Step 2: Researching the Market and Qualifying Homeowners

In the pre-foreclosure market, there are two keys to your success-finding homeowners who've tried to solve their financial problem and failed to do so and qualifying those homeowners. This puts in you in the position of working with motivated sellers, and that's half the battle! In order to find these motivated sellers, you have to do some hard work and research several sources of information.

Below is a list of my favorite information sources. Keep in mind that you'll be using a combination of these sources at all times. Don't limit yourself to one or two. You want as many open highways to profits as possible.

• Courthouse offices-This is the first place to look so you can become familiar with your local and state government agencies handling foreclosures. The name of the agency varies with the state; it could be the county clerk, office of state register, registrar, etc. Find out if you can access foreclosure proceedings online. This is ideal since you'll be able to download the list on to your computer quickly and easily. If the government office doesn't have its records online, ask if there's a foreclosure reporting service you can use. Keep in mind that, generally speaking, one of two foreclosure actions will be initiated by the lender's attorney and will be available as a matter of public record-a Notice of Lis Pendens (judicial) or Notice of Default (non-judicial).

A Notice of Lis Pendens means "a pending lawsuit." It describes the period between a filing of a lawsuit and when the case is heard in court.

A Notice of Default is a legal noticed filed in the public record let the public know that the mortgage or deed of trust is in default and is scheduled to be foreclosed on at a specified time.

• Newspapers-State foreclosure laws require that foreclosure notices be published in newspapers established as "newspapers of record" by the courts. Usually, this means the newspaper that has county-wide circulation and is read by the majority of residents within that county. Also, don't forget to check the ads in the real estate section. Often, you can find owners advertising homes for sale in order to avoid foreclosure. Typical ads include phrases like "Foreclosure soon. Must-sell bargain"..."Home priced to sell fast to avoid foreclosure"...etc.

• Foreclosure Reporting Services-There are many foreclosure reporting services on line. Do a Google search to find ones that target your area. One of these companies is (www.HotBargainProperties.com/RealtyTrac).

• Direct Mail-This can be an effective means of finding motivated sellers, but don't use a "shotgun" approach and mail to everyone within your areas. It's a waste of time and money. Instead, target those who are in foreclosure or who have some sort of financial distress. (See ZIP code targeting later in this chapter.) Also, make sure you mail several letters to these individuals, as many as four, five or six. People receive a lot of junk mail these days, so, more likely than not, they'll throw your first letter out. But, if you're persistent and consistent, they'll eventually open one up and discover that you can offer them relief from a bad situation. Of course, send the letters well ahead of the foreclosure auction and space them out. For example, mail the first letter approximately eight weeks before the auction, then one per week after that. Another tip is to make your letter look as personalized as possible so it stands out from junk mail. Avoid the "bulk mail" look at all costs. Below is an example of a letter you can use as a template and modify to meet your own needs. Notice that it stresses benefits to the homeowner-avoid stress, creates a win-win situation, etc.

(Date)

Dear Mr. (Mrs., Ms., etc.) Smith,

My name is Jonathan Jones, and I'm a private real estate investor who would like to help you out. I see that your property is scheduled to be sold at auction on May 16 on the steps of county courthouse.

I'd sincerely like to help you avoid the stress of a public auction. I have many different options available, including a quick sale that can create a win-win situation for both of us.

I'm available at any time to help you work through the available options. Feel free to call me at 1-800-XXX-XXX, and I'd be happy to discuss different solutions to your problem.

If I've made a mistake and your property is not scheduled for foreclosure, my sincere apologies!

I hope to hear from you soon!

Sincerely, Jonathan Jones

One of my favorite variations on direct mail is to send homeowners a non-negotiable check for anywhere from $5,000 to $15,000. I put the homeowner's name on the check and, on the accompanying letter, say, "Call this number to get this money." It lets owners know upfront how much money they can receive by dealing with me and provides a great incentive to make the call. An example of this technique is shown at the end of the chapter.

• Signs/flyers-Posting signs and flyers is one of my favorite methods of finding motivated sellers. However, be aware that the posting of signs may be illegal in your county or state. Check with local government officials before using this method. • Promotional devices-This includes business cards, refrigerator magnets, etc.-anything that puts your name and service in front of the public. People love useful items like magnets, and they can be placed in places (like refrigerators!) where your name will be constantly seen. Signs can be as simple as:

HOUSES BOUGHT! Contact me today! 1-800-XXX-XXX

or

FACING FORECLOSURE? We can stop it! Call for a free consultation! 1-800-xxx-xxxx

Flyers can have similar language with more detail. For example: SEEKING A QUICK SALE TO AVOID FORECLOSURE?

I can help! I'm a private investor who can help you get out from under your debt. I look at all properties, no matter what their condition.

Get rid of that stress by calling me at 1-800-XXX-XXXX

or

I WANT TO BUY YOUR HOME!

Financial difficulties? Recently divorced? Facing a transfer? I can help you out! Let me talk to you about buying your home so you can rid of unwanted stress.

I specialize in helping good people out of bad situations!

