Negotiating Foreclosures


Think of yourself as an investor or buyer’s broker. Your goal is to buy one or two single family detached houses at the best price possible. So, you target foreclosures.

First you will need to see if someone in your community offers a foreclosure listing service. Most large cities have them. That will save a lot of time.

Then comes the sorting process. You are looking for value. So, one sorting process would be to look for properties with old loans. 

Maybe you’ll have a property style sort. Only brick on slab, no houses on pier footing – whatever makes sense or non-sense in your market.

Maybe you’ll have a type of sort, like no condos; or a function sort like three bedrooms or larger.

There are three stages of foreclosure. The first stage is pre-foreclosure. It includes people who are behind on their payments and homeowners that have had foreclosure action filed against them, but the sale has yet to occur. This is the best time for the most profit requiring the least cash and/or credit. The second stage is the sale at the courthouse steps. This one is for experienced investors, and we will skip it for now. The last is the REO stage or dealing with lenders who have taken properties back that were not successfully sold on the courthouse steps. (This is a good one, but like stage two, it will take cash or credit and sometimes both. And the deep discounts are fewer.)

Now is the time to contact the owner in foreclosure. Maybe you sent a postcard and they have called you. Better yet, maybe its both in foreclosure and listed. If it’s in foreclosure AND listed, then you know they are ready to deal. Yes, you will have to pay more to cover the broker, but it is worth it to be dealing with someone who has faced their problem. Since they have faced the reality of the situation, you can more easily communicate with them!

Now you are face to face. The first half of your meeting will be questions. You’ll need lots of facts, or better yet, to present the facts you have in front of you. Be laid back but be prepared. Some of the people you call will say, “You sure ask a lot of questions.” Don’t let this stop you. Just say to them, “If you were about to buy a house, you would ask a lot of questions, too, wouldn’t you?” 

In generally, people who have fallen into foreclosure are in denial. They will tell you someone will be along soon to bail them out. So be prepared for all sorts of “damning.” Your job is, in part, to lead them into reality. That is done on several levels. They need to get a realistic exposure to the options. They need to know what will happen if they do nothing. They need to know the odds. And they need to be given an offer.

In sales and negotiating you need education. Education helps you make wise investment decisions, and it reduces your fears. That said, beware of “the little professor syndrome.”  Sometimes in your 3rd or 4th year in the business, you’ll probably know enough to give a seminar. Now is not the time. Don’t give that seminar to the people who are in foreclosure! Tell them enough to motivate them and enough to help them decide. Keep it simple. Keep in understandable. And do no more than needed.

The key message to deliver is simple – time is their enemy. It they don’t act; the cost is very high. In that event, they will not only lose their equity, but they will also lose their credit.

They may tell you that the worst thing that will happen is that they will have a bad mark on their credit for seven years. That is not true. If they ever apply for a home loan, the lender will ask on the application, “Have you ever had a foreclosure filed against you?” And that question can be asked forever.

Now you lower the boom. Tell them the truth. They are about to lose both their equity and their credit. You cannot do anything about the lost equity, but your offer may save their credit. This is a set up for a loan takeover with no compensation, besides making up back payments.

Be prepared that the homeowner may not understand all this information right away. You may have to say it more than once and in more than one way.

Remember this is a negotiation. Do your research first. Ask questions before you make an offer. And if there is room to give at all, don’t give any concessions unless they give you something back in return. 

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