Wholesaling Process for Pre-Foreclosures and Foreclosures

23 Replies

Hi guys,

So I recently became a landlord and I’m testing other ways to make money in real estate. I read up on wholesaling and wanted to try my hand at it. I bought a list of homes in the early stages of the foreclosure process (in my area) and i definitely want to start a mail campaign to get a list of motivated sellers, but I want to make sure I’m going about it the right (and legal) way. So I have a few questions regarding the wholesaling process in Foreclosures and pre-Foreclosures. Feel free to answer one, some or all of the questions: 

P. S. - I’m in North NJ btw, in case that matters. 

Is the process any different than in wholesaling a house that isn’t in default?

Is it easier to Wholesale a pre-foreclosure than a foreclosure? 

Any advice you can give on how to be successful in wholesaling in general (not specific to Foreclosures)?

How do you build your network of cash buyers?

Do you ever go out to physically meet homeowners whose homes you’re looking to buy, or do you do everything remotely?

What kind of contracts do you use for your wholesaling and assignments?

How long did it take you to do your first wholesale transaction (from when you sourced the home to when you successfully assigned it)?

I know that buying a foreclosure can take a long time. How much longer does it take to wholesale a preforeclosure/foreclosure? Or is wholesaling not affected by the longer timeframe?

What safety measures do you implement to: ensure you have a serious buyer, ensure you won’t be forced to buy the home in the event that a buyer backs out or you can’t find one, and to ensure you ensure everything is being done legally?

Do you need a lawyer to facilitate wholesale transactions in Northern NJ, or can you use a title company up here as well? I’ve heard mixed answers. 

Any help or advice would be appreciated. 

Thanks!

If you are signing contracts with NO WAY to close, you are committing FRAUD BY INDUCEMENT. What is your PROMISE to buy a house, with seller in distress, and you walk away? Wrong way to operate IMO though there are plenty of FRAUDS AND SCAMMERS that have no problem screwing over people in distress.

Originally posted by @John Thedford :

If you are signing contracts with NO WAY to close, you are committing FRAUD BY INDUCEMENT. What is your PROMISE to buy a house, with seller in distress, and you walk away? Wrong way to operate IMO though there are plenty of FRAUDS AND SCAMMERS that have no problem screwing over people in distress.

 Hi John,

Thanks for your reply. Again, I’m new to wholesaling so I haven’t done any deals yet, and I admittedly don’t know everything there is to know. So I know that wholesaling in and of itself isn’t illegal, so if you can, please advise what exactly is illegal about what I wrote, and please let me know how you would do things differently?

Thanks,

 Gina 

I don't know the laws in NJ  but on the west coast  CA OR WA there are VERY specific laws that relate to dealing with those in default.. you may want to check with a local RE attorney before you launch.

Also I have done this for a few decades.. I think what U will find is your not the only one with this idea.. someone in default will over the course of their foreclosure get HAMMERED with direct mail

the bank will be talking to them sending them letters pretty much weekly.

people like you will be drilling them.. so competition is fierce.. at least it used to be in our market before the laws changed.. but not everyone knows the laws or follows them.

Bottom line though this I know is true having bought hundreds of these.. homeowners are in massive denial.. they are not motivated until usually the 9th hour.. you can find an occasional one that will react early in the process.. but usually that reaction is to list it and sell it..

now if your in an area that has limited sale activity to homeowners  and most the transactions are to investors for rentals.. that would be a leg up.. as those areas are dominated by wholesalers..

But if you think you going to send a few letters out and deals are going to just pop up .. I would be shocked at that..

When we bought a property the sellers were not motivated until 2 to 3 days before they were going to lose it.. then it was hair on fire to get them done... and you needed CASH the wholesaler bit simply was a non starter..

irrespective of tying up a property when you have no money hoping to wholesale it.. think about your grandmother.. would you like someone doing this and risking them losing their home when someone who has cash could actually help them.  or a good realtor could get top dollar.. think about the other person not just yourself.

