The Make Money on Foreclosures Answer Book

258 Pages·2008·1.79 MB·English

by  Denise Evans

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secrets and insights. An ImpNrianpt eorfv iSlloeu, rIlcleibnoooisks, Inc.®
www.SphinxLegal.com
DENISE L. EVANS, ATTORNEY AT LAW Susan Ashley, PhD
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HOW TO MAKE
M F
ONEY ON ORECLOSURES
Answer Book
Practical Answers to More Than 125 Questions on Investing
in Foreclosure Property
D L. E
ENISE VANS
ATTORNEYATLAW
S P
PHINX® UBLISHING
ANIMPRINTOFSOURCEBOOKS, INC.®
NAPERVILLE, ILLINOIS
www.SphinxLegal.com
Make Money on Foreclosures.qxd 12/14/07 5:14 PM Page ii
Copyright © 2008 by Denise L.Evans
Cover and internal design © 2008 by Sourcebooks,Inc.®
Cover photos © 2008 by Corbis
All rights reserved.No part of this book may be reproduced in any form or by any elec-
tronic or mechanical means including information storage and retrieval systems—except
in the case of brief quotations embodied in critical articles or reviews—without permis-
sion in writing from its publisher,Sourcebooks,Inc.®Purchasers of the book are granted
license to use the forms contained herein for their own personal use.No claim of copy-
right is made to any government form reproduced herein.All brand names and product
names used in this book are trademarks,registered trademarks,or trade names of their
respective holders. Sourcebooks and the colophon are registered trademarks of
Sourcebooks,Inc.®
First Edition:2008
Published by:Sphinx®Publishing,An Imprint of Sourcebooks,Inc.®
Naperville Office
P.O.Box 4410
Naperville,Illinois 60567-4410
630-961-3900
Fax:[phone]
www.sourcebooks.com
www.SphinxLegal.com
This publication is designed to provide accurate and authoritative information in
regard to the subject matter covered.It is sold with the understanding that the
publisher is not engaged in rendering legal,accounting,or other professional service.If
legal advice or other expert assistance is required,the services of a competent profes-
sional person should be sought.
From a Declaration of Principles Jointly Adopted by a Committee of the
American Bar Association and a Committee of Publishers and Associations
This product is not a substitute for legal advice.
Disclaimer required by Texas statutes
Library of Congress Cataloging-in-Publication Data
Evans,Denise L.
The make money on foreclosures answer book :practical answers to the top 125 ques-
tions on investing in foreclosure property / by Denise L.Evans.-- 1st ed.
p.cm.
Includes index.
ISBN 978-1-57248-766-6 (pbk.:alk.paper) 1. Real estate investment.2.
Foreclosure. I.Title.
HD1382.5.E973 2008
332.63'24--dc22
2007048789
Printed and bound in the United States of America.
CH — 10 9 8 7 6 5 4 3 2 1
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Contents
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .v
Chapter 1:Foreclosure Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Chapter 2:Deciding to Invest in Foreclosures . . . . . . . . . . . . . . . . .27
Chapter 3:Establish Your Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
Chapter 4:Finding Appropriate Properties . . . . . . . . . . . . . . . . . . .47
Chapter 5:Understanding the Parties and Their Motivations . . . . .63
Chapter 6:Ready,Set,Buy! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Chapter 7:Financing Your Purchase . . . . . . . . . . . . . . . . . . . . . . . .99
Chapter 8:What You Should Know about Taxes . . . . . . . . . . . . .113
Chapter 9:Bankruptcy and Foreclosure . . . . . . . . . . . . . . . . . . . . .127
Chapter 10:The Former Owner . . . . . . . . . . . . . . . . . . . . . . . . . .133
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145
Appendix A:Sample Business Plan . . . . . . . . . . . . . . . . . . . . . . . .153
Appendix B:HUD Good Neighbor Next Door . . . . . . . . . . . . . .159
Appendix C:State-Specific Information . . . . . . . . . . . . . . . . . . . .167
Appendix D:Understanding the Real Estate Contract . . . . . . . . .227
Appendix E:Spreadsheets You Can Use . . . . . . . . . . . . . . . . . . . .235
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .245
About the Author . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .249
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Foreword
According to research conducted by the Center for Responsible
Lending, 3.2 million consumers borrowed money under so-called
subprime mortgages in 2006.The Center estimates that 19.4% of those
loans,or a whopping 624,000 mortgages,will end in foreclosure.
From the website of the Center for Responsible Lending,www.responsiblelending.org,
and as reported in Mortgage Servicing News,“Wanted:Default Relief,”by Brian Collins,
May 2007,vol.11,no.4,page 1.
With so many home mortgages ending up in foreclosure, it is an ideal
time to invest in these properties. But, in order to minimize your risk
and become a successful investor,you have to know what you are doing
