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The Complete Guide to Investing in Foreclosures
The Complete Guide to Investing in Foreclosures is written to help you identify and take advantage of opportunities while avoiding the pitfalls. As demand for real estate has skyrocketed, so have prices. But finding affordable properties to buy and sell for profit has never been easier! Why? Because foreclosures are at an all-time high, meaning banks and other lenders have unprecedented numbers of properties they are all too eager to unload. That's your opportunity to acquire prime properties -- both residential and commercial -- at incredible value, and build a substantial real estate portfolio that should give you great returns for years to come. Real estate investment professional Steve Berges gives Foreclosures may be the quickest and most reliable way to profit in real estate-but you've got to know what you're doing. Whether you're new to the game or are already experienced in buying and selling foreclosed properties, The Complete Guide to Investing in Foreclosures gives you everything you need to make smart moves at every stage of the process.
- GenresNonfictionFinance
240 pages, Paperback
First published October 30, 2005
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15 people want to read
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Displaying 1 - 3 of 3 reviews
April 25, 2012
Nice ideas for before the housing crisis, but a bit out of date for e current economic situation
June 2, 2025
i like how much time he spends talking about how he’s morally justified in buying foreclosures and also his weird use of pronouns
February 6, 2017
For each foreclosed property you buy for the purpose of rehabbing and reselling, there should be at least a minimum of $15,000 of profit in it. (p.5)
It is important to know where you are going, but it is just s important to know why you are going there. Whatever the reason may be, it must be clearly defined in your own mind. It is the WHY in our lives that is the true motivating force that pushes us beyond what we may otherwise think we are capable of. (p.9)Like the seed, your vision must be continuously cultivated and cared for. The obnoxious weeds must be yanked out as soon as they make their presence known. As you take steps toward fulfilling your vision, the vision will begin to solidify and become more well defined with each passing day. Your vision must become a part of who you are (p.10)
Foreclosure-the process in which legal action is taken by a lien holder to repossess property held by a borrower who is in default. These third parties are most often lenders such as a mortgage company, bank, or other financial institution who have a financial interest in a property.
Default-repayment terms stipulated within a contract such as a promissory note are not fulfilled.
Banks are in the business of lending money and earning profit on interest, not repossessing the collateral or security attached to the loan (p.13)
Lenders who hold nonperforming assets such as real estate owned (REO) are highly motivated sellers (p.14)
Subject-to agreement- allows investors to gain control of real estate by having the homeowner quitclaim the deed to them, thereby transferring legal control of it. The payments then become the investor's responsibility. It's an effective way of gaining control of the property without assuming any liability for it since the loan is still in the original homeowner's name. (p.22-23)
Lenders have a predetermined minimum threshold that must be met so there's a limit to how low you can bid a price.(p.23)
A distressed homeowner who cannot afford to make his house payment is not very likely to spend money repairing or maintaining it. (p.24)
Mortgage-an instrument that is used by an owner of real property to pledge his or her rights to that property to a lender as as security for a loan described in a promissory note; the mortgage is the document that grants certain rights to the lender pertaining to that property (p.27); it protects the rights of the lender in the event of default by the borrower (p.28). In the event of a default by the borrower, the lender has the right to foreclose on the mortgage to force the sale of the property in order to obtain satisfactory payment for the promissory note.
Promissory Note- legal document that stipulates the repayment terms and conditions required by the lender
"The terms mortgage and promissory note are often erroneously used interchangeably with each other....A promissory note is evidence of the debt. Mortgage is used to secure and protect the rights of the lender, by pledging the property as collateral until the such time as the loan is repaid.
