. 1
( 7)



Chantal Howell Carey and Bill Carey

John Wiley & Sons, Inc.
This book is printed on acid-free paper.
Copyright © 2005 by Chantal Howell Carey and Bill Carey. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey
Published simultaneously in Canada
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any
form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise,
except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without
either the prior written permission of the Publisher, or authorization through payment of the
appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers,
MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests
to the Publisher for permission should be addressed to the Permissions Department, John Wiley
& Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008.
Limit of Liability/Disclaimer of Warranty:While the publisher and author have used their best
efforts in preparing this book, they make no representations or warranties with respect to the
accuracy or completeness of the contents of this book and specifically disclaim any implied
warranties of merchantability or fitness for a particular purpose. No warranty may be created or
extended by sales representatives or written sales materials. The advice and strategies contained
herein may not be suitable for your situation. You should consult with a professional where
appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other
Every concept, method, form, and entitlement contained herein are the property of this work™s
copyright holder.
Disclaimer: Every stated “we” was not necessarily the writers™ but could be the writers™ clients or
students. “We” is used to protect the privacy of those concerned.
For general information on our other products and services, or technical support, please contact
our Customer Care Department within the United States at (800) 762-2974, outside the United
States at (317) 572-3993 or fax (317) 572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in
print may not be available in electronic books. For more information about Wiley products, visit
our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Howell-Carey, Chantal.
Quick cash in foreclosures / Chantal Howell Carey and Bill Carey.
p. cm.
Includes index.
ISBN 0“471“67955“0 (pbk.)
1. Real estate investment”United States. 2. Foreclosure”United States. 3. House buying”
United States. 4. Real property”Purchasing”United States. I. Carey, Bill, 1951“ II. Title.

HD255.H663 2004
332.63 243”dc22 2004042251

Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1

Preface vii

Introduction ix

1. Quick Cash in Foreclosures 1
Use a Quick Cash strategy to make money in foreclosures.

2. What Is a Foreclosure? 15
A foreclosure is a lender taking a property to recover their
loan asset.

3. Why Buy Foreclosures? 27
Foreclosures are wholesale real estate buys.

4. How to Buy Foreclosures 39
Buy the foreclosure first, then get the financing.

5. When to Buy Foreclosures 51
Buy foreclosures before they are foreclosed.

6. How to Find Foreclosures 63
Subscribe to a foreclosure service.

7. Negotiating with the Owner 75
Present the eight foreclosure options to the owner.

8. Buying the Equity 87
Buy the owner™s equity, not the owner™s property.

9. Negotiating with the Lender Pre-Foreclosure 99
The bottom line is the bottom line when you negotiate
with the lender.

10. FHA and VA Foreclosures 111
The government wants to sell you its foreclosures.

11. Fannie Mae, Freddie Mac, and FDIC Foreclosures 121
Make a profit in the secondary mortgage market.

12. IRS Foreclosures 133
Make the IRS an offer it can™t refuse.

13. Buying on the Courthouse Steps 145
Bring cash when you are buying on the courthouse steps.

14. Flipping Foreclosures 155
Flip your foreclosures for Quick Cash.

15. Assigning Foreclosures 165
Assign your foreclosure contract to the highest bidder.

16. Optioning Foreclosures 181
Option your foreclosure contract for a big option fee.

17. Buying from the Lender 197
Lenders want to make loans, not own real estate.

18. Paperwork, Closing, and Title Insurance 211
Use the right paperwork to have your deal go through.

Appendix A: Deeds Chart 223

Appendix B: Loans Chart 227

Appendix C: Contracts 231

Glossary 247

Index 267

he national foreclosure rate has increased dramatically over the
last four years.Today more than 2 out of every 100 mortgage loans
are in the foreclosure process. The numbers according to the
Mortgage Bankers Association say that 500,000 to 600,000 mortgages
are either delinquent or in foreclosure. In the Dallas area foreclosures
have increased 85 percent since 1999. With the recession of 2001 and
the jobless recovery, 3 million people have lost their jobs. They continue
to fall behind in their mortgage payments.
We feel one of the best opportunities of the last 25 years to make
money investing in foreclosures is about to occur. Over the next three
years people who invest in real estate foreclosures are going to make
tens of thousands of dollars. This book from our Win Going In! series,
Quick Cash in Foreclosures, is designed to introduce both the new and
the seasoned real estate investor to a new way to make money in the
foreclosure market.
Using the techniques we developed in our book The New Path to
Real Estate Wealth: Earning Without Owning (2004), we show you how
to flip your foreclosure deals for Quick Cash. Unlike any of the other
foreclosure books on the market, this book presents a way to make
money in foreclosures without having a lot of cash to invest.
The most expensive way to invest in foreclosures is buying them at
the foreclosure sale. In April 2004 we went to the foreclosure sale on the
steps of the Tarrant County courthouse in Fort Worth,Texas. There were
more than one thousand properties being auctioned to the highest bid-
der. There were almost five hundred people milling around trying to fig-
ure out how to bid. You had a 500 to 1 shot of getting one of the top
deals. And because of the competition, your final cash price was going
to be bid up past the point of making any profit on the deal. Needless to
say, we didn™t bid on any properties that day.
The key to Quick Cash in Foreclosures is successfully negotiating
with the seller in pre-foreclosure. We show you how to buy the seller™s
equity for pennies on the dollar. Once you have negotiated a wholesale
contract with the seller, we teach you how to flip, assign, or option your


contract to another investor for a fat fee before the property goes to the
foreclosure sale. You make Quick Cash with no cash out of your pocket,
no qualifying for a loan, no battling the hordes on the courthouse steps,
no fix-up costs, no carrying costs, and no resale costs.
Quick Cash in Foreclosures is the only foreclosure book that
shows you how to start with little or no knowledge of the foreclosure
process and little or no money, and make Quick Cash in the foreclosure
game. When we developed and produced the foreclosure training for
Robert Allen, author of the best seller Nothing Down, our students in
Baltimore and Los Angeles were able to put into practice the insider
knowledge we presented to make money investing in foreclosures im-
mediately. With this book, you will be able to do what our students did
from coast to coast!

