Housing prices, according to Goldman Sachs, Fox Business News and Zillow have dropped more than $2 trillion dollars, nationwide, since the summer of 2022. This equals an equity reduction rate of almost 1% per month. This is of course a nationwide average. Some regions of the country are faring better than this, some worse. However, the important thing to watch is the trend, which is being driven by higher interest rates (bad news for real estate sales) and the fear of a looming recession. The result, not surprisingly, is that the number of foreclosures is growing. However, for every dark cloud, there is often a silver lining. And for Real Estate Investors (REIers) with access to cash--their own money or OPM (Other People’s Money), the coming months and years could portend some very good investing opportunities. As the number of foreclosures increases, we can expect housing prices to continue to decrease as DMF (Distressed, Motivated & Flexible) property owners are forced to make the difficult decision to sell their property, often at bargain basement prices. Smart REIers, who know their markets and are prepared with the appropriate resources, can reap good benefits from a down market.
The start of the foreclosure process in most states begins with the property owner receiving a NOD (Notice of Default). Depending on the laws in the state in which the property is located, and the foreclosure process followed by the bank holding the overdue mortgage, the property owner is probably three or payments behind by the time the NOD goes out.
NODs are considered to be public knowledge since they usually get recorded at the country records office. Once the NOD goes out, suddenly anyone and everyone knows that the property owner is at risk. At that point, hundreds or even thousands of REIers may try to contact the (NOD) homeowner by phone, email and in person. For obvious reasons, these types of high pressure, reach-out tactics turn off a lot of homeowners. Which brings us to an alternative method for buying properties from DMF property owners: Pre-NOD methodologies.
The Pre-NOD discovery method uses different information tools to identify at-risk property owners before everyone else knows about them. With little/no competition from other REIers, you can reach out to property owners who have missed say two payments (but are not yet in default because the bank has not filed a formal NOD). That means you could be one of the first REIers to approach the DMF property owner with a solution to their looming financial crisis. History has shown that once someone falls two or more months behind on their house payment, the odds of eventually going into foreclosure go way up. Typically, it only gets worse after that, to the point where they may lose the property to foreclosure and all the equity they have in the property could be gone as well. Action you can take: Make them a “cash-for keys/deed-in-lieu” offer, assuming they have enough equity to make it worth your while.
How To Find Pre-NOD Property Owners. (Offer a Referral Fee When & Where Appropriate).
A. Credit repair and skip trace firms. They usually have (or can get access to) credit information that lists which property owners have missed two or more monthly payments.
B. Search county property records for properties that show that others have placed one or more liens, etc. that are currently in force; this is a pretty good sign that the property owner is in financial trouble.
1. Liens:
a. Mechanics
b. HOA
c. Tax: IRS, State Income, Property
2. Clouded Title, Other Legal Issues:
a. Lawsuit/lis pendens filed
b. Probate
c. Divorce
d. Bankruptcy
C. Driving for dollars (by you or a bird dog/property scout you retain). Look for:
1. Vacant properties
2. Mail piling up
3. Lawn not mowed
4. Newspapers not taken inside
5. Junk cars, trash, unkept premises
6. Estate and garage sales: many of them may imply the property owner is moving soon.
7. For Rent signs that have been up for an extended time. This may be a landlord in financial straits.
8. FSBO (For Sale By Owner) For Sale Signs. Could be a property owner who is in money trouble.
D. Dialing for dollars: Review Craigslist ads on a daily basis. Look for key “distress” wording such as: FSBO (For Sale By Owner), fixer upper, must sell, etc. Reach out to them and make an offer.
E. Investor-Friendly Realtors who are willing to feed you off-market, pre-NOD property leads.
What We Do: Provide Gap Funding/Down Payment Joint Venture Funding, nationwide, to real estate investors. Contact info: Tod Snodgrass, emdfunding1@gmail.com, 310-408-7015