Call 1-800-XXX-XXXX

• Telemarketing-Phone calls can sometimes be effective. You're able to call several people for a minimum of time and investment. However, be aware that homeowners facing foreclosure sometimes do not want to answer their phones for obvious reasons. Also, make sure you're not violating any telemarketing laws within your state.

• Door knocking-This is also a possibility for finding motivated sellers. However, it has several negatives. Homeowners facing foreclosure don't necessarily want strangers at their door! So, you'd better be prepared for some negativity or, in bad neighborhoods, even worse. Another negative is that door knocking takes a lot of time and effort, both of which could be spent using more targeted methods. So, I don't recommend this tactic highly.

• Networking with wholesalers-Wholesalers get properties under contract to buy and then sell those properties "as is" to others (like you) for a profit. You can network with them to find potentially profitable homes.

• Real estate agents/agencies-Agents handle homeowners who want to put their homes on the market at lower prices so they don't have to face foreclosure. So, it pays to build good relationships with local agents and agencies. Experienced real estate agents know the market better than anyone and can be very valuable resources. Just make sure that any relationship you have with one creates a win for them as well as for you.

• Tax liens-A tax lien is a government-issued lien. It has priority over mortgage liens. Tax liens are placed on home owners who haven't paid their property taxes. It's likely that if they're not paying their property taxes, then they're not paying their mortgage payments. This means they may be candidates for foreclosure and, thus, potential clients for you.

• Title companies-Whenever homeowners are issued Notices of Default on their properties, these notices are also sent to title companies. So, a little research on the title companies in the local area can get you on their mailing lists and give you a handy source of properties facing foreclosure. Although not all title companies will be willing to work with you, most will for the simple reason that they know you'll be needing title insurance. The Yellow Pages is a good source to find these companies.

• Word-of-mouth-As has often been said before, word-of-mouth is the best advertising possible. Once you've established yourself as a fair and honest professional, your customers will spread the word to their friends, neighbors, co-workers, etc. So, in the long run, it pays great dividends to create and maintain a good reputation.

• ZIP code targeting-This is a great method of targeting motivated buyers in stable neighborhoods with middle-income residents. It eliminates poor risks from lower-income neighborhoods. There are convenient and free Internet sites where you can find ZIP codes listed by county for your state. One is MelissaData.com http://www.melissadata.com/lookups/countyzip.asp. Another is ZipExpress.com http://www.getzips.com/county.htm .

Here's an ironclad rule you should never ever break: Always, always verify a homeowner's loan information before proceeding with a deal! Never let the excitement at the prospect of making a profit overwhelm your common sense. You need to know if a pre-foreclosure has enough equity to make a deal a good one.

There are several ways to qualify a homeowner. First, after a homeowner has expressed interest in working with you, get his or her written permission to contact the foreclosing lender. Then, contact that lender as soon as possible to find out the following information:

>> Type of loan (conventional, FHA, VA, private, etc.)

>> The unpaid principal loan balance, the interest rate, amoritization period and total monthly payment (including principal, interest, taxes and insurance)

>> Complete amount of loan payments, accrued interest, late payment charges, and legal fees that must be paid to end the default and reinstate the loan.

Ideally, the homeowner will have Internet access to his or her mortgage loan account. This speeds things up considerably. Otherwise, you'll have to work with that homeowner to get the information by other means from the foreclosing lender.

Upon your initial meeting with the homeowner, make it clear that you're simply gathering information at this point and want to review the necessary legal documents (mortgage or deed of trust, promissory note, loan payment records latest escrow analysis, etc.). To keep track of all this information, use a worksheet or checklist. You can easily create one yourself on your computer. I've provided an example of an interview form at the end of this chapter for your use. Feel free to customize it to fit your own needs.

It's wise to create another form to track the owner's loan information. This will help you keep the numbers straight to see if the deal does indeed have profit potential. An example of such a form is also provided at the end of the chapter.

Another wise method of qualifying a homeowner is to have that homeowner request a Letter of Estoppel from the foreclosing lender. "Estoppel" is a legal doctrine. It prevents parties from later denying factual information that they've certified as true. For example, if a lender sends you an estoppel letter stating that the mortgage or deed of trust has a principle loan balance of $120,000 on July 1, 2007, that lender can't later claim that the balance was $130,000 on August 1, 2007. Normally, these letters are sent to a person in the lender's loan loss mitigation department. To help the homeowner out, find out the name of that person for them so they'll know who to contact if the lender is slow to respond.

In addition to the estoppel letter, you can request that the homeowners send an authorization letter to the foreclosing lender. Such a letter allows you to discuss the homeowner's loan information directly with the loan loss mitigation department of the lender. This letter should request that the appropriate information be sent directly to you via letter, fax, or email.

In some cases, homeowners will have obtained their mortgage financing from private lenders. These lenders can be harder to deal with since they may prefer to go through foreclosure proceedings. However, it's worth a try. Have the homeowner send an estoppel letter to the private lender requesting the pertinent loan information.

In the next chapter, you'll learn about Step 3-selling the homeowner on using you and your services.

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