Deed of trust- a document that pledges real property as security for the repayment of funds borrowed against it and is used in place of a mortgage. Deed of trust deals with three parties: lender (aka beneficiary), borrower, and a third party (aka trustee)like an escrow company who has no direct interest in the property. The title is held "in trust" by the trustee for the lender. The difference between a deed of trust and a mortgage is that the deed is placed in trust with a third party until such time as the promissory note has been satisfied. If the note is satisfied, the trustee will convey the title to the borrower.If the borrower is found to be in default, the trustee is required to begin foreclosure proceedings and ultimately convey title to the beneficiary should the property not be purchased at auction (p.29)
The foreclosure process can be divided into 4 stages
1. Pre-Foreclosure
In this stage, the borrower has missed at least one payment and is now considered to be delinquent on the loan. The process of foreclosure is set in motion by the lender (or trustee). The borrower still has the opportunity to bring delinquent payments current, and upon doing so, the lender can reinstate the loan and terminate the official foreclosure proceedings (p.32-33)
2. Auction Sale
period of time when the default or pre-foreclosure stage of the property has expired; the property is auctioned off at the county courthouse in a public sale to the highest bidder, which is usually the lender. The sale terminates the rights of the homeowner's interest in the property
3. Redemption Period-ownership rights of the property have been transferred to the successful bidder at the auction sale. If the property is then owned by the lender, which is usually is, the borrower has an opportunity to pay everything back that they owe, but this usually doesn't happen because they had all the money, they would have made the payments. (p.34)
4. Post-Foreclosure
Ownership rights of the property are transferred to the lender's portfolio, becoming a nonperforming asset referred to as a Real Estate Owned (REO).
*In the post-foreclosure stage, properties are often listed for sale through a real estate agent who helps them to dispose of the property on the open market. The agent's obligation is to the lending institution, not an individual homeowner. **Purchasing a bank-owned house is a matter simply of working through an agent who will write up an offer and, in turn, present it to the lender. (p.34)
Ensure that the property being purchased has a clear chain of title. (p.37) One of the most difficult and risky periods to invest in is the auction sale stage. (p.38).
Include the holding costs for rehabbing in your calculations (p.39).
Do not lease the property back to the seller. If they stopped paying their mortgage payments, they likely will not be paying you for too long either (p.40)
An advantage to investing in the pre-foreclosure is you don't have to qualify or take out a new loan. You just take control of the property and begin making the payments with a small "down payment" (catching up on the seller's payments and giving them money for a month's rent somewhere else. (p.54)
With Investing in the Auction/Trustee Sale, the buyer is required to pay with all cash or certified funds within anywhere from a few hour to 30 days. You need an immediate deposit of 5-10% of the bid, and be prepared to pay the remaining in a few hours to days. (p.61)
How to find properties in the Post-Foreclosure Stage:
A list of REO properties held in any lender's portfolio is available to those who ask for it (p.75)
"I recommend establishing relationships with at least 8 to 10 lenders in your area to provide as large of a pool of foreclosed properties for sale as possible (p.77)
In 1934, Congress enacted legislation that authorized the creation of the Federal Housing Administration (FHA). IN 1965, the FHA officially became part of the Department of Housing and Urban Development (HUD).
The primary role of HUD is to "increase home ownership, support community development,and increase access to affordable housing free from discrimination."
When HUD was formed (1965), it was during the time of Depression. More than 2 million construction workers had lost their jobs, the rate of home ownership was 25%, financing fro housing was difficult for the average family to obtain, Loan-to-value ratios average only 50% (family had to put down 50% down payment), and borrows had only 3-5 years to repay loans. (p.85) The FHA was formed in direct response to the needs of a weakened housing industry and was designed to augment its growth by relaxing underwriting guidelines and making more money available borrowers.
See p. 86 for historical background on the accomplishments of the FHA.
FHA loans are made by private lenders, but they are insured by HUD. Insurance premiums are paid by the homeowners who borrow under this program. Like any other loan, if the loan goes into default the lenders initiates the foreclosure process and eventually takes the title of the property. However, since the loan is insured, the lender may file a claim to HUD who will then reimburse the lender and HUD takes control of the property. HUD then winterizes the house, shutting off the water, boarding up the house, and putting on heavy duty latches and locks, and a sign in the window telling the public it belongs to HUD. (p.86) They are oftentimes in "substantial disrepair/; and in need of a lot of work to bring them up to acceptable standard of living; HUD resells properties "as is" and makes no warranty as to their condition.