ver the years we have traveled throughout the country teaching
real estate, financial, motivational, and interpersonal skills seminars
to our students. We are always striving to be on the leading edge.
Regarding real estate, we have taught everything from buying and
selling it creatively as an individual or investor to core classes for licens-
ing and passing real estate broker™s exams. Just about anything you can
think of related to real estate, we have taught to someone somewhere!
With a new millennium comes new ideas. We have distilled the
knowledge and experience we have gained from buying and selling real
estate for ourselves and our clients and helping our students over the
last three decades.
Quick Cash in Foreclosures is the seventh real estate book we have
written. Our first book, How to Sell Your Home Without a Broker, is in
its fourth edition (2004). The third edition of that book was picked as
one of the top 10 real estate books for 2001 by Robert J. Bruss in the Los
Angeles Times.
Our fourth book, Going Going Gone! Auctioning Your Home for
Top Dollar, was also written to benefit the homeowner in the selling of
a home. Like How to Sell Your Home Without a Broker, our auctioning
book was designed to show you how to successfully sell your home
yourself without paying a real estate commission.
Our fifth book, The New Path to Real Estate Wealth: Earning With-
out Owning, was the first book in our new series designed specifically
for real estate investors. This Win Going In! series is designed to take you
from being a novice real estate investor to an expert.
Our premise for the Win Going In! series is that no matter what
kind of real estate investment you are going to make, you have to win
going in. It is no longer enough to make money on the back end of a deal
or make a profit when you get out of a deal. The deal has to have a profit
built in on the front end, or else you shouldn™t do it at all.
Quick Cash in Foreclosures is the second book in the Win Going In!
series. We show you here how to make money going into a foreclosure


deal. This is a hands-on book that teaches you how to enter the real es-
tate foreclosure market and make deals happen. What is unique about
this book is that we show you how to have a Quick Cash investment
strategy that you can successfully implement with little or no investment
We recommend you read this book in a particular way. Bring a lot
of energy to your reading. This doesn™t mean that you have to necessar-
ily read the book quickly, though that is fine with us. We want you to be
excited about the material. We want you to win going in as you read.
If you find yourself bogging down, stop reading. The material is de-
signed to be comprehended in bursts. See if you can go from one light
bulb turning on in your mind to the next. As it gets brighter and brighter
you will find yourself energized.
Our purpose for the Win Going In! series is to teach you all our real
estate knowledge and expertise. We want to be the Brain Trust for your
successful real estate investment career. You will know you are a suc-
cessful investor when you make money on your first deal.
We would love to hear from you about your successes. Also, we
want to hear what is working and what is not working for you. Please
e-mail us at thetrustee@hotmail.com or contact us through our pub-
lisher, John Wiley & Sons. Good luck and good deals!
Chantal & Bill Carey

Quick Cash in Foreclosures
ome real estate investors employ the real estate investment strategy
of long-term wealth building. In long-term wealth building you
buy and hold property for income and appreciation. This can be a
very effective strategy in areas of the country that experience very high
rates of price appreciation, such as California and the Northeast.
However,once you invest your money in real estate,it can be difficult
to liquidate or sell your assets quickly. Because real estate is the biggest
ticket item there is, it has the fewest buyers in the marketplace compared
with any other commodity. The Quick Cash strategy addresses the prob-
lem historically associated with real estate investing: the lack of liquidity.

Quick Cash Strategy
We recommend you use a Quick Cash strategy to make money in fore-
closures. Another name for the Quick Cash strategy is flipping. Flipping
is the fastest way to make money in real estate. When you flip a property,
you get in and out of a property in a short period of time.
Investing in foreclosures can be very cash-intensive. When you buy a
foreclosure on the courthouse steps, you have to pay cash. There usually
are fix-up expenses with foreclosures that require cash outlays.There may
be carrying costs, like mortgage payments, property taxes, and home-
owner association fees. You may have to flip your foreclosure property so
you can get your cash out and be able to go in on another foreclosure deal.


Top 10 Advantages of the Quick Cash Strategy
We are going to give you the top 10 advantages when you use the Quick
Cash strategy.The Quick Cash strategy is especially useful for foreclosure
investing. We like Quick Cash”a.k.a. flipping”because we don™t like
landlording (we™ve tried it), we love the art of the deal (flipping allows
you to make lots of deals), and we like making money right away.

Number 10: No Income Tax Problems

One of the major advantages of the Quick Cash strategy is that you avoid
income tax problems.When you hold rental real estate,it is very easy to re-
capture depreciation when you sell the property. Currently, if you have re-
capture of depreciation, you pay 25 percent in taxes. How easy is it to
recapture depreciation? Just own rental real estate and take depreciation.

Number 9: No Extensive Record Keeping

Can you say “certified public accountant” (CPA)? When you own rental
real estate, you must keep extensive records.You will have a full-time job
as a CPA, or you will be paying a CPA.
You will have rent receipts. Security deposit receipts. Checkbooks
(notice we use the plural here). You will have checking accounts to rec-
oncile. How about the legal requirement in some areas of having a trust
account for tenant security deposits?
You will keep maintenance records. You may have employees with
all the paperwork and tax nightmares that entails. Workers™ compensa-
tion insurance, unemployment insurance, health insurance, OSHA (Oc-
cupational Safety and Hazards Association), Social Security taxes,
withholding federal income taxes. The list goes on.

Number 8: No Lawsuits

If you own real property, there is a high probability that you will be
sued”if not by one of your tenants or guests, then by a cutthroat attor-
ney who looks up your real estate holdings in the public record to de-
Quick Cash Strategy 5

termine if they will take a case based on the real estate assets you own
that they can go after.
When you own property, you are a target for frivolous lawsuits.
Some of you reading this already know exactly what we are talking
about. You have been sued for no apparent reason. We also know that
some of you have paid legal settlements just to make the frivolous law-
suits go away.
Our solution? Don™t own real property. Not even foreclosure prop-
erty. Control real property. How do you control real property and not
own real property? Good question. That is what the Quick Cash strategy
is all about!

Number 7: No Homeowner Association

If you are, or have ever been, part of a homeowner association, then you
know the frustration of dealing with minityrants. Not to mention the
$100, $200, or $300 monthly dues. Or special assessments for painting,
landscaping, or roofing that can run into the thousands of dollars. And if
you don™t pay your monthly dues or special assessments, then your
friendly homeowner association can foreclose on you and/or sue you.
Homeowner associations are no longer just attached to condomini-
ums or townhouses. We are seeing more and more “maintenance associ-
ations” attached to planned unit developments (PUDs) and single-family
residences (houses).