Originally posted by @Gina Clarke :
Originally posted by @John Thedford:

If you are signing contracts with NO WAY to close, you are committing FRAUD BY INDUCEMENT. What is your PROMISE to buy a house, with seller in distress, and you walk away? Wrong way to operate IMO though there are plenty of FRAUDS AND SCAMMERS that have no problem screwing over people in distress.

 Hi John,

Thanks for your reply. Again, I’m new to wholesaling so I haven’t done any deals yet, and I admittedly don’t know everything there is to know. So I know that wholesaling in and of itself isn’t illegal, so if you can, please advise what exactly is illegal about what I wrote, and please let me know how you would do things differently?

Thanks,

 Gina 

 I don't know your state laws, but I DO KNOW--that putting properties under contract, with no intention or ability to close, is WRONG, misleads sellers, and can put you in a bad situation. We had a "buyer" that was just sued for FRAUD BY THE INDUCEMENT.

Forget the FRAUDS AND SCAMMERS encouraging you to lie to and deceive sellers. Would YOU trust them enough to do business with them, knowing they were dishonest. This IS the problem with people promoting dishonesty and deception. They are NOT good mentors.

Originally posted by @Jay Hinrichs :

I don't know the laws in NJ  but on the west coast  CA OR WA there are VERY specific laws that relate to dealing with those in default.. you may want to check with a local RE attorney before you launch.

Also I have done this for a few decades.. I think what U will find is your not the only one with this idea.. someone in default will over the course of their foreclosure get HAMMERED with direct mail

the bank will be talking to them sending them letters pretty much weekly.

people like you will be drilling them.. so competition is fierce.. at least it used to be in our market before the laws changed.. but not everyone knows the laws or follows them.

Bottom line though this I know is true having bought hundreds of these.. homeowners are in massive denial.. they are not motivated until usually the 9th hour.. you can find an occasional one that will react early in the process.. but usually that reaction is to list it and sell it..

now if your in an area that has limited sale activity to homeowners  and most the transactions are to investors for rentals.. that would be a leg up.. as those areas are dominated by wholesalers..

But if you think you going to send a few letters out and deals are going to just pop up .. I would be shocked at that..

When we bought a property the sellers were not motivated until 2 to 3 days before they were going to lose it.. then it was hair on fire to get them done... and you needed CASH the wholesaler bit simply was a non starter..

irrespective of tying up a property when you have no money hoping to wholesale it.. think about your grandmother.. would you like someone doing this and risking them losing their home when someone who has cash could actually help them.  or a good realtor could get top dollar.. think about the other person not just yourself.

 Hi Jay,

Thanks for the response. I didn’t think of it this way. I’ve actually read a few posts on BP about people who Wholesale Foreclosures/pre-foreclosures, so I’m actually a bit shocked that it has this negative of a connotation. 

So are you recommending wholesaling properties that are NOT in default (vs properties that are)?

Thanks,

Gina

@John Thedford   the biggest issue I see with the wholesaler set as it relates to foreclosure rescue.. is you have the totally basically real estate newbie who is now jumping into a semi complex transaction and can really foul it up for sellers ... to the point of the sellers losing the property altogether.. I have seen it I have rescued folks from these types of wholesalers .. they simply do not know enough about the process to be out there trying to do these deals.

its one thing to try to sell a house that someone owns free and clear or its not in distress.. but your talking about hugely stressful situations here.. and that's why our state and CA and WA changed the laws to protect those in distress.. Obama had a big hand in this..

Originally posted by @Gina Clarke :
Originally posted by @Jay Hinrichs:

I don't know the laws in NJ  but on the west coast  CA OR WA there are VERY specific laws that relate to dealing with those in default.. you may want to check with a local RE attorney before you launch.

Also I have done this for a few decades.. I think what U will find is your not the only one with this idea.. someone in default will over the course of their foreclosure get HAMMERED with direct mail

the bank will be talking to them sending them letters pretty much weekly.

people like you will be drilling them.. so competition is fierce.. at least it used to be in our market before the laws changed.. but not everyone knows the laws or follows them.

