(This is Part 3 of a three-part series. Read Part 1 and Part 2.)


This is my personal favorite time during the foreclosure process to buy. All the emotion is gone. The defaulting borrower is out of the negotiation picture (although you might have to evict him/her as part of your after-sale negotiations with either the lender or the high bidder).

Purchase Bob Bruss reports online.

I’ve bought both from the highest bidder and from the foreclosing lender when there were no bidders. If you offer the high bidder a modest profit, he or she is often only too happy to make a quick sale to you without having to pay any real estate sales commission.

The same principle applies when you buy from the foreclosing lender who got title to the property because no bidders showed up. If it is a local “buyer’s market,” ask the foreclosing lender to finance your purchase with a low cash down payment, such as 10 percent down with 90 percent mortgage financing and no PMI (private mortgage insurance). Most institutional foreclosing lenders want to get rid of that REO (real estate-owned) as fast as possible to cut their losses. Also, remind the foreclosing lender there will be no sales commission on a direct sale to you.

My favorite technique for buying from the foreclosing lender is to send a Federal Express overnight letter to the lender’s president or top REO official if you know his or her name. Offer to purchase the property for the amount of the lender’s opening credit bid at the foreclosure sale.

TIME IS OF THE ESSENCE! The reason is you want to prevent the lender from listing the REO house for sale with a local real estate broker because then the asking price will be marked up to full market value. Include a short, very polite letter explaining why the lender should sell to you and finance your purchase to quickly turn a bad loan into a new profitable loan. If you have good credit, include a copy of your credit report and FICO (Fair, Isaac Corp.) credit score (you can obtain one credit report and FICO score for $14.95 at www.myfico.com or a three-in-one credit report from all three national credit bureaus for about $45 at that Web site). If your FICO score isn’t at least 680, don’t bring up this FICO score topic.

Be sure to make your offer on a purchase-contract form used in your area. Also attach a deposit check for at least $1,000 ($5,000 or $10,000 would be better) payable to whomever you want to handle the closing settlement, such as a title or escrow company, real estate settlement attorney, bank, or other closing agent used in your community. Include your phone number, e-mail address, fax number and mailing address. You should receive a response within a few days either accepting your offer or making a counteroffer. If the property is in bad shape, be sure to say something like, “Incidentally, have you seen this property lately? It looks pretty bad.” If possible, include a photo or two showing the house looking its worst!

HOW TO FINANCE YOUR FORECLOSURE PURCHASES. Each foreclosure situation is different. You might discover you won’t need much cash. I know of people buying a house for only $500 plus closing costs. However, such a low-cash-down situation is unusual.

If you plan to bid at the foreclosure auction sale, you will need cash or quick access to cash, such as from your home equity credit line or an investment partner. If you own other real estate, such as your residence, you can probably obtain a home equity loan on that property to provide working capital. Frankly, like most investors, I’ve purchased my best foreclosure bargains when I didn’t have much cash available so I then became very creative with the financing.

Sometimes I borrowed hundreds of thousands of dollars, unsecured, from individuals who trusted me. They always got their money back with handsome profits. In fact, one lender phones me once or twice a year to ask, “How about borrowing a couple hundred thousand dollars?” But his terms have become too steep for me. As you become serious about investing in foreclosure properties, you will soon establish financial contacts like that. However, don’t overextend yourself financially.

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

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