Number 6: No Repairs and Maintenance Costs

We are sure you have heard the expression “deferred maintenance.” De-
ferred maintenance is the polite way of saying a property is a fixer-upper
because the property owner spent no money on regular maintenance
through the years. When a property is in foreclosure, you can bet the last
thing the property owner is going to spend money on is repairs and
New roof: $7,500. New dishwasher: $400. Gardener: $100 monthly.
Pool maintenance: $75 monthly. Real estate ownership entails significant
repairs and maintenance costs. Flipping property helps you avoid these

Number 5: No Hazard Insurance

No fire insurance, no liability insurance, no earthquake insurance. No in-
surance, period. The last time we checked, any kind of hazard insurance
is expensive. And real estate lenders calculate a monthly insurance pay-
ment when qualifying you for a real estate loan, even when you prepay
the insurance premium in an escrow account for the next year.

Number 4: No Property Taxes

Depending on your state, you may pay property taxes once or perhaps
twice a year. In states like Texas, where there is no state income tax,
property taxes can be quite substantial on even modest properties.
On a property valued at $137,000 by the county tax assessor in our
area near Fort Worth, the annual property tax bill can amount to $4,000!
If you calculate that on a monthly basis, you are paying $333 a month for
every month you own the property.
Monthly Property Taxes
Annual Property Taxes $4,000
Monthly Property Taxes $ 333

Number 3: No Monthly Mortgage Payments

Month in and month out, 12 months a year for 30 years: 360 payments.
Let™s look at an example. A $200,000 loan for 30 years at 8 percent in-
terest is payable at $1,467.53 monthly, including principal and interest.
Multiply the monthly payment by 360 payments, and you will pay a total
of $528,310.80.
Monthly Payments
Monthly Payment $ 1,467.53
30 Years 360
Total Payments $528,310.80

The really nauseating number is when you realize that you origi-
nally borrowed $200,000! You wind up paying $328,310.80 in interest.
That is 164 percent of the amount you borrowed.
Quick Cash Strategy 7

Amount of Interest
Total Payments $528,310.80
Amount Borrowed $200,000.00
Amount of Interest $329,310.80

Number 2: No Landlording

Do we really have to tell you our landlording horror stories? Do you re-
ally think you can be a successful landlord? Being a landlord is a heart-
less, thankless job. No matter what you do, you are wrong. Okay, okay, we
will tell you one of our landlording horror stories.

Landlording Horror Story Being a lord or lady of the land has a
noble heritage. In olden times there was a symbiotic relationship be-
tween the lords and ladies and their tenants. The tenants lived on the
lords™ and ladies™ property, raised their families, and farmed the land.
In return the tenants paid rent to the lords and ladies in the form of
most of the crops they grew. There was no money. Or, at least, most peo-
ple, like the tenants, did not have money because there were no jobs.
Everyone™s “job” was working the land.
Unfortunately, this romantic symbiotic relationship from the Middle
Ages has been shattered by the realities of today™s world. As a landlord
you are a target for other people™s problems. And as a target you become
the recipient of a lot of crap. On to our horror story. We have so many.
Concrete in the toilet. Concrete in the kitchen sink. Concrete in the
oven. Which one would you like to hear? On second thought, we think
we will pass. Too many bad memories. Bottom line:We recommend you
avoid landlording.

Number 1: Quick Cash

And the number 1 advantage of the Quick Cash strategy is Quick Cash.
Cash is king! Long live the king! The problem with real estate investing
for most people is that it takes far too long to make any money. Yes, we
know that if you bought a two-bedroom, one-bathroom home in Coro-
nado, California, in 1968 for $20,000, like our friend John did, you would

be sitting on a property worth $900,000 today. But who has the time, or
the patience, to wait? We don™t; do you?
Flipping is your answer. When you are a real estate investor whose
strategy is Quick Cash, patience does not have to be one of your
strengths. In fact, being impatient becomes one of your strengths! You
become impatient with the deal you are working on and want to get it
done so you can get on to the next deal. The more foreclosure deals you
get involved with, the more money you will make.

Flipping-First Attitude
We will give you several examples so you can get a sense of the many op-
portunities that flipping provides to make Quick Cash. By studying the
examples, we hope you will start to expand the way you look at buying
and selling real estate. When you have a flipping-first attitude, you will
discover new ways to make money in real estate unforeseen by the aver-
age real estate investor.
When you apply a flipping-first attitude to the foreclosure market,
you will have a competitive advantage over other foreclosure investors.
Rather than just buying foreclosures on the courthouse steps, we will
show you how to buy foreclosures in the pre-foreclosure stage directly
from the seller. We will also show you how to tie up a foreclosure prop-
erty with a contract that you can flip to another real estate investor. But
first things first.
There are two main tactics in the flipping strategy. The first is what
we call Find and Flip. You find a property knowing that you are going to
flip it as soon as you can. You may close escrow on the property before
you flip it. Or, you may flip the property even before you own it! The sec-
ond tactic is what we call Find, Fix, and Flip. You find a property, you do
the fix up as quickly as possible, and then you flip the property.

Find and Flip

Example 1 We found a seller who wanted to get out of his rental prop-
erties. We made an offer on a 600-square-foot studio efficiency condo in
Del Mar, California. The property was tenant occupied and rented for
Flipping-First Attitude 9

$700 a month. It was located one freeway exit away from the location of
the annual Del Mar Summer Fair and Del Mar Thoroughbred Race Track,
where the “Turf Meets the Surf.” The tenant was planning on staying.
The seller sold us the condo for $63,000, which was the loan
amount to the bank. The value of the condo was $72,000. The seller ba-
sically signed over the deed and walked away from the property. We
made no down payment. We took over the existing $63,000 bank loan.
Why would a seller do this?
As real estate investors, we must allow sellers to make up their own
minds. While we might never, ever accept that same offer if we were the
seller, we cannot presume to know the seller™s motivation or ultimate goal.
Potential Profit
Value of Condo $72,000
Purchase Price $63,000
Potential Profit $ 9,000

How did we make money in this deal? We found another real estate
investor who wanted rental income property. The real estate investor
gave us $4,000 cash, and we gave him the title to the property in the
form of a quitclaim deed. We “owned” the property one week! By flip-
ping the property, we had an immediate $4,000 profit and no landlord-
ing headaches.
Our Profit
Sales Price $67,000
Purchase Price $63,000
Our Profit $ 4,000

Example 2 We found a piece of vacant land that was worth $1 million.
We discovered the seller was motivated to sell. The seller wanted his
price but was flexible on terms. We have found a fundamental truth in
the real estate investing marketplace. If the seller wants their price, you
get your terms. We have found the corollary to be true, too. If the seller
wants their terms (like all cash for their equity), you get your price.
We offered the seller $1 million for the property. Did we have $1
million? No! How much down payment did we have? Zero. How much
of a bank loan did we want to get? Zero. Who was going to be the
lender? The seller!

