, generally.

Bandit signs - can be very successful but almost all communities have laws against them.  Plus neighbors delight in ripping them up.  Also, must only be put out Friday evening and picked up Sunday evening to avoid the city code people and a fine.  You will need to hire someone to do that or it's a big waste of your time.

Door knocking - one of my favorites.  But again focus.  Are you just wandering house to house and hoping someone wants to sell or knows someone who does.  That can be successful but maybe not for the time involved.  Pick a niche.  I market this way to pre-foreclosure lists.  Many of these people have disconnected their phone and few investors call on them.  But the presentation is critical.  Do not say "You're going to lose your house. Sell it to me."  The last thing most people in foreclosure want is to move from their house.  Instead, discuss what the options are for someone facing foreclosure to possibly keep their house. There are about eight or nine.  (Hint, selling the house is last on the list.  I don't mention it on the first visit.)  You want to be seen as helpful, not as (in their mind) one of the vulture realtors who just want a listing, a greedy investor who wants to "steal" their house, or the slimy attorney who just wants $5,000 to file bankruptcy, 85 - 90% of which fail.

Bankruptcy - I market to this group, but several things to remember.  It's very time consuming, expensive and complicated.  You will never get a wholesale deal from someone currently in bankruptcy because the BK Trustee will insist that any sale be at a minimum of 90% of a BPO.  The only purpose of the Trustee is to see that as many creditors are paid as possible.  They have no interest in you getting a good deal. You will have to learn the federal PACER system www.pacer.gov which charges $0.10 per page to view the file documents.  Trust me, this can add up very fast if you don't learn specifically what to look for.  My first quarter billing was over $2,000.  Now it's about $500.  The only way to succeed is to market to people who have either had their BK case dismissed by the court (usually for failure to file documents timely) or if a lender files a Motion For Relief From Stay (because plan payments are not being made) AND the court grants that motion.  Just filing the motion doesn't count.  If either of these two happen the court is no longer involved, at least with the house. 

I know a couple of very successful investors that run an ad in the local penny saver paper. It's not their only marketing, but it does get business.  They buy a year's worth of ads at a time and have been running the same ad for many years.

I would ask the obvious question, if you are doing over 100 rehabs in 18 months, what marketing are you using now?  That number would be considered a big success by many investors.

Some possible good news.  Insurance companies know (the one I worked for certainly did) that 98% of all lawsuits settle.  Plaintiffs don't want to wait years for a trial date, plaintiff's lawyers want a quick fee payment where they don't have to spend a lot of hours with only the percentage of the damages to collect, and the plaintiff's attorney knows a lawsuit is NOT about justice or right from wrong - it's all about getting a settlement.  Let your attorney manage the case.  Very frequently our attorneys would delay any settlement talks with the plaintiff's attorney, file many motions (called papering the other side) with the court that the attorney had to spend time and money to answer.  So, there was a great incentive for the other attorney to talk his client into agreeing to a, sometimes amazingly low, settlement offer.  Don't be in a hurry.

Whatever you do, don't even think about talking to the plaintiff or his attorney.  only speak to your attorney.  If the damages are more than policy limits as here, you are responsible for the remainder.  There are special rules on what debts are and are not dischargeable in bankruptcy. Having worked for many years for a property & casualty insurance company, we saw this situation almost daily.  People being cheap with the minimum policy and no umbrella policy   When sued, the company paid what they were legally required to pay, and the rest is on the defendant (you).  If your current assets (investment house) only covers part of the judgment, you are still responsible for the remainder.  As someone mentioned, California is very pro-victim.  Legal aid is a possibility, if you qualify.

Texas, Florida, and Nevada have Independent Administration of Estate Acts.  Google them.