This is Part 3 of a three-part series. (See Part 1: Buying defaulted real estate no easy task and Part 2: Navigating a foreclosure auction.)

Earning big profits from properties that are in the foreclosure process is a “numbers game.” One way or another, about 95 percent of homes with defaulted loans are never sold at a foreclosure auction. The reason is the owner either reinstates the mortgage (usually by refinancing or adding a junior mortgage) or sells the property.

Purchase Bob Bruss reports online.

That’s where you enter the picture! If you are a mortgage broker, you can build a very lucrative business helping owners who are in default by offering to refinance or create a new junior mortgage. Of course, you will need to have sub-prime loan sources to provide the new financing. Or, you can become a buyer of properties that are in the default process.

OPPORTUNITY #3 – BUY AFTER THE FORECLOSURE SALE FROM EITHER THE FORECLOSING LENDER (WHO RECEIVED TITLE IF THERE WEREN’T ANY BIDDERS AT THE AUCTION) OR FROM THE SUCCESSFUL HIGH BIDDER. This is my favorite time to buy a foreclosure bargain. The emotion is gone. The defaulting borrower lost his/her property – however, if the bids exceeded the amount owed to the foreclosing lender, and if there were no junior liens to be paid, then the defaulting borrower gets the excess amount.

EXAMPLE: I once foreclosed on my third mortgage, which I held on a house. My opening credit bid was about $20,000 to pay my loan balance and costs. The bidding got hot and heavy, winding up at about $60,000 (subject to the first and second mortgages (which were also in default), plus the unpaid property taxes). The result was the homeowners lost their home. But they walked away with about $40,000 cash.

If the lender took back the property title because there were no bidders at the auction, my strategy is to IMMEDIATELY send a Federal Express overnight letter to the lender’s president (of course, he or she will never see my letter, but it will get to the right department). I include my purchase offer with my $10,000 check made payable to the firm where I want the sale closing to be handled. Make the offer valid only for two or three days so the lender gives it prompt attention.

My accompanying letter provides all the details of the foreclosure sale to the lender, such as address, borrower’s names, and property parcel number. The lender often doesn’t know the details yet. My purchase offer is usually for the amount of the defaulted loan, sometimes a little more. If the property isn’t worth the amount of the defaulted mortgage balance, my letter explains why I am offering less.

I’ve found it effective to tell the lender I will take care of evicting the existing owner or tenants – this is VERY important to most foreclosing lenders who take title. If the property is in bad condition, and if I have time, I include a photo of the house. Or, sometimes it is more effective to say in my letter, “By the way, have you seen the condition of the property?”

This “FedEx method” always results in either acceptance or a very polite return phone call. The goal is to buy direct from the foreclosing lender FAST so the property doesn’t get listed for sale with a real estate broker who charges the lender a 6 percent sales commission. Be sure you letter reminds the lender of the commission savings.

I’ve also had excellent experience buying shortly after the foreclosure auction from the successful high bidder. This person usually desires a quick resale profit and doesn’t want to hold the property for a long time. Sometimes, the high bidder will even offer to finance my purchase, thus creating an excellent investment for the seller and easy financing for me.

EXAMPLE: Several years ago I bought a foreclosed house from Richard who was the high bidder at the foreclosure sale (he’s one of the few “good guy” 40 thieves where I live). I offered him a nice profit, with my standard 10 percent cash down payment if he would carry the 90 percent first mortgage. He agreed to do so. The result was he immediately earned a handsome profit and I still acquired the house at a below-market purchase price without investing much cash.

(For more information on Bob Bruss publications, visit his
Real Estate Center


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