How much was the seller willing to “loan” us? $1 million. For how
long was the seller willing to loan us the $1 million? Five years. What
was the monthly loan payment we wanted to make? Zero. What was the
interest rate the seller would accept? 6 percent. How was the interest to
be paid? Annually.
Let us summarize. We offered the seller $1 million for his piece of
land.We made no down payment and had no monthly payments.We would
owe the seller $60,000 annually (6 percent of the $1 million “loan”).
Purchase Price
Purchase Price $1,000,000
Down Payment 0
Loan Amount $1,000,000

Did we want to pay the seller $60,000 in 12 months? No! Did we
have any money in this deal? No. How did we make money on this deal?
We flipped the property! We turned around and sold the property to a
new buyer within 30 days after closing.
How much did we flip the property for? We flipped the property
for $1 million. How much down payment did we get? We accepted zero
down payment! Did we ask the new buyer to get a loan from a bank? No.
How much did we “loan” the buyer? $1 million.
For how long did we loan the buyer $1 million? Five years. Did we
get monthly payments on our $1 million loan? No. What was the interest
rate we negotiated? 8 percent. How was the interest to be paid? Annually.

Resale Price
Sales Price $1,000,000
Down Payment 0
Loan Amount $1,000,000

The buyer would owe us $80,000 annually (8 percent of the $1 mil-
lion “loan”). Do you see how we made money? When we received our
$80,000 payment, we paid our $60,000 payment, leaving us $20,000
profit! The fact that we had to wait 12 months to make our money was
fine with us. It worked out to be $1,666.67 per month!

Our Profit
Money Received $80,000
Money Paid Out $60,000
Our Profit $20,000
Flipping-First Attitude 11

Find, Fix, and Flip

Example 3 We found a property that was a three-bedroom, two-bath,
1,900-square-foot, single-family residence in a good neighborhood. The
owners were in the process of getting a divorce. They had moved out of
the property in anticipation of foreclosure.
The property was a mess. The roof needed repair. The carpets had
to be replaced. The floor coverings were beyond repair. Painting was
needed inside and out. The landscaping was early jungle. The pool was a
breeding ground for West Nile virus“carrying mosquitoes.
We got the sellers™ written permission to talk to their lender. We
were able to delay the foreclosure for 60 days. We wrote an offer for 65
percent of what we determined to be the retail value of the property.
The retail value is the value a property has for an end user like a home-
We felt the retail value was $135,000. Our offer was for $84,500, all
cash, at closing. The offer was also contingent on our money partner™s
approval. If our money partner didn™t approve of the deal, we had no
deal. The sellers accepted our offer with no counteroffer.

Potential Profit
Value of House $135,000
Purchase Price $ 84,500
Potential Profit $ 50,500
We brought in our clean-up crew and in five days had stripped out
the carpeting and floor coverings, cut back the jungle landscaping,
drained and cleaned the pool, and painted the entire interior of the
house Navaho white. We did nothing about the roof. Our total cost was
$2,200. We left the big stuff for the next real estate investor.
We started calling down our list of real estate investors who liked to
do major fix up. The third real estate investor we showed the property to
wanted to buy it. We had the purchase price of $84,500 plus our fix-up
cost of $2,200 in the property,for a total of $86,700. We sold the property
for $92,500 10 days after we had made our offer to the seller. We got our
fix-up cost back plus made $5,800. Not bad for 10 days™ work.
Our Profit
Sales Price $92,500
Purchase Price $84,500
Fix Up $ 2,200
Our Profit $ 5,800

Example 4 Sometimes a real estate deal gets you more involved in the
fix-up phase than you want to be. This can especially be the case with
foreclosure property. This example is instructive in two ways. First, it is
another example of Find, Fix, and Flip. Second, it is an example of getting
too involved with the fix-up phase.
We found a property that was headed into foreclosure. It was a
four-bedroom, three-bath, 2,700-square-foot, single-family home in a good
neighborhood. The property was vacant. Again, we wrote our offer for
65 percent of the retail value. We felt the retail value was $200,000. Our
offer was for $130,000, cash.
Potential Profit
Value of House $200,000
Purchase Price $130,000
Potential Profit $ 70,000

We felt we were getting a great deal. We thought we would spend
$20,000 on the fix up and sell the property for at least $190,000 to
$195,000.We would get our $20,000 fix-up money back plus make at least
$40,000. Unfortunately for us, that is not the way the deal turned out.
Our $20,000 fix-up budget blew up in our faces. Once we started
tearing the house up, we found mold and dry rot. This was not good. We
wound up spending closer to $30,000. Still, we felt we would be all
right. We would just make less profit.
At this point in our real estate investing, we were doing the major
fix up. We would buy the property and do all the fix up. Then we would
sell the property to a retail buyer homeowner. We felt this was the way
to go because it was how we would make the most money.
With this property we had gotten into major remodeling. It was the
biggest fix up we had ever done. We realized too late that we were no
longer real estate investors on this property; rather, we were in the re-
modeling business. Instead of doing the remodeling for a homeowner
who was going to pay us, we were the homeowner!
We had another problem with this property. We had one of the best
properties in the neighborhood. Ninety-eight percent of the properties
in the neighborhood were not as nice and were priced less than the
property we were trying to sell.
We first tried to sell the property for $200,000. No offers in 30
days. We lowered the price to $190,000. No offers in two weeks. We
lowered the price to $180,000. Again, no offers in two weeks. We were
starting to get nervous.
Flipping-First Attitude 13

It had taken us 60 days to fix up the property. We were now an-
other 60 days into the mission. We were making payments on the
$100,000 first mortgage held by the bank. We were making payments on
the $30,000 second mortgage the seller had carried back for six months.
We had almost $30,000 out of our pocket in fix-up costs.
We finally sold the property, right at the six-month deadline, for
$165,000. We lost money on the deal but felt fortunate that we got most
of the money we had put into the property back. Right then and there
we realized we never wanted to be in that position again. We knew real
estate investing worked. We knew flipping worked. We decided owning
and fixing property didn™t work.
Our Profit
Sales Price $165,000
Purchase Price $130,000
Fix Up $ 30,000
Payments $ 6,600
Our Profit ($ 1,600)

