The 250 Questions Everyone Should Ask about Buying Foreclosures
By Lita Epstein
()
About this ebook
- Decide if a foreclosure purchase is right for you
- Learn the foreclosure rules particular to your state
- Find thousands of property listings before anyone else
- Place the perfect bid at auctions
- Buy properties during various stages of the foreclosure process
- Get an initial investment together
This one-of-a-kind guide will explain everything you need to know to get in on-and profit from-this lucrative real estate opportunity.
Lita Epstein, MBA, excels at translating complex financial topics critical to people's everyday life. She has more than a dozen books on the market, including The 250 Questions You Need to Ask to Avoid Foreclosure, Streetwise(r) Crash Course MBA, Streetwise(r) Retirement Planning, and Alpha Teach Yourself Retirement Planning in 24 Hours. She was the content director for the financial services Web site MostChoice.com and managed the site Investing for Women. She also wrote TipWorld's Mutual Fund Tip of the Day in addition to columns about mutual fund trends for numerous websites. She lives in Poinciana, FL.
Lita Epstein
Lita Epstein is a writer and a designer and teacher of online financial courses.
Read more from Lita Epstein
Bookkeeping For Dummies Rating: 5 out of 5 stars5/5Bookkeeping Kit For Dummies Rating: 5 out of 5 stars5/5Reading Financial Reports For Dummies Rating: 5 out of 5 stars5/5Stock Charts For Dummies Rating: 0 out of 5 stars0 ratingsIf You Can't Say Anything Nice, Say It In Yiddish: The Book Of Yiddish Insults And Curses Rating: 4 out of 5 stars4/5Starting and Running a Business All-in-One For Dummies Rating: 4 out of 5 stars4/5Surviving a Layoff: A Week-by-Week Guide to Getting Your Life Back Together Rating: 3 out of 5 stars3/5Trading For Dummies Rating: 0 out of 5 stars0 ratingsBuilding Wealth All-in-One For Canadians For Dummies Rating: 3 out of 5 stars3/5Trading For Canadians For Dummies Rating: 0 out of 5 stars0 ratingsInterpreting Company Reports For Dummies Rating: 0 out of 5 stars0 ratingsThe 250 Estate Planning Questions Everyone Should Ask Rating: 0 out of 5 stars0 ratingsInvesting in a Volatile Stock Market: How to Use Everything from Gold to Daytrading to Ride Out Today's Turbulent Markets Rating: 0 out of 5 stars0 ratingsThe 250 Eldercare Questions Everyone Should Ask Rating: 0 out of 5 stars0 ratings
Related to The 250 Questions Everyone Should Ask about Buying Foreclosures
Related ebooks
The Foreclosure Workbook: The Complete Guide to Understanding Foreclosure and Saving Your Home Rating: 0 out of 5 stars0 ratingsTruth in Private Lending: Real Estate Investors Guide to Keeping Scammers Away From Your Money Rating: 0 out of 5 stars0 ratings29 Secrets to Buy Real Estate Without Banks! Rating: 1 out of 5 stars1/5Your Real Estate Closing Explained Simply: What Smart Buyers & Sellers Need to Know Rating: 0 out of 5 stars0 ratingsDon't Get Scammed When Buying a Home Rating: 5 out of 5 stars5/5Finding the Uncommon Deal: A Top New York Lawyer Explains How to Buy a Home For the Lowest Possible Price Rating: 0 out of 5 stars0 ratingsThe Everything Real Estate Investing Book: How to get started and make the most of your money Rating: 0 out of 5 stars0 ratingsThe Ultimate Guide To Wholesaling Real Estate: How To Find, Sign And Close Your First 100 Deals Rating: 0 out of 5 stars0 ratingsThe 98 Best Real Estate Investing Strategies: Real Estate Investing, #5 Rating: 5 out of 5 stars5/5The Complete Guide to Investing in Rental Properties Rating: 0 out of 5 stars0 ratingsLoan Modifications, Foreclosures and Saving Your Home: With an Affordable Loan Modification Agreement Rating: 0 out of 5 stars0 ratingsAn Instructional Guide Short Sales And Foreclosed Properties For The Experienced The Novice And The Merely Lazy Rating: 0 out of 5 stars0 ratingsReal Estate Investors Investing In Lease Options Rating: 5 out of 5 stars5/5Defeat Foreclosure: Save Your House,Your Credit and Your Rights. Rating: 0 out of 5 stars0 ratingsLand Contract Homes for Investors Rating: 0 out of 5 stars0 ratingsBuying Repossessed Property Rating: 0 out of 5 stars0 ratingsRENTAL PROPERTY INVESTING: How To Create Wealth Trough Real Estate Investment and Build A Passive Income Business Rating: 0 out of 5 stars0 ratingsReal Estate Investing Online for Beginners: Build Passive Income from Home: 3 Hour Crash Course Rating: 0 out of 5 stars0 ratingsMortgage Confidential: What You Need to Know That Your Lender Won't Tell You Rating: 4 out of 5 stars4/5Real Estate Investing with Lease Options - Investing in Real Estate with No Money Down: Real Estate Investing, #2 Rating: 0 out of 5 stars0 ratings
