Can I buy a home directly from an owner facing foreclosure?
Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes
Can I buy a home directly from an owner facing foreclosure?
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Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9yYou can purchase it BEFORE the auction. You must reach a deal with the owner and it must be at least enough to extinguish the mortgage. If it is worth far more than the amount owed there may be another reason such as a superior lien, etc. You would need to get a contract with the owner, and use a title company. They would get payoff figures, etc and you would need to close before the sale. I purchased one last year and we closed three days before the auction. Although it still showed up on the county auction website and was "bid on", we closed prior to the sale. Time is going to be of the essence in these types of transactions. Generally, it may be tough to get fast quick answers due to attorneys and banks being involved. In my deal, I had a contract for several weeks before the auction. The owner found out about the sale roughly a week in advance, and I didn't get payoff figures till four days prior to sale. We waited and waited weeks before they finally were able to provide that info, and it quite possibly might never have occurred being so close to sale date. Last but not least: DON'T sign contracts with owners unless you have funds. They are already in a bind and the last thing they need is their hopes raised and then get let down.
72 Replies
- Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes9y
@Ethan Atkinson, it's on the county clerk of court site, which publishes a calendar of homes to be auctioned by that entity.
@Brandon McLean - yeah, I would def not have the owner stay in the home and lease it back to him. He can't even pay his note now! - Wholesaler · Arnold, MO · Member since 2013 · 348 posts · 183 votes9y
@January Johnson Yep! It looks like this person has been guilty of equity stripping, so to speak. If he's gotten multiple notices of foreclosure and he's taken out multiple loans on the property, he's probably getting loans to hold off foreclosure and has spent the rest of the money.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
In Florida, to my knowledge, you can approach home owners. If you want to take this route you need to get started WELL IN ADVANCE to any scheduled sale. Keep in mind, that an overage at the sale goes to the owner so giving away a 100K property for 20K or 30K makes no sense. As to equity stripping, there are a couple different M/O that refer to that. Another is to take over a non-paying mortgage via quit claim deed, rent it and collect rents for as long as possible, all the while not making the payments. This was quite common years ago and when I hear the term equity stripping this comes to mind. I know a couple of snakes (agents) that operate that way even today and hope they get their butts in big trouble. They even tried to get me involved:)
- 9yLevi T.Pro MemberRental Property Investor · Tucson AZ / Nice FR / Washington DC · Member since 2016 · 1k+ posts · 1k+ votes
Originally posted by @Jay Hinrichs:
@January Johnson Equity stripping would be you buying that house for 19k..
when in fact it sold for 100k at auction that is equity stripping.
That's the peace I have yet to understand on how people come to that conclusion, because all versions of the law that I have read, reflect the very basic Wikipedia description of it, being: "equity stripping scheme, an investor buys the property from a homeowner facing foreclosure and agrees to lease the home to the homeowner who may remain in the home as a tenant. Often, these transactions take advantage of uninformed, low-income homeowners; because of the complexity of the transaction, victims are often unaware that they are giving away their property and equity".
That makes since in terms of what the law is about, because one would be attempting to defraud someone by taking their property, under a false pretenses of stopping a foreclosure process without that person selling their home or losing ownership. In a more complex since of what the law was written for; using notes, refinancing, other deceptive representation or other financing options to strip the equity away, so the home owner ends up going bankrupt and the financial institute takes the property, but that's another topic in itself.. In our arena, what one would have to defraud someone by making them believe your stopping the foreclosure process without selling their home, but in reality they are selling it.However in the case of making an offer on a home that is well below market value, no where in the law have I found that it outlines or implies that paying well below market value on a property, with or without improvements after the fact, then selling it for more than you paid, is equity stripping.
If someone makes a offer, the owner accepts, and you both use a standard real estate purchase agreement, then do a standard closing, even if you do a double closing and sell it for a hell of a lot more 30 minutes later or 5 years later, that's not equity stripping, as the seller fully understood they where selling the property.
I would love someone to show me where the equity stripping laws say anyone can not buy a property below value, resell it or do whatever you want to do with it after the fact, because in every state, that's what everyone does at all stages in the real estate business. It's only when someone goes to defraud someone under the idea that they wont lose their home, but in reality they are selling it through some complex contract scheme does it become equity stripping. - Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
What these operators do is find a distressed seller, take over the property via quit claim deed, lease it back to the owner, and not make the mortgage payments. If the crooks that do this can hold the property for a couple of years, all the while with -0- expenses, it can be pretty profitable. That is what a couple of agents in Naples are doing. They also tried to get me to fund another deal where I believed there was some bank fraud involved so I declined to get involved.