We are now going to get into the foreclosure arena. Starting from
the basics, we will show you how to apply the Quick Cash strategy to
your foreclosure investing. For those of you who are knowledgeable
about foreclosures, we recommend you go to chapters that grab your in-
terest. May we suggest Chapter 14,“Flipping Foreclosures.” For those of
you who are new to the foreclosure game, we recommend you read
straight through the book, continuing on with Chapter 2,“What Is a Fore-

What Is a Foreclosure?
ver the next three years, when interest rates rise and the housing
market cools, there are going to be many foreclosure opportuni-
ties. The economy and the real estate market are cyclical. There
is a lot of money to be made in the real estate foreclosure market. But
you have to be very knowledgeable about traditional foreclosures before
you get involved with Quick Cash foreclosures.
Our focus is to teach you how to flip any properties you acquire in
the foreclosure arena. Even better, we will show you how to flip the real
estate foreclosure paperwork to another real estate investor for a fee.
The Quick Cash strategy does not change just because you are dealing
with foreclosures.
We are going to spend some time training you in the foreclosure
process. Every state has a slightly different method on how they go
through their foreclosure procedures. However, the basic process is the
same in every state. What varies from state to state is the time periods al-
lowed for foreclosure. Do not get too caught up in what may seem to be
very technical information. We present this information so you can get
the flavor of what is involved in a foreclosure.

There is no more dreaded word in the real estate world than foreclosure.
It doesn™t matter if you are the real estate borrower or the real estate
lender. No one likes to be in a foreclosure situation.

Foreclosure is when a real estate lender, whether an institutional
real estate lender or a private real estate lender, takes the title to a prop-
erty away from the borrower in lieu of receiving mortgage payments.
Stated more formally, when all else has failed, a real estate lender will
pursue allowed legal prerogatives to recover the collateral for the real es-
tate loan in order to sell it and recoup their loan proceeds.
The definition of foreclosure is to shut out, exclude, bar, or deprive
a person of the right to redeem a mortgage. Foreclosure is not only a
process to recover a lender™s collateral but also a procedure whereby a
borrower™s rights of redemption are eliminated and all interests in the
subject property are removed.

Power of Sale Foreclosure

A power of sale foreclosure is based on the terms of the deed of trust or
the mortgage contract, giving the lender, or the trustee, the right to sell
the collateral property without being required to spend the time and
money involved in a court foreclosure suit.


In Texas, for example, these nonjudical, power of sale foreclosures are
more common than judical foreclosures (lawsuits in court). The right to
exercise the power of sale must be created in writing and is usually part
of the deed of trust, which must clearly state that there is a right of non-
judical foreclosure. The power of sale foreclosure is popular in Texas be-
cause it allows the trustee to sell the property more quickly and thus
recover the lender™s collateral in a timely manner.
In Texas the trustee named in the deed of trust has the power to
sell the defaulted mortgaged property upon the request of the real estate
lender or beneficiary of the trust deed. The trustee must then carefully
follow the terms and conditions stated in the deed of trust for the fore-
closure.The foreclosure sale must also follow the legal procedures of the
state of Texas.
Foreclosure 19

Texas Property Code

The Texas Property Code contains the following procedures for nonjudi-
cal foreclosure. You can check what your state procedures are by con-
tacting a real estate attorney or your local title insurance company.

1. The trustee must notify the debtor of the foreclosure sale at
least 21 days before the date of the sale. This notice is to be
sent by certified mail to the debtor™s last known address.
2. Notice must be posted at the courthouse door of the county
in which the property is located and filed in the county clerk™s
office where the sale is to be held.
3. The sale must be a public auction held between 10:00 A.M.
and 4:00 P.M. on the first Tuesday of the month.
4. The sale must take place in the county where the property is
5. The holder of the debt on residential property must give the
debtor at least 20 days to cure the default before the entire
debt can be accelerated and declared due and the notice of
sale given.

At the Foreclosure Sale

At the foreclosure sale, the trustee has an obligation to act impartially
and can take no action that would discourage bidders. This is to be a
public auction open to all persons, including the lender and the trustee.
There is no requirement in Texas that the auction generate fair-
market value; therefore, the property will go to the highest cash bidder.
The purchaser of the foreclosed property takes the title without any
covenants through an instrument called a trustee™s deed.
The proceeds from the sale will be used to pay the trustee and any
expenses of the trustee™s sale. Then the lender who is foreclosing will be
paid. If there is money still left, those creditors who had filed liens
against the property will be paid. Finally, any surplus monies must be re-
turned to the borrower/debtor.
In Texas, as in every other state, if a senior lien holder forecloses, all
junior lien holders™ interests terminate. If a junior lien forecloses, they
get the title to the property subject to the senior lien holder™s interest in
the property.

Judical Foreclosure and Sale
Judical foreclosure and sale is a legal procedure that involves the use of
the courts and the consequent sale of the collateral. Foreclosure by
court order is an alternative method that may be used in Texas and other
states, although it is not favored by commercial lenders. It is the only
remedy if a deed of trust does not contain a power of sale provision.

How It Works

The delinquent mortgagors are notified of the default and the reasons for it.
They are also informed that an immediate solution is required and that all
their efforts must be expended to solve the problem as quickly as possible.
However, if all attempts fail, a complaint is filed by the lender in the
court for the county in which the property is located, and a summons is
issued to the borrowers. This initiates the foreclosure process.
Simultaneous to this activity, a title search is made to determine the
identities of all the parties having an interest in the collateral property,
and a lis pendens (literally, a legal action pending) is filed with the court,
giving notice to the world of the pending foreclosure action.
Notice is sent to all parties having an interest in the property, re-
questing that they appear in court in order to defend their interests, or
else they will be foreclosed (the literal definition we mentioned earlier)
from any future rights by judgment of the court. It is vitally important for
the complainant lender to notify all junior lien holders of the foreclosure
action so they will not be enjoined from participation in the property
auction. If junior lien holders are not given proper notice, they acquire
the right to file suit on their own at some future time.