Business For You
Law of Connection: Lesson 10 from The 21 Irrefutable Laws of Leadership Rating: 4 out of 5 stars4/5Never Split the Difference: Negotiating As If Your Life Depended On It Rating: 4 out of 5 stars4/5Becoming Bulletproof: Protect Yourself, Read People, Influence Situations, and Live Fearlessly Rating: 4 out of 5 stars4/5Crucial Conversations Tools for Talking When Stakes Are High, Second Edition Rating: 4 out of 5 stars4/5The Five Dysfunctions of a Team: A Leadership Fable, 20th Anniversary Edition Rating: 4 out of 5 stars4/5Crucial Conversations: Tools for Talking When Stakes are High, Third Edition Rating: 4 out of 5 stars4/5Collaborating with the Enemy: How to Work with People You Don't Agree with or Like or Trust Rating: 4 out of 5 stars4/5Your Next Five Moves: Master the Art of Business Strategy Rating: 5 out of 5 stars5/5On Writing Well, 30th Anniversary Edition: An Informal Guide to Writing Nonfiction Rating: 4 out of 5 stars4/5Summary of J.L. Collins's The Simple Path to Wealth Rating: 5 out of 5 stars5/5The Intelligent Investor, Rev. Ed: The Definitive Book on Value Investing Rating: 4 out of 5 stars4/5The Richest Man in Babylon: The most inspiring book on wealth ever written Rating: 5 out of 5 stars5/5The Energy Bus: 10 Rules to Fuel Your Life, Work, and Team with Positive Energy Rating: 3 out of 5 stars3/5Capitalism and Freedom Rating: 4 out of 5 stars4/5Grant Writing For Dummies Rating: 5 out of 5 stars5/5Confessions of an Economic Hit Man, 3rd Edition Rating: 5 out of 5 stars5/5Nickel and Dimed: On (Not) Getting By in America Rating: 4 out of 5 stars4/5Robert's Rules Of Order Rating: 5 out of 5 stars5/5Financial Words You Should Know: Over 1,000 Essential Investment, Accounting, Real Estate, and Tax Words Rating: 4 out of 5 stars4/5Emotional Intelligence: Exploring the Most Powerful Intelligence Ever Discovered Rating: 4 out of 5 stars4/5Just Listen: Discover the Secret to Getting Through to Absolutely Anyone Rating: 4 out of 5 stars4/5Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple Rating: 5 out of 5 stars5/5Money. Wealth. Life Insurance. Rating: 5 out of 5 stars5/5Carol Dweck's Mindset The New Psychology of Success: Summary and Analysis Rating: 4 out of 5 stars4/5Lying Rating: 4 out of 5 stars4/5The Everything Guide To Being A Paralegal: Winning Secrets to a Successful Career! Rating: 5 out of 5 stars5/5
Reviews for The 250 Questions Everyone Should Ask about Buying Foreclosures
0 ratings0 reviews
Book preview
The 250 Questions Everyone Should Ask about Buying Foreclosures - Lita Epstein
INTRODUCTION
As the number of foreclosures on the market continued to grow through 2007 with expectations for even more in 2008, the market for buying a foreclosure could never be better. While many banks were forced to buy the property at auction because the mortgage was actually higher than the home value, the bargains after the auction sale make for some interesting buys. Pre-foreclosure short sales were also on the rise in 2007, as banks preferred to take less than the amount due and avoid the foreclosure process completely.
This book will help you sort through the different ways you can buy a pre-foreclosure and post-foreclosure property. You'll also learn the basic terminologies unique to the foreclosure market to help you understand what you're seeing throughout the purchase and contract process.
Yes you can make money buying foreclosures even in a real estate downturn, but you must be ready to do some minor repairs yourself or have a good group of contractors that can help you. You also should be prepared to hold the property and rent it for a while until the buyers' market for real estate turns back to a sellers' market and prices again start to rise.
Good luck and happy foreclosure hunting!
1
REVIEWING MORTGAGE BASICS
You've probably bought a home several times throughout your lifetime, and you probably hate sitting through the closing and signing your life away on pages and pages of documents filled with legalese you've probably never read in their entirety. But if you plan to start buying foreclosures, it's time to pay more attention to the details in those mortgage contracts.
This chapter covers the basics of the documents that are signed at closing, how they affect one's ownership rights, and what happens to those rights when someone doesn't pay. When you buy a foreclosure, you are actually taking advantage of someone else's loss because of what's in those documents.