Not to be confused with the foreclosure remedy scam, equity or collateralization stripping is conducted to safeguard the ownership of real estate assets by making the equity in those assets valueless in the eyes of creditors
Read more: Equity Stripping Leaves Creditors Empty-Handed http://www.investopedia.com/articles/mortgages-real-estate/09/equity-stripping-assets.asp#ixzz4gPtJC9yn- Investor · Menifee, CA · Member since 2015 · 534 posts · 216 votes9yFor the future you could take title subject to existing financing, bring loan current, then rent property out to a tenant. Not the current owner. It's a way to get rental properties with little money down, but you do have to worry about the due on sale clause. If your going to fix and flip then probably don't have to worry that much about due on sale clause and that rarely happens in the first place. So if someone is 10K behind in payments you make there back payments, bring loan current and take title to the property all in one transaction. Then your making the monthly payments on the existing loan in place already in the previous owners name. Your title company can help you with this and your lawyer can help structure the deal as well. Not a bad deal picking up a property with some equity and possibly some cash flow for very little money down and you helped the sellers out of a situation.
- Real Estate Agent · Souderton, PA · Member since 2016 · 591 posts · 414 votes9yA common misconception of consumers is that the "amount owed" or the mortgage remaining on a property has any relation to the amount it sells for. It couldn't be any further from the truth. The debt owed is completely irrelevant to what the property is worth, or what the bank will accept as a offer. This is true for foreclosures, or distended sales. I do understand the few times where a seller will accept $X because the mortgage is $X and he'll be out of it free and clear, and even then it's most likely a mistaken to do so. My point is value is determined by many things, and the amount of the debt owed is not one of them. Regarding the deal the OP mentioned, chances are it's too far down the road to slide on and steal it for $35k unless that's what it's worth. Banks might be big and slow but they aren't dumb, nor they car to carry a property for month after month waiting for a fair market value offer. Too many buyers assume they must be dying to unload it since they aren't in the real estate businesses but the truth is they follow the laws, foreclose on the property, and sell on the open market. That's not to say you can't find a deal at that point, you certainly can. Just realize banks aren't giving $100k properties away for $35k because that's the current balance of the loan.
- Real Estate Agent · Emerald Coast, FL · Member since 2016 · 820 posts · 486 votes9y
@William C., I totally get that. $38K is just the plaintiff's max bid.
@Mike Flora, I will look into the situation you described and see what can be done.
REALLY appreciate all of the ideas and knowledge here! - 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@William C. really depends on the market.. and were we are at in the economic cycle.
it was common 5 to 8 years ago for banks to lower their credit bid substantially under what was owed as they understood were values were.. this is not as common anymore.. and then you have PMI which allows the bank to bid full credit and go for their insurance.. Its complicated and as you say they have folks they pay big money to .. analyzing what strategy is best.
And or sometimes they need to get a certain amount of paper off the books by a quarter end.. you can see them get aggressive there.. I have bought a few Wellls Fargo deals like that were we hit them and they needed to shed certain loans by a certain date and we got HUGE discounts.. ( short sale).
- Investor · Willow Spring, NC · Member since 2009 · 5k+ posts · 3k+ votes9y
On topics like this, I always say "know your state law". @John Thedford has in his post the definition that Florida uses for per FL statute.
When a person is "in foreclosure", there are limits to what you can do. That FL statute is .
For real estate investors looking to make a killing on a clueless seller, the operative definition is "Foreclosure-rescue transaction". Investors, the game is to NOT PERFORM a "Foreclosure-rescue transaction". A "Foreclosure-rescue transaction" means "... property in foreclosure is conveyed to an equity purchaser and the homeowner maintains a legal or equitable interest in the residential real property conveyed, including, without limitation, a lease option interest, an option to acquire the property, an interest as beneficiary or trustee to a land trust, or other interest in the property conveyed..." Emphasis in bold is mine.
So buying a $125,000 property for $22.45, as long as the owner is GONE, is fine... by statue.
NC has a similar law entitled and the wording here (in NC) in the Foreclosure rescue transaction is the buyer "... make representations that the transfer of the residential property will enable the transferor to prevent, postpone, or reverse the effect of foreclosure and to remain in the residence..." Again, emphasis in bold is mine.
So same deal. If you buy and DO NOT let the owner stay, and don't make any deal with the seller (owner), then buy at whatever the seller accepts.... (subject to other state laws. Con a mentally incompetent elderly person and you face other statutory wrath.)
Disclaimer: I am not an attorney in any state, and this post is for entertainment and not to be construed as legal advice. Consult your attorney for legality of actions that fit your investment methodology.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Chris Martin we call it unconscionable profits out here on the left coast.
if you have a 125k house and its in foreclosure and you buy it for 20k.. well if someone files complaint at AG your going to lose that one LOL. its a fine line.. or a slippery slope as it were.