Depending on the number of days required by the presiding jurisdiction
for public notice to be given to inform any and all persons having an un-
recorded interest in the subject property that a foreclosure suit is immi-
nent, and depending on the availability of a court date, the complaint is
eventually aired before a presiding judge. In most instances, the defen-
dant borrower does not appear in court unless special circumstances are
presented in defense of the default.
Insured Conventional Mortgage Foreclosure 21

Those creditors who do appear to present their claims are recog-
nized and noted, and a sale of the property at a public auction by a court-
appointed referee or the sheriff is ordered by means of a judgment
decree. The proceeds from the sale will be used to satisfy the parties
named in the judgment. In Texas the borrower™s right to redeem the
property continues for a reasonable time after the sale.
In a judical foreclosure, a junior lien holder™s interest in the prop-
erty is not automatically eliminated. If the junior lien holder did not join
in the foreclosure suit, the property is sold subject to the junior lien. If,
however, the junior lien holder was a party to the foreclosure suit, this in-
terest ends at the sale in the same way as the senior lien holder™s interest

Insured Conventional Mortgage Foreclosure
Under the terms of the insurance policies of most private mortgage guar-
antee companies (private mortgage insurance [PMI]), a default is inter-
preted to be nonpayment for four months. Within 10 days of default, the
lender is required to notify the private mortgage insurer, who will then
decide whether to instruct the lender to foreclose.
When an insured conventional mortgage is foreclosed, the lender
who is insured is the original bidder at the public auction of the collat-
eral property. Under these circumstances, the successful bidder-lender
files notice with the insurance company within 60 days after the legal
proceedings have transpired.

Loss Recovery

If the insurance company is confident of recovering any losses by pur-
chasing the collateral property from the lender and then reselling it, it
will reimburse the lender for the total amount of the lender™s bid and re-
ceive title to the property.
If, however, the private mortgage insurance company does not fore-
see any possibility for recovery, it may elect to pay the lender the agreed-
upon amount of insurance, and the lender retains ownership of the
property. The lender then sells the property to recover any balance still

Remember that in any and all cases of judical foreclosure and sale,
any ownership rights acquired by the successful bidder at the fore-
closure auction will still be subject to the statutory redemption rights of
the defaulted mortgagor. A fee simple absolute title cannot vest in the
bidder until these redemption rights have expired. A property title vests,
or becomes valid, when you receive full ownership rights in a property.
Another way to say this is that once there is a vesting of the title, your in-
terest in the property cannot be revoked.

FHA-Insured Mortgage Foreclosure
Foreclosures on FHA (Federal Housing Administration)“insured mort-
gages originate with the filing of Form 2068, Notice of Default by the
lender. This form must be given to the local FHA administrative office
within 60 days of default. The notice describes the reasons for the mort-
gagor™s delinquency, such as death, illness, marital difficulties, income
loss, excessive financial obligations, employment transfer, or military ser-
In many cases involving delinquent FHA-insured mortgages, loan
counselors from the local FHA office will attempt to design an agree-
ment between the lender and the borrower for adjustments to the loan
conditions in order to prevent foreclosure.The most common technique
used in circumstances in which default is beyond the borrower™s con-
trol, but deemed curable, is forbearance of foreclosure.

Default Not Cured

If the problems causing the default are solved within a one-year period,
the lender informs the local FHA office of that fact. If not, a default status
report is filed, and the lender must initiate foreclosure proceedings. If
the bids at the foreclosure auction are less than the unpaid mortgage
balance, the lender is expected to bid the debt, take title to the property,
and present it to the FHA along with a claim for insurance, which may be
paid in cash or in government securities. In some cases, with prior FHA
approval, the lender may assign the defaulted mortgage directly to the
FHA before the final foreclosure action in exchange for insurance bene-
fits (we will talk about assigning in Chapter 15).
VA-Guaranteed Mortgage Foreclosure 23

In any case, if the property can be sold easily at a price that would
repay the loan in full, the lender simply would sell the property after bid-
ding at the auction and would not apply for FHA compensation. If the
FHA ends up as the owner of the property, the collateral may be sold “as
is.”The FHA may repair or refurbish (fix up) the property if it feels the
property can be resold at a higher price and minimize the losses to FHA.

VA-Guaranteed Mortgage Foreclosure
Unlike the FHA-insured mortgage, whereby a lender™s entire risk is re-
covered from the insurance benefits, a Veterans Administration (VA) loan
is similar to a privately insured loan in that a lender receives only the top
portion of the outstanding loan balance, up to a statutory limit. In the
event of a delinquency of more than three months on a VA loan, the
lender must file proper notification with the local VA office, which may
then elect to bring the loan current if it wishes.
If this occurs, the VA can come against the defaulting veteran for re-
payment of the funds advanced. Subrogation rights are given the lender
against the mortgagor for the amount advanced. This means that the VA
claim against the defaulting veteran takes priority over the rights of the
lender to these funds.

Like the FHA

Much like the FHA,VA lenders are required to make every effort to help
the borrower through forbearance, payment adjustments, a deed in lieu
of foreclosure (more about this shortly), or other acceptable solutions.
Actual foreclosure is considered only as a last resort.
In the event of a foreclosure the lender usually will be the original
bidder at the auction and will submit a claim for losses to the local VA of-
fice. The VA then has the option to pay the unpaid balance, interest, and
court costs, if any, and take title to the property.
Or the VA can require that the lender keep the property and will
pay the lender the difference between the determined value of the prop-
erty on the date of the foreclosure and the mortgage balance. The latter
alternative is usually chosen when the property is badly deteriorated, re-
inforcing the importance for a lender to supervise the condition of the
collateral property.

Second Mortgage Foreclosure
Defaults of second mortgages and other junior mortgages are handled
exactly in the same manner as conventional first mortgages. Here, how-
ever, the relationship is usually between two individuals rather than be-
tween an institutional lender and an individual borrower.
A second mortgagee will usually seek the counsel of an attorney to
manage the foreclosure process against a second mortgagor. The delin-
quent borrower will be requested to cure the problem within a certain
time period. If a cure cannot be accomplished, notice is given to all per-
sons having an interest in the property, and the attorney then files for ju-
dical foreclosure.
The second mortgagee generally is the original bidder at the public
sale and secures ownership of the collateral property subject to the lien
of the existing first mortgage. They can then continue to maintain the in-
tegrity of this first mortgage by making any payments required, while
seeking to sell the collateral to eliminate, or at least offset, any losses.

Deficiency Judgments
If the proceeds from a foreclosure sale are not sufficient to recover the
outstanding loan balance plus the costs incurred as a consequence of de-
fault and interest to date, a lender may, in most states, sue on the mort-
gage for the deficiency.
If the foreclosure is by court order, the judge normally awards the
lender a judgment against the debtor in the amount of the deficiency. If
a power of sale foreclosure took place, the lender must then file suit
against the debtor to collect any deficiency.


In Texas a lender would consider several things before pursuing legal ac-
tion for a deficiency balance since the amount of the deficiency and the
ability of the debtor to pay after the suit would be important factors.
The homestead laws in Texas, and most other states, would protect
most of the debtor™s basic possessions from this type of judgment. In
most cases a defaulted borrower does not have any nonexempt assets to
Summary 25

make up this deficiency. Otherwise, they would have been put to use in
order to prevent the default in the first place.