Bottom line though this I know is true having bought hundreds of these.. homeowners are in massive denial.. they are not motivated until usually the 9th hour.. you can find an occasional one that will react early in the process.. but usually that reaction is to list it and sell it..

now if your in an area that has limited sale activity to homeowners  and most the transactions are to investors for rentals.. that would be a leg up.. as those areas are dominated by wholesalers..

But if you think you going to send a few letters out and deals are going to just pop up .. I would be shocked at that..

When we bought a property the sellers were not motivated until 2 to 3 days before they were going to lose it.. then it was hair on fire to get them done... and you needed CASH the wholesaler bit simply was a non starter..

irrespective of tying up a property when you have no money hoping to wholesale it.. think about your grandmother.. would you like someone doing this and risking them losing their home when someone who has cash could actually help them.  or a good realtor could get top dollar.. think about the other person not just yourself.

 Hi Jay,

Thanks for the response. I didn’t think of it this way. I’ve actually read a few posts on BP about people who Wholesale Foreclosures/pre-foreclosures, so I’m actually a bit shocked that it has this negative of a connotation. 

So are you recommending wholesaling properties that are NOT in default (vs properties that are)?

Thanks,

Gina

 IT STILL BOILS DOWN TO: are you going to close, or use BS escape clauses and go out into the field lying and deceiving sellers. Get financing, then write contracts. I have passed on many a deal, knowing I could not pull it off due to not having the cash to close.

One question: can you LEGALLY market a property you do now own if you are not licensed. You cannot in FL and other states that are cracking down due to the number of victims of these types of operators.

Gina.. .  you have to remember most in the wholesale side of things or a good number of them are just trying to start somewhere  don't have any real money  and they read that its the way to get started when in fact the way they do it is illegal in most states.. its just that states don't enforce it..

Just think of your mom and dad or your grandparents when you embark on these ventures.. and how you would like them to be dealt with then let your conscience guide your actions.

Remember in BP your a hero if you rip 50k out of a wholesale deal even though the seller should have gotten most of that for every wholesaler who takes a HUGE cut above industry norm there is a seller losing out.. so again.. its a morality thing as well.

You CAN make money buying under market, and that is Ok as long as the seller is informed. I buy under market or don't but, the the sellers KNOW what their property is worth. I offer to list it for "x" or buy it for "y". No deception. Jay buys a lot of hoarder houses, and those take work..lots of it. He earns the profit.

Originally posted by @John Thedford :

You CAN make money buying under market, and that is Ok as long as the seller is informed. I buy under market or don't but, the the sellers KNOW what their property is worth. I offer to list it for "x" or buy it for "y". No deception. Jay buys a lot of hoarder houses, and those take work..lots of it. He earns the profit.

 Hi John,

So just so I’m clear: you’re saying you have done wholesale deals in the past with homeowners in default, but you made sure the homeowner was fully aware of what was going on and your intentions? As opposed to telling them one thing or making promises you couldn’t keep, correct?

Originally posted by @Gina Clarke :
Originally posted by @John Thedford:

You CAN make money buying under market, and that is Ok as long as the seller is informed. I buy under market or don't but, the the sellers KNOW what their property is worth. I offer to list it for "x" or buy it for "y". No deception. Jay buys a lot of hoarder houses, and those take work..lots of it. He earns the profit.

 Hi John,

So just so I’m clear: you’re saying you have done wholesale deals in the past with homeowners in default, but you made sure the homeowner was fully aware of what was going on and your intentions? As opposed to telling them one thing or making promises you couldn’t keep, correct?

 I won't sign a contract unless I can fulfill it. I have purchased right before foreclosure as well as purchased right before a tax deed sale. I COULD legally market and assign because I am an agent, but will NOT mislead a seller and walk away. It boils down to integrity. I CLOSED if I sign on the line. Imagine someone being in a terrible situation, you PROMISE to buy, and then walk away Where does that leave them? Screwed. It will also hurt you, and if they can prove you induced them to sign by fraud, you could be sued. There is more to this: wholesaling MAY be illegal depending upon how your operate. This doesn't take moral issues into account.