I look at some of the Timber deals I did in the 90s and what other timber players did and we hit those kind of metrics but were were trading timber deeds not real property.. not sure that its a difference. well I guess the main difference is my deals were not owner occ.. this is were the issue is 90% of folks are chasing the same rainbows.. owner occ SFR's.. if we were talking 100 unit apartment building then hell all bets off right ?
- Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes9y
Washington State does it one better:
"Chapter 61.34 RCW provides that the conduct of buying Washington distressed residential real property purchased from a homeowner who is behind on mortgage payments (or unpaid property taxes) and facing bank foreclosure (or tax sale) may be construed as ‘equity skimming’ and therefore, may be illegal (both civilly and criminally).
The consensus among many Washingtonian investors is to not engage in purchasing homes from people in pre-foreclosure status."
To make matters worse, Washington State defines "pre-foreclosure status" as the owner only needs to "think" they might miss a payment in the future, though they may be current presently. And they have seven years to sue you after they are informed, by that helpful "social justice" lawyer that are very plentiful in WA looking for work, that they have been a victim of "equity skimming" AND you are liable to make them whole based on the true market value of the property when the lawsuit is over and you have done all of your renovations (Not based on the date that you bought the property) AND you can be held criminally liable AND the Consumer Protection Act allows for Triple damages AND the seller doesn't have to tell you when you are buying the house that they are behind or that they "think" that they may get behind on their mortgages or property taxes.
Is this Orwelian, or is it Stalinistic? I can't quite decide.
- Goshen, AR · Member since 2017 · 267 posts · 159 votes9yWe did a similar deal a few months ago. We closed on a duplex that was 4 days from being auctioned. First thing we did was to ensure the seller still had possession and right to sell, which was confirmed by their bank. After that we got the seller to signed a limited information release so we and our title company could quickly work with the bank to get total pay off $... There was one thing that snuck up on us at the end, the seller didn't disclose a 2nd on the property and the title company found it... luckily there was enough room in the agreed price that it took care of both notes. Of course this was in Arkansas so Florida may be a bit different but it can be done and you have to act fast... it really helped us to get the seller to sign off on us being able to contact the bank directly early on.
- Real Estate Agent · Edmonton, Alberta · Member since 2015 · 10 posts · 2 votes9y
Hi,
You can definitely buy it directly from the home owner after the notice of default but before foreclosure. You can use lease options. They are really helpful and you can make money without getting mortgage or buying the property cash.
In lease option, you can help the person avoid a sure foreclosure in exchange for lease option - chance to buy for whatever years you what to put. Then you bring the property to date with dues. Then you lease the property to someone else(with bad credit but good earning ) with option to buy in 3 years with 3 to 4.5% appreciation/ yr and with 5% down payment. Also charge your regular rent (mortgage+expenses)plus any amount you feel deal will go through and will give you monthly cash flow.
hope it helps
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Good post Chris...for those wanting to see the statute in FL:
697.08 Equity skimming.— (1) It is unlawful for any person, with intent to defraud the owner of real property, to engage in equity skimming, which is, to: (a) Purchase, within a 3-year period, two or more single-family dwellings, two-family dwellings, three-family dwellings, or four-family dwellings, or a combination thereof, that are subject to a loan that is in default at the time of purchase or within 1 year after the time of purchase, which loan is secured by a mortgage or deed of trust;(b) Fail to make payments under the mortgage or deed of trust as the payments become due, regardless of whether the purchaser is obligated on the loan; and
(c) Apply, or authorize the application of, rents from such dwellings for the person’s own use.
(2) A violation of subsection (1) constitutes a felony of the third degree, punishable as provided in s. 775.082, s. 775.083, or s. 775.084.
History.—s. 1, ch. 94-288; s. 775, ch. 97-102.
I know at least a couple of agents in Naples that are doing this today. They try to hide their names by putting the title into a land trust and name the trust by the property such as "123 main street trust". This probably also fools the bank, believing the delinquent owner still has title when it was actually transferred via quit claim. These frauds rarely put down any money, don't pay taxes or insurance, and pocket the rent from the seller. When one was scheduled for foreclosure, they made an offer to the bank (they already owned it!!), obviously at a low price, and wanted me to fund the transaction. They intended to quit claim it back to the owner, and then take title from the owner before the bank proceeded through the foreclosure process. What scumbags. They are very nicely dressed, drive nice cars, and present an air of honesty. Proof-you cannot judge the book by it's cover. I do not know what happened, but I did report them to the FBI because when banks are involved they are screwing with federally insured funds. I guess my posts on BP make some of these types not want to deal with me..and I am JUST FINE with that:)
- Wholesaler · Arnold, MO · Member since 2013 · 348 posts · 183 votes9y
@Account Closed This is because Washington state bureaucrats know what's best for everyone and those bureaucrats believe that people in foreclosure must be too stupid to make decisions on their own. They also like to keep the masses down with a foreclosure on their credit record.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Originally posted by @Vince Mayer:
@Account Closed This is because Washington state bureaucrats know what's best for everyone and those bureaucrats believe that people in foreclosure must be too stupid to make decisions on their own. They also like to keep the masses down with a foreclosure on their credit record.