Question 1. What is a mortgage?
You may not realize this, but a mortgage is a type of loan. In this situation, the loan is used to purchase property, and the property being purchased is used as a guarantee for the loan amount. This guarantee then becomes a lien against the property.
After all the papers are signed at closing, the lien gets recorded in public records, most likely at the county courthouse where the property is located. The buyer can't sell that home to anyone else until that debt is paid in full and the lien is released.
The person who has the mortgage does have full title to the property, but the mortgage contract does give the lender the right to sell the secured property to recover funds if payments are not made on the debt. When you buy a foreclosure, it means that someone did not pay their debt; by selling the home to you, the lender is recovering the funds lost on the original mortgage. When you buy the foreclosure, you will likely take another mortgage to pay for that home.
There are numerous types of mortgages on the market, including fixed-rate mortgages, balloon mortgages, adjustable-rate mortgages, and interest-only mortgages:
• Fixed-rate mortgages are mortgages in which the interest rate is set when the loan is taken and remains the same throughout the life of the loan. This is usually fifteen, twenty, or thirty years, but other lengths can be worked out with the financial institution.
• Balloon mortgages are mortgages in which an interest rate is set for a specific period of time. At the end of that period, the total amount of the mortgage is due.
• Adjustable-rate mortgages, also known as ARMs, are mortgages in which the interest rate changes periodically. Most commonly, ARMs are set to adjust rates either annually; or once after three years, and annually thereafter; or once after five years and annually thereafter. With this type of loan, the interest rate is pegged to some standard rate, such as a certain percentage above the prime rate.
• Interest-only mortgages are mortgages in which only the interest portion of the loan is paid and none of the principal amount due on the mortgage. The danger with this type of mortgage is that if the value of a house falls below what you paid for it, the person who is buying the home may need to come up with cash to sell their home.
Question 2. What is a deed of trust?
In about half the states, a deed of trust is used instead of a mortgage. As with a mortgage, the deed of trust is recorded in public records to tell everyone that there is a lien on a piece of property.
The deed of trust actually involves three parties. The person buying the home who takes out the loan is the trustor; the financial institution that provides the money for the loan is called the beneficiary; and a neutral third party is the trustee. The trustee is someone who temporarily holds title (but not full title) until the lien is paid.
The deed of trust is cancelled when the person buying the house finishes paying the loan. Until that time, the trustee holds the power to foreclose on the debt if the trustor doesn't make the payments. When a deed of trust is used rather than a mortgage, the trustee can foreclose on the loan without having to go to court, so it makes it easier and faster to foreclose on a home secured by a deed of trust than by a mortgage.
Question 3. What is a grant deed?
The grant deed is the document that actually transfers the ownership title to a real estate property from one party, who is known as the grantor, to another party, who is known as the grantee.
The grant deed must describe the property by legal description of boundaries and/or parcel numbers. All people who are involved in the transfer of the property must sign the grant deed, which must be acknowledged before a notary public.
The transfer of ownership of the property is completed when the grant deed is recorded with the county recorder or recorder of deeds. The grant deed warrants that the grantor actually owned the title to the property and that it is not encumbered in any way unless stated in the grant deed.
In some situations, when you buy a home, you will see something called a quitclaim deed. In this type of deed, the ownership interest a person has in a particular property is transferred, but there is no guarantee of what is being transferred. Most commonly, the quitclaim deed in seen in a situation in which a divorcing spouse quitclaims his or her interest in a particular piece of property to his or her ex-spouse, which means he or she has given up a legal interest in that property.
Question 4. What is a warranty deed?
The warranty deed is the most common type of deed you will see when dealing with residential real estate. In this type of deed, the grantor (seller) guarantees that he or she holds clear title to the real estate property being sold and has a right to sell it to you. The guarantee is not limited to the time the grantor owned the property. The guarantee extends back in time to the property's origins of ownership.
When you do get a warranty deed, it should include these statements:
• There are no hidden liens or encumbrances on the property, which means you should not find out about any debts or other holds on the property other than those that you see in public records. For example, the seller guarantees that a distant cousin won't show up years later and claim that she still owns part of the property.
• The grantor declares he or she owns the property and has the right to sell it to you.
• The grantor guarantees that if the title ever fails, he or she will compensate you as the grantee (new property owner) for any losses incurred defending your title to the property. (If there are title problems in the future, this guarantee might not mean much if the grantor is dead or unable to follow through with his or her promise.)
Question 5. What is a loan broker?
A loan broker is a financial professional who does not work for one particular lender but who instead seeks to find you the best rate for the type of mortgage you want from numerous potential lenders. A good loan broker will help you sort through the pros and cons of various loan products available and help you determine which product best meets your needs and individual circumstances. When you work with a loan broker, you will have the greatest number of options and terms available.
