Welcome to Foreclosure Investment Blog Thank You for visiting our page. This blog discusses Real Estate Investment primarily that which involves foreclosure.This blog is intended to be updated at least once every week with new blogs appearing in the morning at around 6 AM. If you like our blog and are interested in publishing some articles on our page please contact us for more information.
|
This is the 2nd part of a 3 part article on the stages of buying foreclosures. There are 3 stages to buying pre-foreclosures. These three stages, analyzing, hunting and convincing, are accomplished for the purpose of achieving one goal. That goal is to find an owner with sufficient equity, who is willing to sell his property before the auction and convince him to sell. Even those most dedicated to their task will may not be able to purchase every property analyzed for the auction. As disappointing as this is to one who has arduously toiled to come home victorious, it must be remembered that success is not achieved by processes of certainty. To be successful calculated risks have to be tolerated. The objective is not to buy every property analyzed but to buy enough properties to make the venture profitable. If enough time is spent you will be successful in the purchase of not one but several properties by this method. It is important to note that the 3 stages we are talking about today are for investors who wish to purchase a property for the long term or resale it for a profit. These stages could be used for short sales or loan modification programs with a few adjustments, but we will not specifically address those in this article.
The first part of this series discussed analyzing foreclosures. Your second challenge is to find the distressed owners within a short period of time so as to allow yourself sufficient time for negotiation and acceptance of your offer. This is not an easy task by any means. When a deed of trust is the security devise being foreclosed often you will have only a period of a few weeks to accomplish all three stages. In Texas you will only have 3 weeks notice of foreclosure for most properties. Only by intense dedication to the task and superior selectivity can this be accomplished in the time required. In this situation use the first resources available. This, in most cases, will be the initial foreclosure posting, which can be obtained at the courthouse and can be difficult to read. This is where a good foreclosure service will save you many hours of research. It should be noted that not all foreclosure services get the foreclosure directly from the courthouse and update immediately. Any delay in this process will cost you valuable time. So be sure the foreclosure service you choose gets the notices from the courthouse and updates immediately.
This is a 3 part article on the stages of buying foreclosures. There are 3 stages to buying pre-foreclosures. These three stages, analyzing, hunting and convincing, are accomplished for the purpose of achieving one goal. That goal is to find an owner with sufficient equity, who is willing to sell his property before the auction and convince him to sell. Even those most dedicated to their task will may not be able to purchase every property analyzed for the auction. As disappointing as this is to one who has arduously toiled to come home victorious, it must be remembered that success is not achieved by processes of certainty. To be successful calculated risks have to be tolerated. The objective is not to buy every property analyzed but to buy enough properties to make the venture profitable. If enough time is spent you will be successful in the purchase of not one but several properties by this method. It is important to note that the 3 stages we are talking about today are for investors who wish to purchase a property for the long term or resale it for a profit. These stages could be used for short sales or loan modification programs with a few adjustments, but we will not specifically address those in this article.
Analyzing
The properties at the auction will not all be bargains. In fact, many will not be worth the time required to inspect them. Your objective is to discard these low value properties quickly. This can be done only with the aid of a quick, but thorough analysis. The most frequent problem you will incur is the lack of sufficient equity in a property. Loan to value is thus the vital first calculation in your analysis. I you are using a good foreclosure service identifying properties with a low loan to value relationship should be easy. If you are not then you will need to first calculate the approximate value of the property. This can be done with the aid of comparable sales which are available from many sources. Once this is accomplished you will need to calculate the loan balance of the property. This is done by estimating the loan payments and then deducting the principal payments to arrive at an approximate loan balance. To do this you will need a calculator that can do present value calculations. Once you have arrived at the approximate loan value you should add about 6-8 months of back payments. This is about how long it takes the bank to foreclose on a property.
Types of Foreclosure in Texas
There are several types of foreclosure in Texas. Each of these has slightly different rules, which complicates the purchase of them. The 8 types we will cover here are 1st lien note, 2nd lien note, Home Equity Loans, Vendors Lien, Judgment, Mechanics Lien, Tax and Homeowner’s Fees.
- 1st Lien Note – By far the most common type of foreclosure is a 1st lien note. 1st lien notes are usually money to purchase a house and are usually the largest loans on the house. The 1st lien note will specify the property as collateral. A 1st lien foreclosure wipes out all junior liens. That means anyone else who has loaned money on the property will lose their investment. For the purchaser of this property, it means junior lien holders will not have to be paid. This includes second liens, judgments but not Tax liens. The purchaser will have to include the Tax Liens when determining the profitability of the investment. These amounts are fairly easy to determine by calling the taxing authorities (be careful there are several). Non-judicial foreclosure is the most common way of foreclosing on 1st lien notes. This means that no courts are involved
- 2nd Lien Note – A second lien note is money that is borrowed after the purchase of the property. The 2nd lien note will specify the property as collateral. It is junior to the 1st lien note and therefore will not wipe out the 1st lien note. It also doesn’t wipe out Tax liens. It will wipe out all junior liens, including judgments. To the buyer of this property, this means you will need to be very careful if buying a second lien note. You must 1st determine how much is owned on the 1st lien note. This is not easy to do without the borrower’s permission. If the borrower is behind on the 2nd lien payments, there is a good chance he is also behind on the 2nd lien payments. Usually the 2nd lien lender is the same as the 1st lien lender unless it is a Home Equity Loan. Non-judicial foreclosure is the most common way of foreclosing on 2nd lien notes
- Home Equity Loan – A Home Equity Loan is special type of 2nd lien note. These loans were not allowed in Texas until 1997. Prior to this time a 2nd loan could not be made on a homestead property. The biggest difference is that a Home Equity Loan requires a judicial foreclosure. This means the lender must first sue the borrower and then get a court order to sell the property at auction.