The existing inventory of HUD homes in any given city and state can be viewed online by logging on to the appropriate M&m web site. (p.87) HUD home must be purchased through licensed real estate agents who are authorized to submit bids through the M&M contractors' web sites. For the first 10 business days, new listings are usually made available only to buyers who intend to occupy the house as their primary residence. (p.89) Buyers must submit a $500 earnest money deposit along wit the sales contract to the participating M&M contractor within 48 hours. pre-approval letter stating that the buyer is qualified to purchase a house is also required.
Hire a professional inspector to inspect a house you're interested in buying before bidding on it (p.93)
_________________________________
*****How to Invest in Fannie Mae Foreclosures
Fannie Mae purchases loans from other lenders. Mortgage loans are packaged together to form a large pool of loans and are then said to be "securitized". These security instruments are then sold to large institutional investors who earn a designated rat e of return for purchasing them. Fannie Me gets its cash back to buy more loans after selling them to investors and the investors get an income-producing asset that is backed by mortgages. These assets are also referred to as mortgage-backed securities (MBS) (p.95)
"We do not lend money directly to home buyers. Instead, we work with lenders to make sure they don't run out of mortgage funds, so more people can achieve the dream of home ownership (p.96)
Like any other lending institution that manages foreclosures, Fannie Mae must sell the real estate to help offset its losses (p.97). All houses that have been foreclosed on by Fannie Mae are sold through a network of licensed real estate agents throughout the country. (p.98)
***Generally speaking, Fannie Mae does no repair or fix up houses, but, instead, sells them as is.
Buyers should hire a professional inspector to examine the house thoroughly before making an offer on it. (p.98)
If the price and the location are acceptable, the next step is to contact the agent whose name is listed in the search results for more information and arrange for a possible tour of the house. If you already have an agent you are comfortable working with, he can help you, too. Your agent will contact the listing agent to gather information and will then be able to show the house to you (p.99). Fannie Mae foreclosures can be purchased through any real estate agent, who must then submit the offer to the listing agent. The listing agent will then present the offer to Fannie Mae for review.
**The first step for a buyer who wishes to purchase a house from Fannie Mae is to get prequalified through a lending institution of the buyer's choice. Then the RE agent will write up and offer and submit it to Fannie Mae. Fannie Mae will either accept the offer, counter the offer, or reject the offer. (p.99)
Commercial lines of credit are similar to other types of credit lines but are instead designed with the business owner in mind. They typically have higher credit limits in place and are often more competitive in rate than their consumer counterparts. (p.125)
Private money lenders borrow funds at one rate and loan them out at a higher rate. The difference between these two rates is referred to as the "spread" and represents the investor's profit on the money loaned. The types of loans and agreements/terms are a lot more flexible than institutional money. Private money also tends to be more expensive (p.126)
Cash out refi-An investor has built up equity in an investment property and wants to pull a portion of it out in the form of cash. (p.131)
You can generally expect to pay one point for the services of a mortgage broker (p.132)
It is important to know where you are going, but it is just s important to know why you are going there. Whatever the reason may be, it must be clearly defined in your own mind. It is the WHY in our lives that is the true motivating force that pushes us beyond what we may otherwise think we are capable of. (p.9)Like the seed, your vision must be continuously cultivated and cared for. The obnoxious weeds must be yanked out as soon as they make their presence known. As you take steps toward fulfilling your vision, the vision will begin to solidify and become more well defined with each passing day. Your vision must become a part of who you are (p.10)
Foreclosure-the process in which legal action is taken by a lien holder to repossess property held by a borrower who is in default. These third parties are most often lenders such as a mortgage company, bank, or other financial institution who have a financial interest in a property.
Default-repayment terms stipulated within a contract such as a promissory note are not fulfilled.
Banks are in the business of lending money and earning profit on interest, not repossessing the collateral or security attached to the loan (p.13)
Lenders who hold nonperforming assets such as real estate owned (REO) are highly motivated sellers (p.14)
Subject-to agreement- allows investors to gain control of real estate by having the homeowner quitclaim the deed to them, thereby transferring legal control of it. The payments then become the investor's responsibility. It's an effective way of gaining control of the property without assuming any liability for it since the loan is still in the original homeowner's name. (p.22-23)
Lenders have a predetermined minimum threshold that must be met so there's a limit to how low you can bid a price.(p.23)
A distressed homeowner who cannot afford to make his house payment is not very likely to spend money repairing or maintaining it. (p.24)
Mortgage-an instrument that is used by an owner of real property to pledge his or her rights to that property to a lender as as security for a loan described in a promissory note; the mortgage is the document that grants certain rights to the lender pertaining to that property (p.27); it protects the rights of the lender in the event of default by the borrower (p.28). In the event of a default by the borrower, the lender has the right to foreclose on the mortgage to force the sale of the property in order to obtain satisfactory payment for the promissory note.