After you determine what type of loan you want, the loan broker will then make contact for you with a number of potential lenders who offer that product. He or she will then help you determine which of the financial alternatives is best for you.
The big difference when you work with an individual loan broker, as opposed to a lending institution like a bank, is that the broker is not tied to one particular lender (like a particular bank) and can thus be more creative in finding you the best deal.
Question 6. What is a lender?
Any institution or individual who loans you money can be considered a lender. The most common type of lender in the mortgage business is a commercial lender, which is usually a banking institution but can sometimes be a private financial group. When you use this type of lender, you will get an offer for a loan with certain terms that include the interest rate you will be charged and the length of the loan.
If you are considering a balloon loan, you may end up dealing with a hard-money lender, who specializes in short-term loans that are backed primarily with real estate as collateral. Be careful, though. A hard-money lender generally offers worse rates than a traditional bank institution; at the same time, this kind of lender also tends to offer more flexible terms and is more willing to back riskier loan situations, such as someone with a bad credit history.
If you belong to a community credit union, you may find lower loan rates than you can through a commercial bank. These mutual organizations are nonprofit and able to give higher rates on savings and lower rates on loans.
Another source for people with very low credit scores is a lender of last resort. These are private institutions that loan to people who are considered to be in extremely high risk of default. Your loan terms for this type of loan will include exorbitant interest rates.
Question 7. What is a servicing lender?
The servicing lender is the one responsible for collecting all your payments and for being sure those payments are properly applied. Servicing lenders also make sure that borrowers are in compliance with the stipulations in the loan agreements.
If there is a problem with a loan, such as a potential foreclosure or bankruptcy, the servicing lender is the one that makes sure the interests of the investor (lender) are protected. When you are negotiating terms for buying a foreclosure, you will have to negotiate with the servicing lender and satisfy its demands, as well as those of the lender whose investment is at stake.
Question 8. What is a promissory note?
A promissory note is often used in conjunction with a mortgage. Basically, a promissory note used when buying a home is a contract that details the terms of the repayment of the property loan. The note includes the principal amount, the interest rate, and the maturity date (the date the loan must be paid in full). The party who promises to pay is called the maker, and the party he or she will be paying is called the payee.
In addition to the loan terms, you will likely see provisions concerning the rights of the payee to collect his or her money in the case of a default, which usually includes the foreclosure of the maker's interest in the property. The difference between a promissory note and an IOU is that the IOU is just an acknowledgement of the existence of a debt that you owe, while a promissory note includes a promise that you will pay the amount stated.
When a promissory note is used in conjunction with a mortgage, it is written as a negotiable instrument governed by Article 3 of the Uniform Commercial Code. A negotiable promissory note can be sold to a third party, who then has the rights of the payee to collect on the debt.
Question 9. What is an institutional lender?
Any institution that lends money for an interest fee and whose loans are regulated by law, such as a commercial bank, savings bank, a life insurance company, or a savings-and-loan association, is an institutional lender. Pension and trust funds can also fit under the umbrella as an institutional lender.
To qualify as an institutional lender, an organization must lend money received from its depositors. This is the difference that distinguishes institutional lenders from private lenders who lend their own money.
Question 10. What is a private lender?
A private lender is someone who lends you the money to buy your real estate, with the money loaned coming from the lender's private funds. Your rates will be higher, but your terms for the loan may be better given your financial situation. If you are buying foreclosure properties for investment purposes, a private lender may be the only one who will loan you money for this riskier purpose. For example, the private lender may be more willing to make the loan even if you are putting no money down or your credit history is not perfect.
The biggest advantage of private lending is the minimal approval process and the speed with which you can get an answer. You also don't have to pay a loan origination fee, or points.
There is no limit to the number of mortgages you can get from private lenders, as mortgages through private lenders don't show up on your credit report. But you should expect to pay a higher interest rate for a mortgage from a private lender than you would for one from an institutional lender.
Question 11. What is a conventional loan?
Loans that are secured by government-sponsored entities (GSEs), such as Fannie Mae or Freddie Mac, are called conventional loans. These types of loans can be used to purchase or refinance single-family homes and multifamily homes up to homes for four families.
Each year Fannie Mae and Freddie Mac set a limit for a mortgage loan, which in 2007 was $417,000 for a single-family home. The limit is reviewed annually and changed, if necessary, to reflect the average price of single-family homes. Conventional loan limits in 2007 for first mortgages on homes larger than single family were as follows: $533,850 for two-family homes; $645,300 for three-family homes; and $801,950 for four-family homes. If the home loan was for property in Alaska, Hawaii, Guam, and the U.S. Virgin Islands, then the original loan amount could be