- Vendor’s Lien – A Vendor’s Lien is a 1st Lien that has been seller financed. The biggest difference is that a Vendor’s Lien requires a judicial foreclosure. This means the lender must first sue the borrower and then get a court order to sell the property at auction.
- Judgment – A judgment comes as a result of a law suit. In Texas, the judgment is only collectable if the judgment can be attached to real estate which is not occupied by an owner occupant, in other words, investment property. In general, the more difficult the judgment is to collect the greater discount you will receive on properties foreclosed. In Texas, many judgment holders are glad to get any thing for there judgment after holding it a few years. A judgment does not wipe out any other liens on the property. This leaves the buyer with the burden of checking all other liens on the property, including the 1st lien, which as stated before is difficult to verify without the borrower’s permission.
- Mechanics Lien – A mechanics lien is the result of someone working on the property. If the contractor is not paid, he can file a lien on the property for the amount owed. This is called a mechanics lien. A mechanics lien requires a judicial foreclosure. This means the contractor must first sue the owner of the property and then get a court order to sell the property at auction.
- Property Tax – Property tax is due on January 1st in Texas. By February 1st it is late. At this point it becomes a lien even if not filed as such. A property tax Lien has priority over all other liens, including 1st liens, federal tax liens and state tax liens. The property is cleared of these liens as long as the taxing authority makes a reasonable attempt to notify the party concerned. Although they are cleared from the property they are still owed by the property owner. The property owner is able to claim rights to and redeem the property up to 2 years after the sale by paying the taxes plus a fine.
- Homeowner’s Liens – These are liens filed by homeowners association for the payment of subdivision or condominium maintenance fees. Texas allows non-judicial foreclosure of these liens. All superior liens on the property remain attached to the property. Although there is no right of redemption, a purchaser at the auction can not resale the property within six months of the sale date.
Disclaimer-This article was not written by an attorney nor is it meant to give legal advice. Its purpose is to give the reader a general idea of the lien types foreclosed in Texas. For detailed information on a particular property a title search is recommended. For additional questions consult your attorney.
.
The tricky part about auctions is analyzing all of the property values and looking at the properties before hand. The earlier you can get the list of properties to be auctioned the better off you will be. In Texas, you need a local company. The national companies update their systems too slowly for Texas’s 3 week foreclosure process.
Your analysis must be very accurate because the decision to purchase can not be rescinded after the auction. The property analysis should include a search of the comparable sales in the area to determine the property’s resale value. It should also include a search of the county court house records for liens posted to the property. A visit to the property is required to determine the property’s condition. An estimate of repairs must also be made. You can see the problem with doing this type of in-depth analysis on 100’s of properties for sale at the auction.
Most of the properties you will not be able to purchase. Sometimes you can not buy anything. It is the nature of auctions. This time consuming analysis is one of the reasons such incredible bargains are available at tax sales.
As the story goes a man complained to his friend that he had purchased a property at a tax auction that was 3 feet under water. “Did you complain to the auctioneer?” His friend asked. “Yes” the man replied. “And you got your money back?” “No” the man replied, “he offered to sell me a boat.” The moral of the story is always inspect the property before bidding on it because you won’t get a refund from your tax assessor.
Take the time to analysis and look at every property that you intend to bid on. No matter how good the deal seems, never purchase a property that you have not looked at. This will be very difficult at first when you see the bargains that are presented frequently at these auctions. In one foreclosure auction I attended, 2 houses sold for $5,000. Unfortunately we had not looked at the properties, but the tax appraisal was $60,000.
There is such a thing as useless land. It may be too small to build on or in an area where the property values don’t justify building. It could be environmentally contaminated in which case the loss would be much more than the purchase price because the current owner is responsible for the clean up. Do not let this scare you away from auctions, but please exercise caution. After analyzing the properties prepare a maximum bid amount for every property you intend to bid on and write this number next to that properties address. Do not exceed your minimum bid amount. This may seem obvious, but it can be difficult to stand your ground in the heat of intense bidding. It is the excitement of the auction that ruins the investor.
There is a tendency for beginning investors to question their analysis once a property has passed their maximum bid amount and seemingly intelligent people continue to bid the price upward. Trust your analysis. The other buyers may be retail buyers who want to live in the house or they may be amateur investors who have not had the benefit of training. In some cases, the buyers simply have not done any research or analysis on the properties, which they are bidding. Some may believe you can not go wrong with real estate. You can if you pay too much. For whatever reason, many properties sell for more than we are willing to pay in a typical tax auction.
We’ve all been guilty of it. We see a property and start calculating how much we can make on it. Then we use optimistic figures for the sales price or the rent. There is a lot of interpretation in analyzing comparable sales. Choose the ones that are in the mid-range. High sales are usually due to properties that are in extraordinary condition. Bargain properties are rarely in extraordinary condition even after repairs. If you’re holding for the long term, remember to calculate your rents correctly. You should include 2 months vacancy in addition to some repairs and general maintenance when the tenants move out. Don’t get caught in the trap of calculating 12 months rent at the highest rental rate. That never happens. You can calculate 1 month vacancy, if you are offering below market rents, but it is almost impossible to get top rents and a low vacancy rate. Raging optimism can create bad decisions on marginal properties. So beware of raging optimism. In business caution is definitely better than valor.
|
|