Originally posted by @John Thedford :
Originally posted by @Gina Clarke:
Originally posted by @John Thedford:

You CAN make money buying under market, and that is Ok as long as the seller is informed. I buy under market or don't but, the the sellers KNOW what their property is worth. I offer to list it for "x" or buy it for "y". No deception. Jay buys a lot of hoarder houses, and those take work..lots of it. He earns the profit.

 Hi John,

So just so I’m clear: you’re saying you have done wholesale deals in the past with homeowners in default, but you made sure the homeowner was fully aware of what was going on and your intentions? As opposed to telling them one thing or making promises you couldn’t keep, correct?

 I won't sign a contract unless I can fulfill it. I have purchased right before foreclosure as well as purchased right before a tax deed sale. I COULD legally market and assign because I am an agent, but will NOT mislead a seller and walk away. It boils down to integrity. I CLOSED if I sign on the line. Imagine someone being in a terrible situation, you PROMISE to buy, and then walk away Where does that leave them? Screwed. It will also hurt you, and if they can prove you induced them to sign by fraud, you could be sued. 

 Hi John,

Ok that’s clearer for me. Becoming an agent and marketing the homes that way. I definitely wouldn’t intentionally want to hurt someone in a stressful or pressing situation. I’ll look into getting my RE license. Thanks!

Gina 

Gina for some constructive feed back if you want to go down the path.. and by all means you can try it but you I will bet 90% will just throw your money and time away.

but I would put the energy into finding your cash up front.. to me most of the folks go at this backwards.

and not just some guy on the internet who says ya put me on your list.. remember half of them are full of crap as well and have no means.

find true players in the market.. there will probably only be a few.. get meetings with them.. know them personally.. then if you scare up a deal you KNOW you have the cash behind you to buy it straight away.

This is an example I rolled up on a house about 10am on a Thursday and it was going to auction the next day at 11am... Hoarder extreme ( which is my specialty )  people are in chairs on the porch clue that house stinks bad.. LOL... we get to talking  they wip out a contract from a wholesaler.. I say well your going to lose the house tomorrow.. I am here to tell you that.  after about a half an hour of denial I got them to call the guy on the phone.. he said he was eating lunch with his family and could not talk.. LOL..

I told them you really need to go file BK there is some equity in this and your going to lose it all. the condition of the house is such that its not going to over bid and you will get nothing. zilch on the street. the guys that buy these at court house will simply evict you .

they take my advice spent the 500 bucks and BK  well about 9 months later they call me.. they only want to deal with me.. I buy it.. give them about 50k in cash for their equity.. sold the house to a flipper subdivided a lot off the back that took some time and money and we made a tidy profit.. win win.

Wholesaler just about lost the entire deal for them.. .and this has happened numerous times.. I could tell wholesaler was only interested in himself he could care less that these people would have lost it all.

that's the rub on so many wholesalers.. NOT all I don't want to get blasted painting that brush stroke but its far more than it is the good guys.

Originally posted by @Jay Hinrichs :

Gina for some constructive feed back if you want to go down the path.. and by all means you can try it but you I will bet 90% will just throw your money and time away.

but I would put the energy into finding your cash up front.. to me most of the folks go at this backwards.

and not just some guy on the internet who says ya put me on your list.. remember half of them are full of crap as well and have no means.

find true players in the market.. there will probably only be a few.. get meetings with them.. know them personally.. then if you scare up a deal you KNOW you have the cash behind you to buy it straight away.

This is an example I rolled up on a house about 10am on a Thursday and it was going to auction the next day at 11am... Hoarder extreme ( which is my specialty )  people are in chairs on the porch clue that house stinks bad.. LOL... we get to talking  they wip out a contract from a wholesaler.. I say well your going to lose the house tomorrow.. I am here to tell you that.  after about a half an hour of denial I got them to call the guy on the phone.. he said he was eating lunch with his family and could not talk.. LOL..

I told them you really need to go file BK there is some equity in this and your going to lose it all. the condition of the house is such that its not going to over bid and you will get nothing. zilch on the street. the guys that buy these at court house will simply evict you .

they take my advice spent the 500 bucks and BK  well about 9 months later they call me.. they only want to deal with me.. I buy it.. give them about 50k in cash for their equity.. sold the house to a flipper subdivided a lot off the back that took some time and money and we made a tidy profit.. win win.

