There are some things to be very careful about. Let’s divide this topic into several smaller ones:
- Liens
- Money changing hands
- The owner’s back payments
- Hard money
- Due on Sale clauses
- Insurance
LIENS
We have already talked about liens and how they are prioritized. This deserves mentioning again because when you buy a house in the pre-foreclosure stage you get all the liens that come with it. Make absolutely sure you have done all your research and know what you are getting into. As we have learned, many junior lien holders will negotiate with you when they know the delinquent owner is facing foreclosure. After all, they realize it is better to receive something rather than nothing. However, you may run into a junior lien holder that occasionally wants to play “hardball.” This is where you need a “poker face.” Do not let the lien holder know how badly you want this house or they may hold out for more money. Instead, let them know you are doing them a favor.
MONEY CHANGING HANDS
This one is probably common sense but it should be made clear to you. Never directly give the owner any cash. Handle everything through a title company. This way every part of the transaction is clear and documented to avoid confusion and dishonesty in the transaction. If you are new to this process you may have thought about doing everything on your own. There is a one word reply to this statement: DON’T. The peace of mind you get from a title company is well worth it.
THE OWNERS BACK PAYMENTS
Here is a tip: make sure the owner does not bring any back payments (delinquencies) current while you are attempting to negotiate with the lender(s). WHY? The lender will have NO incentive to negotiate with you if the loan(s) are current or if they are receiving partial payments. In other words, you will have lost all negotiating power in your attempts to make more money by reducing the liens. You may wonder how the owner could do this since they have not been making payments. First of all, see the above topic. You should NEVER “lend or advance” money to a distressed owner even if you think it is buying time while you negotiate. Maybe the owner has a well-meaning relative who decides to “help” them, at east partially. Discourage the owner from making any payments and focus them on helping you complete the short-sale with the lender(s). Remind them that the quicker they cooperate, the quicker you can cash them out.
I'll finish this post tomorrow.
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