Current Trend

The current trend is to rely less on collecting deficiencies and more on
limiting a borrower™s personal liability on a real estate loan to the equity
in the collateral property. Especially on purchase money loans, lenders
may be limited to recovering only the collateral property and nothing
One reason for this trend is the tendency of a deficiency judgment
to penalize those borrowers who make good on their debts. Because
such judgments can become liens against any property a borrower holds
or may acquire in the future, dishonest debtors may avoid payment by
simply making certain they do not own any property in their own

This chapter provided an overview of the foreclosure process. By far the
greatest number of real estate financing arrangements do not result in
problems leading to foreclosure. Rising property values coupled with
the systematic repayment of loans create measurable equity positions
for the borrower. A troubled borrower can, in most problem situations,
arrange to dispose of assets and thus maintain financial equilibrium.
This is what gives you, as a real estate investor, an opportunity to
help someone in financial distress and still make a profit. When mis-
fortune cannot be averted and foreclosure develops as the sole remedy,
this may provide the motivation to the borrower to be open to your help.

Lender Adjustments

A lender will usually attempt to adjust the conditions of a loan in order
to help a troubled borrower over short-term difficulties. Delinquent
mortgage payments are the most common cause for a default. The non-
payment of property taxes or hazard insurance premiums, lack of

adequate maintenance, and allowing priority liens to take effect are also
cause for default.
To offset the possibility of a foreclosure on delinquent mortgages,
many lenders will exercise forbearance and waive the principal portion
of a loan payment for a while or even extend a moratorium on the full
monthly payment until a borrower can better arrange their finances.
Other adjustments in terms of a delinquent mortgage that might aid the
defaulted borrower include an extension of time or a recasting of the
loan to reflect the borrower™s current ability to pay under circumstances
of financial distress.

Deed in Lieu of Foreclosure

Sometimes all efforts at adjusting the terms of a mortgage to solve a bor-
rower™s problems fail. A lender may then attempt to sell the loan. This
creates further opportunities for you as a real estate investor. If the
lender cannot find a buyer willing and able to buy the loan, the lender
may seek to secure a voluntary transfer of title to the property from the
borrower. This action prevents the possibly costly and time-consuming
process of foreclosure.
By executing either a quitclaim deed or a grant deed, a borrower
can eliminate the stigma of a foreclosure suit, maintain a respectable
credit rating, and avoid the possibility of a deficiency judgment. Real es-
tate lenders are fully aware of the difficulties with evictions and the
costs and time involved in a full foreclosure process. Most often, the
lender encourages a hopelessly defaulted borrower to transfer a deed
However, the lender must take care to be protected against any fu-
ture claims of fraud or duress by the borrower. We will talk about this
further when we discuss negotiating with the seller in pre-foreclosure in
Chapter 8. In addition, the lender must be aware of the possibility of the
existence of any other liens against the property. A quitclaim deed does
not remove junior liens as does a completed foreclosure.
Use this chapter as your reference guide. In Chapter 3 we will
show you how buying foreclosures allows you to acquire real estate at a
wholesale price.

Why Buy Foreclosures?
oreclosures come in all shapes and sizes. Any property that has a
real estate loan attached to it is a foreclosure waiting to happen.
Borrowers get behind in their mortgage payments for all sorts of
reasons. What is worse, people can lose their property to a foreclosure
without having any real estate loans attached to the property.
If you don™t pay your local property taxes, your local taxing authority
can place a lien against your property. If you don™t pay the property taxes
within a certain period of time after the lien is filed, then the local taxing
authority sells your property at a foreclosure sale for the back taxes.
You can own your property free and clear (no real estate loans) and
be sued. If you lose the lawsuit, your property can be taken to satisfy the
judgment. If you cannot pay the judgment, your property will be sold at
a sheriff™s sale to the highest bidder.
You can be current on your monthly real estate loan payments or
own your property free and clear.You can be current on your local prop-
erty taxes. You are not even being sued. However, you are in trouble
with the Internal Revenue Service (IRS). They place a tax lien against
your property. Eventually, if you don™t work something out with the IRS,
they will seize your property and sell it at a foreclosure sale.
All of these foreclosure events create opportunities for you as a real
estate investor. From our Quick Cash strategy point of view, foreclosures
provide the possibility to flip either the property or the real estate con-
tracts associated with the property. The idea is for you to get in and get
out quickly. We are going to show you how to make a profit with no
money of yours tied up in the deal.


Four Reasons to Buy Foreclosures
We are going to give you four reasons to buy foreclosures. One of these
reasons by itself is enough to make foreclosures a good investment.
When you buy foreclosures, you are buying wholesale real estate, you are
buying from a wholesale seller, you have less competition than buying
retail property, and you have the opportunity to make Quick Cash.

Reason 1: Buying Wholesale Real Estate

Foreclosures are by definition wholesale real estate. Why would you
want to pay retail for anything that you can buy wholesale? Real estate is
the same way. When you are buying foreclosures, you are buying real es-
tate at a wholesale price. And since real estate is the highest-priced com-
modity that people buy, when you buy real estate wholesale, you have an
opportunity to make a lot of money.
You might think that foreclosure properties are run down or in
poor shape. While this is certainly the case for some of the foreclosure
properties that we have been involved with, it is not always so. You
might also think foreclosure properties are in bad neighborhoods.
Again, while that can be the case, we have found foreclosures in some
very nice neighborhoods that were in very good condition.

Real Estate Lenders Ninety-five percent of the foreclosure market
begins and ends with real estate lenders. When you understand how
lenders operate, you will increase the likelihood of being successful with
foreclosure investing. There are two keys: (1) Lenders get the money
they make real estate loans with at a wholesale interest rate, and
(2) lenders only make wholesale real estate loans (usually no more than
an 80 percent loan-to-value).
Let™s look at how real estate lenders operate in the real estate mar-
ket. Real estate lenders make money by loaning money. How lenders get
the money to loan is from people like you and us. When people put
money in the bank, the bank pays those people interest or rent for their
money. When the bank loans money to someone to buy real estate, it
loans the money for the real estate loan at a higher interest rate than the
bank pays in interest to its customers.
Four Reasons to Buy Foreclosures 31

Wholesale Interest You could say that the bank pays a wholesale in-
terest rate to get its money and then receives a retail interest rate when
it loans its money. For example, a bank may pay 3 percent interest to its
customers for certificates of deposit (CDs). Then the bank turns around
and loans the money from the certificates of deposit to real estate bor-
rowers for real estate loans at 7 percent interest.
The bank makes money on the spread between the wholesale in-
terest rate it pays on the CDs and the retail interest rate it charges on the
real estate loans.