Wholesaler just about lost the entire deal for them.. .and this has happened numerous times.. I could tell wholesaler was only interested in himself he could care less that these people would have lost it all.

that's the rub on so many wholesalers.. NOT all I don't want to get blasted painting that brush stroke but its far more than it is the good guys.

 Jay separated himself from the FRAUDS AND SCAMMERS. People can often see through them. GET FUNDING..then start investing. I have educated many sellers that were being scammed. TOUGH LESSON for them. Public service from me even though I didn't buy their property. 

@Gina Clarke   PS on that hoarder house the only reason I was there to see if I wanted to bid on it the next day at auction.. LOL... but I took the high road and helped them.. I know I am not normal at this end of the business that I know.. most would have just walked around came up with some BS excuse why they were there would have thought these people deserve what they are getting how can anyone fill a house full of garbage and live like that  etc etc..

My partner in my airplane who is one of the most caring people I have ever met I always think What would Carl do here..  but balance it with our business interest..  not that any of this probably means anything to most people on the wholesale side of the coin.. and buying court house steps is hard enough..

@Gina Clarke , if you've never done ANY wholesale deals, then going the pre-foreclosure/foreclosure route is NOT the way to start. As you can read from Jay, there are definitely a number of things that you need to know & do in regards to these type of situations. I would advise reading all of the wholesaling blogs & also review the podcasts of interviews with wholesalers before doing anything. Just think about this, what if you were to put a property under contract this week, what would you do next?!?!? Do you yourself have cash, do you have a buyer already that wants the property,  do you have a title/closing agent lined up, do you have the recent payoff from the bank, has the buyer given you permission to talk with the bank, etc, etc.

@Gina Clarke The government has some restrictions on "foreclosure consultants" and sometimes there could be a thin line between wholesalers who specialize in pre-foreclosures/foreclosures and these "consultants". 

Have you thought of getting your license and maybe joining an auction house that focusses on this type of business?

From a legal perspective, you could expose yourself to some legal quagmires. 

Hope this helps, Gina. Goodluck. Thanks! - Ola 

@Gina Clarke   - First of all congrats on becoming a landlord!  That is awesome! :) 

We have been buying foreclosures from our sourced lists for several years now.  And I too thought that they would be an easier motivated seller leads, but I have yet to buy one from them before going to auction.   

You can try to market to them but I wanted to give you a heads up that it isn't as easy as one would think so you won't waste as much money as we have.

Also there are great posts, blogs, podcasts, etc about wholesaling where you can learn more.  You even might decide there are better routes for you to grow your portfolio!

Best of luck! 

@Gina Clarke First of all, it's a terrible idea to start in RE as a wholesaler. Seriously, it is already extremely hard to find a deal at 70 % of ARV. You have to know how to estimate ARV, Repairs, holding costs etc. While these are not complicated things to learn, it's very likely you will overestimate ARV and underestimate repairs during your first deal. When I first started as a wholesaler (with no RE experience), I wasted a lot of my time chasing leads and I didn't know whether or not it was a good deal. I think it's a much better idea to start as a bird dog. Ask a rehabber if you could learn from them and in exchange, you will find properties for them or overseeing his projects.

PF leads are probably some of the toughest to convert. Especially if you are in a Judicial state. People facing foreclosure are in denial and getting bombarded with calls and letters from realtors and other investors. I'd probably focus on another type of lead if I were just getting started. Dealing with people in distressed situations it's a big responsibility and you have to be sure you'll be able to close.

@Gina Clarke , John gets very passionate about wholesaling because he has happened upon numerous people who have been misled by wholesalers. Real estate can be very complicated if you don't know what you're doing, and many times wholesalers - either on purpose or being un- or under-educated themselves - will lead the seller to believe their house is closing on X date, rather than explain that is the date they can cancel the contract. 