Typical "wholesaler" BS~! They write laws to help protect victims from predators. Some of these people in foreclosure DON'T know any better and someone comes along promising to "fix" their problems..and under duress they are the best prey for the unethcial, liars, frauds, and cheats.
- Professional · Milwaukee, WI · Member since 2017 · 17 posts · 5 votes9y
Hi this is James from Wisconsin, to your question yes you can just because it has a sheriff sale date does not mean you can't still buy the property from the owner. It is also important to understand that the position of the property is still in the pre foreclosure status, when the property goes to sheriff sale on the date specified then it is no longer the owners property. I hope that helped ,good luck and always proceed with caution.
- Wholesaler · Arnold, MO · Member since 2013 · 348 posts · 183 votes9y
Hit a nerve huh.
- Real Estate Investor · Memphis, TN · Member since 2016 · 940 posts · 695 votes9y
@January Johnson - we have been marketing heavily to pre-foreclosures for over a year now and sadly, not a single deal has worked out. Either they called too late or they were under water. I'd love to get some of these deals before auction! I'm still surprised how many people either don't seem to care or are in denial. We bought one in Memphis last week that had a contract to close in 2 weeks but the seller wanted a certain price and didn't seem to care or understand that a contract doesn't keep the house from selling at auction. Her agent said he tried to explain this to her. This is the second time, we've bought a foreclosure under contract.
I find no joy in this part of the foreclosure market and would love to be able to help homeowners sell their property before auction. Alas.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Vince Mayer the same laws that Ken delineated about WA are in OR CA and looks like FLA.. and I bet many other states.. its just like wholesaler selling RE without licenses is it legal NO do they do it yes.. just does not make it right though..
I have twice been on the outside of these equity skimming deals.. When the FBI knocks at your door with two young agents ... you do get the pucker factor.. this particular guy came to my HML shop and wanted to borrow money... I ended up selling him a property for cash.. and it was money taken from the equity skimming.. Long story short he got 5 years in state prison...
One of little BP investors trying their first deals of course are under the radar .. but those that take it to another level well they can get hammered.. greed is an ugly thing in this business.
@Elizabeth Wilson before it became illegal to buy pre foreclosures in Or and Wa.. Other than listed properties.. your results are common.. its a very tough game.
90% of our deals closed the day before the auction or 2 days before.. we did not even start contacting the owner until about 10 days before auction.. and we only door knocked.. we never sent letters waste of time and money as your finding out... realty only sets in on most folks a few days before that's why so many homes go to auction.
But you can't buy with title insurance you have to prep your own deeds like we did.. you need courier to take your cashiers check to the trustee or foreclosure service in person.. etc etc .
you cannot do what I call snail mail real estate in the pre foreclosure business.. If your relying on a title company or attorney to do your deal.. your wasting your time... as you found out the people losing these are in total denial.. and or last minute they will BK.
Lastly and the folks usually don't know this.. but many times going to auction IS THE BEST thing for them far better than taking deal from a pre fcl buyer.. their credit as already trashed.. so that's no biggee.. but if your in a spirited buying market they homeowner is entitle to the overage.. I have seen overages be FAR more than they would have got even selling it on the open market.. simply because they have no selling cost no realtor fee.. no closing costs.. etc etc.. they just get a nice fat check.. out here on the west coast this can be 10 to 50k or it can easily be over 100k right into their pocket tax free and expense free.
- Real Estate Investor · Memphis, TN · Member since 2016 · 940 posts · 695 votes9y
@Jay Hinrichs - I thought there was a difference in their credit score with or without foreclosure on their record. Is that not true?
We also do door knocking (but probably not as much as we should); so far the same game. Not interesting in talking or selling.
- 9yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Elizabeth Wilson its does affect their score more.. but the reality is you get to the sale date and your credit is trashed.. your not saving their credit just because the sale did not happen they still can't buy or have a hard time renting a good place.
Day before the sale is when they have a come to Jesus.. or run to their BK attorney.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes9y
Originally posted by @Vince Mayer:
Hit a nerve huh.
It's always fun to point out BS for new people that don't know better and believe everything they read:)
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