In Part One of this article, we talked about Tripling your success with foreclosures by offering to tell the seller about their options instead of trying to buy the property at first. Calling foreclosure leads, knocking doors, and mailing letters, but no success? That’s because your angle is all wrong. Instead of offering to BUY the person’s house, try to gain trust and rapport with the seller. In other words, instead of coming on hard, try a “soft sell”. Offer to explain the process to the person in foreclosure instead of offering to buy their house up front.
Understanding the different options available to the seller, you can have an honest, no-pressure conversation about their situation. Below are 5 more common options that sellers may address with you if the sellers are either in default or anticipating being in default. Options 1-5 are in Part One of this article.
6. Deed-in-Lieu: A Deed in Lieu is an option in which a borrower voluntarily deeds collateral property in exchange for a release from all obligations under the mortgage. A DIL may not be accepted from borrowers who can financially make their payments. If a borrower qualifies for a DIL program they may be eligible for cash back from the lender as in the “Cash for Keys” program.
7. Cash Sale: The borrower sells the property, pays off his loan, and, depending on the equity, may net some cash out of the deal. The challenge, of course, is being able to sell it quickly enough, which most often requires a substantial drop in the price. And, make sure if you do buy it from the homeowner in foreclosures, you comply with your state Foreclosure Protection Act.
8. Short Sale: The borrower makes an agreement with the investor to sell it for less than is actually owed, subject to the approval of the lien holders. This generally results in no cash to the homeowner but will be better for his credit than a completed foreclosure.
9. Refinance: The borrower may be able to refinance and get a new loan, but generally this is difficult because the borrower has little equity and poor credit. The new loan likely will have higher payments than the old loan.
10. Do Nothing: The worst choice for the seller, whose credit will be ruined, but he can stay in the house for several months for nothing, save up some cash, and move when the lender or the high bidder from the auction eventually evicts the homeowner.
Explain each of these choices, and be honest with the homeowner. In many cases, he will trust you for your candid explanations. You may lose a deal or two by offering the homeowner choices that are actually BETTER than your offer, but that’s ok – always take the high road and you will have a long and prosperous business in real estate investing. By the way, having a mentor that really understands the in’s and out’s of foreclosure investing can really enhance your chances for success!!