Rule of 72 This is a good place to teach you the Rule of 72.The Rule of
72 states that whatever annual rate of return you receive on your invest-
ment, real estate or otherwise, your investment will double in the number
of years you get as the answer to dividing the rate of return into 72.
The Rule of 72 assumes you leave the investment return with the
investment each year so you are compounding your investment re-
turn. We will assume your investment is in a tax-free or tax-deferred
Real estate appreciation works well with the Rule of 72. If your
property appreciated 6 percent annually, it would double in value in 12
years (6 goes into 72 12 times).
But back to the real estate lender. If you receive 3 percent annual in-
terest on $200,000 worth of CDs, then, according to the Rule of 72, your
$200,000 will become $400,000 in 24 years (3 goes into 72 24 times). If
the real estate lender receives 7 percent annual interest on $200,000
worth of real estate loans, then according to the Rule of 72, their
$200,000 will become $400,000 in 10 years (7 goes into 72 10 times).
Certificates of Deposit Real Estate Loans
$200,000 @ 3% Interest $200,000 @ 7% Interest
72 3 = 24 Years 72 7 = 10 Years
Doubles to Doubles to
$400,000 $400,000

What is truly amazing about these numbers is if we look at them
over the course of a 30-year real estate loan. Your $200,000 in CDs will
double once to $400,000 in 24 years. Over the next six years (from 24
years to 30 years), your $400,000 will become $500,000.

What do you think will happen to the bank™s $200,000? The bank™s
$200,000 will double to $400,000 after 10 years, as we have already
noted. The $400,000 will double to $800,000 in another 10 years (20
years total). The $800,000 will double to $1,600,000 in another 10 years
(30 years total). The lender will have to give $500,000 to you for your
$200,000 in CDs plus interest. The lender will make $1,100,000 profit!
Certificates of Deposit Real Estate Loans
$200,000 @ 3% Interest $200,000 @ 7% Interest
In 30 Years In 30 Years
Becomes Becomes
$500,000 $1,600,000

Now you know why real estate lenders want to be in the real
estate“lending business. They make so much money on the interest rate
spread. Real estate lenders do not want to be in the real estate“owning

Wholesale Loans Real estate lenders will only loan 80 percent of the
appraised value of the real estate to protect themselves in the event the
borrower defaults on their loan payments. In other words, a real estate
lender will only make a wholesale real estate loan. The amount the
lender loans is called the loan-to-value ratio. How much money would a
bank loan on a property that was appraised (valued) for $200,000?
Loan-to-Value Ratio
Appraised Value $200,000
Maximum Loan Percentage 80%
Maximum Loan Amount $160,000

As you can see from these numbers, real estate lenders protect
themselves by making sure they have a 20 percent cushion between the
appraised value, $200,000, and the loan value, $160,000. This $40,000
cushion is typically the borrower™s down payment on the property. Even
if the borrower defaults to the tune of $10,000, the lender is protected.
Lender Protection
Appraised Value $200,000
Maximum Loan Amount $160,000
Default Amount $ 10,000
Lender Protection $ 30,000
Lender Loss 0
Four Reasons to Buy Foreclosures 33

What about real estate lenders who loan 90 percent or 95 percent of
the retail value? Won™t that put them in jeopardy in the event of a default?
That™s where private mortgage insurance (PMI) companies step in.
For an insurance premium paid by the borrower, the private mortgage
insurer will insure the real estate lender for any defaults above an 80 per-
cent loan-to-value ratio.
Let™s say the borrower received a 90 percent loan from the lender
($180,000) and made only a 10 percent down payment ($20,000) on the
same $200,000 property.
Loan-to-Value Ratio
Appraised Value $200,000
Loan Percentage 90%
Loan Amount $180,000

With the same $10,000 borrower default, the lender still has
$10,000 of protection.
Lender Protection
Appraised Value $200,000
Maximum Loan Amount $180,000
Default Amount $ 10,000
Lender Protection $ 10,000
Lender Loss 0

Even if the borrower defaulted in the amount of $25,000, the PMI
would pick up the additional $5,000 beyond the borrower™s $20,000 eq-
uity (down payment).

Private Mortgage Insurance
Appraised Value $200,000
Maximum Loan Amount $180,000
Default Amount $ 25,000
Lender Protection ($ 5,000)
Private Mortgage Insurance $ 5,000
Lender Loss 0

Reason 2: Buying from a Wholesale Seller

It is important to identify who sells wholesale property. Once
you know who the sellers are, you can prepare your strategy to

achieve the best results. There are only three sellers of foreclosure
Two of the sellers have a big financial stake in the property. One of
the sellers has no financial stake in the property. Two of the sellers are
professional sellers. One of the sellers is not.

Buying from the Seller in Distress Sellers in distress have a big fi-
nancial stake in the property. Not only will it destroy their credit if their
property goes to a foreclosure sale, but they will lose all their equity in
the property. And, obviously, the seller in distress is not a professional
We™ll use some of the numbers we have already shown to illustrate
our point. The appraised value of the property is $200,000. The loan
amount on the property is $160,000. The borrower is in default in the
amount of $10,000. The borrower™s equity position before the default is
Where does the borrower™s $10,000 default amount come out of?
As we have already seen, the $10,000 default amount comes out of the
borrower™s $40,000 equity. The further the borrower gets behind in
their mortgage payments, the more of the borrower™s remaining equity
is eaten up.
Your mission with sellers in distress is to show them how to avoid
the foreclosure sale. We will spend a chapter teaching you how to do
this (see Chapter 7).You are going to become an educator to the seller in
distress. You will make an appointment with them. At the appointment
you will educate them on their eight foreclosure options.
For their sake, we hope that you will be able to get the information
to them before it is too late. One of the foreclosure options you will
present is for them to sell you their equity. You can only pay them a
wholesale price. They will get some of their equity back if they work
with you. If the property goes to the foreclosure sale, they will get none
of their equity back.
You might offer them $9,000 for their remaining $30,000 equity.
Remember, you will still have to come up with an additional $10,000 to
make up the default to the lender. You would now have $19,000 in the
property ($9,000 to the seller and $10,000 to the lender).

. 1
( 7)