Promissory Note- legal document that stipulates the repayment terms and conditions required by the lender
"The terms mortgage and promissory note are often erroneously used interchangeably with each other....A promissory note is evidence of the debt. Mortgage is used to secure and protect the rights of the lender, by pledging the property as collateral until the such time as the loan is repaid.
Deed of trust- a document that pledges real property as security for the repayment of funds borrowed against it and is used in place of a mortgage. Deed of trust deals with three parties: lender (aka beneficiary), borrower, and a third party (aka trustee)like an escrow company who has no direct interest in the property. The title is held "in trust" by the trustee for the lender. The difference between a deed of trust and a mortgage is that the deed is placed in trust with a third party until such time as the promissory note has been satisfied. If the note is satisfied, the trustee will convey the title to the borrower.If the borrower is found to be in default, the trustee is required to begin foreclosure proceedings and ultimately convey title to the beneficiary should the property not be purchased at auction (p.29)
The foreclosure process can be divided into 4 stages
1. Pre-Foreclosure
In this stage, the borrower has missed at least one payment and is now considered to be delinquent on the loan. The process of foreclosure is set in motion by the lender (or trustee). The borrower still has the opportunity to bring delinquent payments current, and upon doing so, the lender can reinstate the loan and terminate the official foreclosure proceedings (p.32-33)
2. Auction Sale
period of time when the default or pre-foreclosure stage of the property has expired; the property is auctioned off at the county courthouse in a public sale to the highest bidder, which is usually the lender. The sale terminates the rights of the homeowner's interest in the property
3. Redemption Period-ownership rights of the property have been transferred to the successful bidder at the auction sale. If the property is then owned by the lender, which is usually is, the borrower has an opportunity to pay everything back that they owe, but this usually doesn't happen because they had all the money, they would have made the payments. (p.34)
4. Post-Foreclosure
Ownership rights of the property are transferred to the lender's portfolio, becoming a nonperforming asset referred to as a Real Estate Owned (REO).
*In the post-foreclosure stage, properties are often listed for sale through a real estate agent who helps them to dispose of the property on the open market. The agent's obligation is to the lending institution, not an individual homeowner. **Purchasing a bank-owned house is a matter simply of working through an agent who will write up an offer and, in turn, present it to the lender. (p.34)
Ensure that the property being purchased has a clear chain of title. (p.37) One of the most difficult and risky periods to invest in is the auction sale stage. (p.38).
Include the holding costs for rehabbing in your calculations (p.39).
Do not lease the property back to the seller. If they stopped paying their mortgage payments, they likely will not be paying you for too long either (p.40)
An advantage to investing in the pre-foreclosure is you don't have to qualify or take out a new loan. You just take control of the property and begin making the payments with a small "down payment" (catching up on the seller's payments and giving them money for a month's rent somewhere else. (p.54)
With Investing in the Auction/Trustee Sale, the buyer is required to pay with all cash or certified funds within anywhere from a few hour to 30 days. You need an immediate deposit of 5-10% of the bid, and be prepared to pay the remaining in a few hours to days. (p.61)
How to find properties in the Post-Foreclosure Stage:
A list of REO properties held in any lender's portfolio is available to those who ask for it (p.75)
"I recommend establishing relationships with at least 8 to 10 lenders in your area to provide as large of a pool of foreclosed properties for sale as possible (p.77)
In 1934, Congress enacted legislation that authorized the creation of the Federal Housing Administration (FHA). IN 1965, the FHA officially became part of the Department of Housing and Urban Development (HUD).
The primary role of HUD is to "increase home ownership, support community development,and increase access to affordable housing free from discrimination."
