| CHECK, CHECK, CHECK AND
CHECK AGAIN!
Before you buy any foreclosure property,
check everything out, then check again, and again, and
again! Avoid a disaster and be sure you check on every
possible variable before you plunk down your money and
buy any foreclosure. Remember, the trick is to know what
you are buying. Buy low and sell high sounds simple, but
verification of a property's true value and all of its
debts and liabilities is not.
There are many steps to proper due-diligence
in buying foreclosures. Skip one and you may be doomed
for disaster, that is, if you think losing your nest egg
is a disaster!
Simply put, you need to verify all loans,
liens, judgments, assessments, leases, market and physical
conditions related to each property you are interested
in, before you buy. First determine if the subject property
has any equity worth pursuing. Then verify the subject
note in foreclosure. Then verify any senior and junior
liens (note junior liens are only relevant if you buying
the property from the current owner (Trustor) as you will
be stepping into his/her shoes and inheriting all of the
junior liens. Junior liens are those liens which have
been recorded at the County Recorders office after the
date of the subject loan or lien. Buying from a trustee
or sheriff wipes out all junior liens, in most states,
so you can disregard them if you are buying the property
at auction. However, you still need to review each note
(mortgage document) to verify if the senior lien, may
have subordinated to a junior lien. In this case, a junior
lien may be senior and may still need to be satisfied
even if you are buying at auction. This is possible, if
the senior subordinated to a junior, e.g. a mortgage for
the construction of a house, may be subordinated to a
junior lien provided for the land itself. This is rare,
but a real possibility which is often overlooked.
Another, overlooked item is checking on
all liens against the owner (Trustor) of the property.
There may be tax liens or judgments against an owner which
are senior to the subject loan in foreclosure, (but that
is also rare). Most institutional lenders will require
all senior non-mortgage related liens to be removed (paid
off) before they loan and record their lien on a property.
However, it is possible that they might have overlooked
a senior lien (tax or judgment) and recorded anyway. This
does not change the priority of the senior lien and your
obligation to pay it off once you own the property. IRS
liens are a classic that most foreclosure buyers overlook.
An IRS lien can further impact you, even if it is junior.
The IRS has a 120 day right of redemption (a time period
within which the IRS can pay you what you paid for the
property, provided you bought it at auction and wiped
all junior liens). During this 120 day period, you should
not make any added investment in the property. Wait out
the 120 day redemption period, then proceed.
Verify if there are any senior leases
or contracts against the property that will not be wiped
out even at an auction, and more certainly must be maintained
if you are buying prior to an auction. Check on the history
of the property with local real estate agents, or better
yet in the MLS. You can learn if the property has been
on the market prior to foreclosure, and perhaps why it
didn't sell. Many times, the comments section of a previous
listing on the property will provide a description, including
any significant defects, e.g. a cracked slab, foundation,
roof or structural problems. Drive by, walk around and
even inside, if you can, and try to determine what repairs
and cosmetic fixes will be needed to resell the property.
Every step of the way, you need to re-evaluate
the total debts that you will be responsible for and the
current debt-to-value (DTV) ratio. At any stage of your
evaluation, the property could fall out of a desirable
ratio of DTV and should be discarded. Don't buy a "lemon",
or a property that is upside down. Don't skip any of the
steps in your evaluation, and be certain you have double
checked everything. Read the documents, thoroughly research
the debts, the previous sales and marketing history, the
neighborhood sales and current listings, tax liens against
both the property and the owner/Trustor, and be realistic
on the cost of any repairs. Avoid costly mistakes. Don't
rely on anyone's advice that you are not 100% certain
of their qualifications and professionalism. A bad title
rep or customer service person can overlook a lien without
consequence to them. Since you will not get a title insurance
policy when buying the property at auction, you are buying
it bare bones. Likewise, unless you request an actual
policy before you buy the property from the current owner/Trustor
in default, you are also buying it at your own risk. Check,
check, check...ask, ask, ask, then check again!
Shark Bait - The foreclosure buyers' software
provides you with a Check List "Task Master"
that will walk you through every step, making sure no
item was overlooked. Before you purchase any property,
you will have on-screen visual verification that you have
checked every area and item. As discovered, all liens
may be added to the record and the DTV ratio will be constantly
updated. At any point in the process you can dump a record
that no longer looks good. Shark Bait will gather all
of your research and comments into one database, interfacing
each item as necessary. Shark Bait will automatically
generate forms and reports that you can use to send to
your broker, agent, title rep, etc. for quick and easy
verification of items you'll need to check out. As these
reports are completed by your team and returned, you can
quickly enter any new information in the appropriate record
and re-evaluate all of the variables for continued qualification.
Whether you use Shark Bait, or just paper
lists and notices out of your legal newspaper and your
own research at the County Recorders office, you need
to quickly determine all of these variables, and check
out every item before you buy. Don't skip over any step
or assume any condition about a property, or the status
of any liens. Check, check, check...
We
hope this tip was helpful in your foreclosure buying efforts.
Please visit us at http://www.digitaldeal.com and take
our free tour of the Shark Bait software.
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