Working With Distressed Homeowners
By Daren Blomquist, RealtyTrac | Published: 2/01/2008
Be Ready to Act Quickly
Don't waste your time and that of distressed homeowners.
- Have financing in place and the proper real estate forms on hand when you meet with the owner. You can obtain the proper forms through a local real estate agent, real estate attorney or escrow company.
- Make sure that it makes financial sense for you to purchase the property. Subtract all the debt owed on the property from the estimated market value to determine how much equity you have to work with. You can research the estimated value and debt using an online foreclosure database like RealtyTrac or with the help of a local real estate agent.
Send Letters First
Your first communication with owners in default should be a letter or postcard focusing on what you can do for them. It's less confrontational than calling on the phone or knocking on the door. TIPS:
- Include your phone number and e-mail address on the letter.
- Send several letters over the course of the default period. They'll be more effective the closer it gets to the date of the public foreclosure auction. One letter is pretty much useless, Marrs said. Three letters is about five times more effective than one letter to the same lead.
- Handwrite your letters so you'll stand out from all the other investors contacting the homeowner.
- You may follow up with a phone call or in-person visit.
Don't Mention Foreclosure
In your initial contact with homeowners, whether by mail, by phone or in person, avoid mentioning the obvious -- that they are in foreclosure. Real estate agent Adam Hunt shares his experience contacting two distressed homeowners: "In both cases, I went to their house and knocked on the door. I introduced myself. 'I'm a real estate agent. I specialize in finding properties for my clients and helping people in foreclosure. Do you know anyone that can benefit from that?' And of course they said, 'I can benefit from that,'" Hunt said, noting both homeowners ended up selling to his clients.
Know State Laws
Several states -- including California, Illinois, Minnesota and New York -- have laws and statutes that specifically govern real estate transactions involving homes in foreclosure. The primary focus of these laws is to protect homeowners in default from unscrupulous scam artists. Many of the laws require that any sales contract involving a home in foreclosure include a "notice of cancellation" section that gives the distressed homeowner a clear method for cancelling the sale within a certain timeframe, typically up to five business days after the contract is signed.
Familiarize yourself with applicable laws in your state, not only so you do nothing illegal when communicating with the homeowner, but also so you can present yourself as an above-board, ethical and knowledgeable buyer. In most cases, these laws are not overly oppressive and incorporate common-sense provisions that apply to any real estate transaction.
Here are some examples of state laws:
California Civil Code 1695
New York Senate Bill 4744
Illinois Senate Bill 2349
Minnesota Statute 325N
Buyers and investors can often find excellent bargains by purchasing directly from the homeowner in default. And while communicating with homeowners in default requires persistence, careful preparation and tact, it's certainly possible -- and profitable -- for anyone willing to learn the process.
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