When HUD was formed (1965), it was during the time of Depression. More than 2 million construction workers had lost their jobs, the rate of home ownership was 25%, financing fro housing was difficult for the average family to obtain, Loan-to-value ratios average only 50% (family had to put down 50% down payment), and borrows had only 3-5 years to repay loans. (p.85) The FHA was formed in direct response to the needs of a weakened housing industry and was designed to augment its growth by relaxing underwriting guidelines and making more money available borrowers.
See p. 86 for historical background on the accomplishments of the FHA.
FHA loans are made by private lenders, but they are insured by HUD. Insurance premiums are paid by the homeowners who borrow under this program. Like any other loan, if the loan goes into default the lenders initiates the foreclosure process and eventually takes the title of the property. However, since the loan is insured, the lender may file a claim to HUD who will then reimburse the lender and HUD takes control of the property. HUD then winterizes the house, shutting off the water, boarding up the house, and putting on heavy duty latches and locks, and a sign in the window telling the public it belongs to HUD. (p.86) They are oftentimes in "substantial disrepair/; and in need of a lot of work to bring them up to acceptable standard of living; HUD resells properties "as is" and makes no warranty as to their condition.
The existing inventory of HUD homes in any given city and state can be viewed online by logging on to the appropriate M&m web site. (p.87) HUD home must be purchased through licensed real estate agents who are authorized to submit bids through the M&M contractors' web sites. For the first 10 business days, new listings are usually made available only to buyers who intend to occupy the house as their primary residence. (p.89) Buyers must submit a $500 earnest money deposit along wit the sales contract to the participating M&M contractor within 48 hours. pre-approval letter stating that the buyer is qualified to purchase a house is also required.
Hire a professional inspector to inspect a house you're interested in buying before bidding on it (p.93)
_________________________________
*****How to Invest in Fannie Mae Foreclosures
Fannie Mae purchases loans from other lenders. Mortgage loans are packaged together to form a large pool of loans and are then said to be "securitized". These security instruments are then sold to large institutional investors who earn a designated rat e of return for purchasing them. Fannie Me gets its cash back to buy more loans after selling them to investors and the investors get an income-producing asset that is backed by mortgages. These assets are also referred to as mortgage-backed securities (MBS) (p.95)
"We do not lend money directly to home buyers. Instead, we work with lenders to make sure they don't run out of mortgage funds, so more people can achieve the dream of home ownership (p.96)
Like any other lending institution that manages foreclosures, Fannie Mae must sell the real estate to help offset its losses (p.97). All houses that have been foreclosed on by Fannie Mae are sold through a network of licensed real estate agents throughout the country. (p.98)
***Generally speaking, Fannie Mae does no repair or fix up houses, but, instead, sells them as is.
Buyers should hire a professional inspector to examine the house thoroughly before making an offer on it. (p.98)
If the price and the location are acceptable, the next step is to contact the agent whose name is listed in the search results for more information and arrange for a possible tour of the house. If you already have an agent you are comfortable working with, he can help you, too. Your agent will contact the listing agent to gather information and will then be able to show the house to you (p.99). Fannie Mae foreclosures can be purchased through any real estate agent, who must then submit the offer to the listing agent. The listing agent will then present the offer to Fannie Mae for review.
**The first step for a buyer who wishes to purchase a house from Fannie Mae is to get prequalified through a lending institution of the buyer's choice. Then the RE agent will write up and offer and submit it to Fannie Mae. Fannie Mae will either accept the offer, counter the offer, or reject the offer. (p.99)
Commercial lines of credit are similar to other types of credit lines but are instead designed with the business owner in mind. They typically have higher credit limits in place and are often more competitive in rate than their consumer counterparts. (p.125)
Private money lenders borrow funds at one rate and loan them out at a higher rate. The difference between these two rates is referred to as the "spread" and represents the investor's profit on the money loaned. The types of loans and agreements/terms are a lot more flexible than institutional money. Private money also tends to be more expensive (p.126)
Cash out refi-An investor has built up equity in an investment property and wants to pull a portion of it out in the form of cash. (p.131)
You can generally expect to pay one point for the services of a mortgage broker (p.132)
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