and understand the process of investing in foreclosure properties.
In this book, I will explain the process and help you learn how to
invest in and make money from foreclosures.I will define the vocabu-
lary terms you need to know, and I will explain how to set up the
procedures you need to use to be successful.
One word of caution before we begin.The laws in every state are
different.Not only that,but they change very quickly.Check the law
in your state on the different issues mentioned in this book.
Good luck!
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FF
OORREECCLLOOSSUURREE
Chapter 1
BB
AASSIICCSS
■What is a foreclosure?
■What other sales are similar to foreclosures?
■What causes foreclosures?
■Are owners in foreclosure deadbeats?
■Why do I have to understand the foreclosure process?
■What steps lead up to a foreclosure?
■What is involved in a nonjudicial foreclosure?
■How does a judicial foreclosure work?
■What is a voluntary foreclosure?
■Can a foreclosure be stopped once the process has started?
■What happens to the former owner after foreclosure?
■What happens to tenants after a foreclosure?
■Does a spouse have rights in foreclosed real estate, even if his or her name
was not on the deed?
■What happens to other creditors after a foreclosure?
■Who controls the foreclosure process?
■How do I find out who is in control of the foreclosure process?
■What is MERS?
■Can a former owner buy his or her property back after foreclosure?
■How can I separate myth from reality when I learn about foreclosure
investing from other sources?
■Can I make money if there are a lot of foreclosures on the market?
■Can I get rich from buying and selling foreclosures?
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2 How to Make Money on Foreclosures Answer Book
What is a foreclosure?
Foreclosureis the process in which a lender takes action to foreclose—
to shut out,to bring to an end—a borrower’s rights in real estate.In
a foreclosure, the real estate is security for a loan, the borrower
defaulted,and now the lender wants to take the property,sell it,and
apply the proceeds as a credit against the loan.Strictly speaking,all
foreclosures come after there has been a voluntary agreement to
borrow money and provide the lender with collateral consisting of a
specific piece of real estate.
Other processes result in creditors taking real estate away from
debtors.Those will be described in the next question.In this book,
I will generally refer to all involuntary losses of property to credi-
tors as foreclosures, even though they might technically be sepa-
rated into foreclosures, judgment executions, tax sales, Internal
Revenue Service (IRS) seizures, and bankruptcy auctions, to name
a few.
What other sales are similar to foreclosures?
People can lose their ownership of real estate in a wide variety of
ways.The most common are as follows.
• IRS seizures occur when all real and personal property of the
taxpayer is subject to an IRS lien for unpaid taxes.The IRS may
pick and choose which assets to sell and in what order to sell
them. State and local governments can do the same thing for
their own tax bills.This is different from the IRS criminal inves-
tigations seizures mentioned later.
• Real estate tax auctions arise from unpaid property taxes related to
specific real estate.Only the property with the unpaid real estate taxes
may be sold.All other properties are safe if their taxes were paid.
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Foreclosure Basics 3
• Judgment executions occur after one person sues another person
and wins a judgment.The lawsuit can be for a debt,injuries from
an accident,breach of contract claims,or almost anything at all.
The most common theme is a lawsuit and then a money judg-
ment against the defendant. Once all the appeals have been
exhausted, the winner—the judgment creditor—may seize and
sell any of the loser’s real or personal property.There are some
limitations that we will cover later.
• Government surplus property auctionsare the most likely foreclo-
sures you might encounter. They occur after the government
takes private property under its eminent domain rights,and then
auctions off the portions it does not need for the new school,
library,etc.
• Bankruptcy auctions are required in order to liquidate the
debtor’s assets and distribute the money among various
creditors.
• United States Marshall’s Service forfeiture auctions sell property
seized as a result of criminal activities.
• United States Treasury Department seizures occur as a result of
criminal investigations by the IRS; Immigration and Customs
Enforcement; United States Secret Service; and the Bureau of
Alcohol,Tobacco,Firearms,and Explosives.
What causes foreclosures?
Foreclosures, and all the generic-types of involuntary transfers in
the prior question (except government surplus auctions), occur
because someone did not follow the rules or made unwise decisions.