Business Management

The Nearly Extinct Distressed Home Seller with Equity

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The hairy-eared dwarf lemur weighs about three ounces and is native to the island of Madagascar. This cute, fuzzy little primate is also one of the most endangered species in the world. Scientists estimate there are only about 100-1000 of these tiny creatures left on the entire planet.

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After the real estate market crash in 2008, another species was pushed to the brink of extinction: the distressed home seller with equity.

As underwater homeowners began walking away from their mortgages in droves beginning in 2007, distressed purchasing for real estate investors via the short sale, at auction, or directly from the bank after foreclosure became the norm. No doubt, this trend will continue for another 3-5 years as backlogged states like New York, Florida and Nevada work their way through this inventory. Even in Arizona where housing stock is in short supply there are still more than 3,000 new foreclosures filed every month.

That said, a tremendous opportunity exists for real estate investors willing to dig a little deeper to find the elusive homeowner in foreclosure that owes less on their mortgage than the house is worth.

What’s that you say? Impossible? No one has equity anymore? Not so! Not everyone used their house as a piggybank, draining every last cent of equity out of it to buy big screen TVs and ski boats as market values skyrocketed. There are a handful of homeowners out there that did everything right, but life still happened. You know, real hardships like job loss, medical problems, business failure and divorce?

How do you find them?

Follow These Five Steps to Find Distressed Home Sellers with Equity

  1. Get a current list of foreclosures in your target area.
  2. Scrub the list for those properties that meet your buying criteria.
  3. Determine if the principal balance of the foreclosing mortgage, plus possible arrears and any other junior liens, are less than the after-repair value of the property (you can use an online loan amortization calculator for help with this.)
  4. Obtain a preliminary title report for the property for further assurance that the foreclosing mortgage, plus possible arrears and any other junior liens are less than the after repair value of the property.
  5. Drive to the house and speak with the owner face to face. Follow up with letters, email, phone calls, whatever it takes.

You may have to spend a few bucks for the list. And unless you do a lot of business with the title company they may charge for the preliminary report. Still, it’s worth the cost.  When you knock on that distressed homeowner’s door you’ll know exactly what to offer, and that no bank approvals will be required.

Best of all, you’ll likely be the only investor to make direct contact with the seller. That’s because the door knocking real estate investor is practically extinct now too.