I know in one case that John ended up listing the home after it "fell out of contract" with the wholesaler who never had any intention of buying it himself. The sellers thought their home was sold, packed up to move to be near their new grandchild, put money down on a new house and then the wholesaler calls them up on the very last day to say he can't find a buyer and he's walking away.

hi Gina. As a local rehabber and wholesaler for 17 years - I have yet to hear of any special laws governing how you deal with a pre foreclosure in New Jersey ( there is an exception in regards to tax foreclosures but that's more so to protect the tax lien holder than it is the homeowner). however I will say that your approach will and should be different than dealing with a regular property. That mostly depends on the stage the pre-foreclosure is in as it relates to foreclosure. In the beginning stages it's almost like a regular sale and purchase. But if a Sheriff sale date has been scheduled then it's an entirely different animal and you will want to be experienced in this type of thing before taking it on yourself. shoot me a PM when you get time and we can talk more. I'm in your neck of the woods so perhaps we can partner on a deal or two so that you have an opportunity to learn the ropes. take care.

Hey Gina, many of the questions you asked should be discussed with an attorney. I am going to try to answer them to the best of my ability, but I must disclose I am not a lawyer and for any legal advice you must seek professional legal counsel.

"Is the process any different than in wholesaling a house that isn’t in default?"

Generally speaking no, but most of the wholesale deals derive from distressed homeowners due to their wiliness and motivation to sell.

"Is it easier to Wholesale a pre-foreclosure than a foreclosure?"

This can definitely vary from deal to deal. Also, determining whether something is easy is difficult because it's a matter of opinion. If you are referring to wholesaling bank owned properties you would have to negotiate with the lender and most lenders do not allow you to assign the purchase and sale contract. Most also require an earnest money deposit. When it's a pre-foreclosed property it could be difficult because you are dealing with distressed homeowners and people and sales skills come in handy there. Majority of the time I hear it is easier to wholesale a pre-foreclosure with a ready, willing, and able seller.

“Any advice you can give on how to be successful in wholesaling in general (not specific to Foreclosures)?”

Marketing, being able to speaking with people, negotiation skills, and did I mention marketing? The best in the wholesaling business are the best at marketing! Building up a team of real estate professionals is crucial also, which consists of Realtors, hard money lenders, contractors, building inspectors, appraisers, title companies/attorneys, insurance agents and that’s just to name a few!

“How do you build your network of cash buyers?”

You can market online using websites like Craigslist. You can also network with investors in person at local real estate meetup groups that can be found on Meetup.com > Career & Business > NJREIA

“Do you ever go out to physically meet homeowners whose homes you’re looking to buy, or do you do everything remotely?’

You have to meet the homeowners in person because a very important step in the wholesaling process is viewing the property (from the inside and out) so you can properly estimate repair costs. You would then factor in the repair costs into the offer you would give to the homeowner.

“What kind of contracts do you use for your wholesaling and assignments?”

You can find some contracts that you can use right here on the BiggerPockets File Place. You would then have to search “wholesaling contracts” in the search engine. Be sure to read them over and go as far as to sit with an attorney to review them.

“How long did it take you to do your first wholesale transaction (from when you sourced the home to when you successfully assigned it)?”

Honestly it was about 3 months and most of that time was used in actually finding the property that I wanted to act on.

“I know that buying a foreclosure can take a long time. How much longer does it take to wholesale a preforeclosure/foreclosure? Or is wholesaling not affected by the longer timeframe?”

Generally speaking a preforeclosure would be shorter than a foreclosure as there are more to the deal than a quick cash offer and the property owner accepting it.

“What safety measures do you implement to: ensure you have a serious buyer, ensure you won’t be forced to buy the home in the event that a buyer backs out or you can’t find one, and to ensure you ensure everything is being done legally?”

Most wholesalers create their contracts with many contingencies so they can get themselves out of buying the property if needed. Again this is something I would discuss with my lawyer.

“Do you need a lawyer to facilitate wholesale transactions in Northern NJ, or can you use a title company up here as well? I’ve heard mixed answers.”

Northern NJ uses both ways of closing, so you can use a title company or an attorney. Either or is fine but I know of many investors just sticking to using a title company.

-

Hope this helped you out!

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