How To Buy A House In Pre-foreclosure Using Subject-To Financing and Avoid Costly Mistakes - powered by Happy Scribe
Investing in preforeclosures is an excellent way to acquire cash flowing properties. Many real estate mentors and coaches sometimes provide advice about pre foreclosure investing that just may put you at risk, especially if you're wholesaling pre foreclosures that you pick up with subjectto funding financing. In this video, I'm going to show you how to buy homes in pre foreclosure using subject to financing, and then how to safely sell them without putting your business and ultimately your financial future at risk. Coming up in three, two, one.
Hey, guys. My name is Jeff Kaufman, and I specialize in buying houses and teaching others how to buy houses using creative financing strategies like subjectto and owner financing. Before we get started, do me a favor and subscribe to the Let's Talk Subject to channel by clicking the subscribe button below. I've made a pact with myself to create a new video on creative financing at least once per week. So after subscribing, don't forget to click the bell to get notified every time I post a new video.
I appreciate you for doing that. Now let's jump into this, okay? Before we can talk about acquiring pre foreclosure properties, we need to understand what a pre foreclosure actually is. So a pre foreclosure is a property whose owners have been served with the summons of complaint in a Liz Penden suit. A Liz pendant just means that there's been a lawsuit filed regarding real estate.
That's all that it means. If a homeowner is 90 days late on that 90 day late mark, a notice of default and a demand letter are going to be sent to the borrower demanding full payment of the entire balance of the loan. Federal law requires that the lender wait a minimum of 120 days before proceeding with a foreclosure. But some lenders are going to allow delinquent borrowers more time to either catch up payments or negotiate different terms. But it's totally at the lender's discretion.
And at any point after the 120 day late mark, the lender can file this pendant's action against the borrower. If the property is located in a judicial state and subject to judicial review, it can take as little as six months or I've heard of these things taking three years or longer in a judicial state to foreclose on the property. I happen to be in a nonjudicial state, and foreclosures can be dispositioned in as little as 20 days after that 120 day mark. So we're talking as little as 140 days. And I want you to keep in mind, too, that any non judicial proceedings, it can be subject to review, and it can actually be converted or turned into the judicial process.
And that's going to definitely slow things down quite a bit. So it would be wise, if you're going to target pre foreclosures, to understand whether or not you're dealing with a judicial or non judicial state. And the reason for that is because it will determine when you actually initiate making contact with the homeowner. It wouldn't make sense for example, to start sending direct mail to a homeowner too early in the process. Nor would it make sense if you started contacting them just a couple of days prior to the auction.
So when is the best time to contact these homeowners? Well, the answer is it depends. Early in my investing career I was contacting homeowners who were either 30, 60, 90 or 120 days late on their mortgages. I really thought I was being slick but I found out that this mortgage late list really was not all that. I mailed that list month after month for almost a year and all I got was a bunch of angry calls and absolutely zero deals.
The point behind me telling you all this is that you're going to have to do the research into this process in your state and or county and then you're going to have to do a lot of testing to determine the best course of action. We can start with basic guidelines but ultimately I'm not going to be able to give you a definitive answer on when the exact time is right to reach out to these homeowners. Here's what I will suggest to you though contact these homeowners as close to the actual auction date as possible while still allowing you some time to do your due diligence. As of the date of this recording, pre foreclosure inventory is at an all time low. Nevertheless, I would suggest that you add pre foreclosures to the top of your list of motivated homeowners to market to these deals can be really lucrative and it's a perfect opportunity for you to pick up some houses.
Using subject to financing the process for closing these deals is no different than any other sale except for the fact that you're not going to be paying off the seller's loan. Instead what you're going to do, you're going to catch up any arrivals if there are any and then start making the payments on the seller's loan. There are plenty of investor friendly title companies out there that will have absolutely no problem closing the subject to deal. Now if you're thinking about assigning your subject to purchase contract, you might want to reconsider. It can be a really slippery slope that can cause you tons of problems later down the road.
For example, let's say that you promised your seller that you would make timely monthly payments on their loan and then you decide instead to go ahead and assign that contract to another investor. Well what happens when that investor, let's say they hit some bumps in the road and funds tighten up for them or they can't find a decent tenant that can cover the mortgage payment, whatever the case might be. What happens then? So what do you think is going to be the first thing that your buyer isn't going to want to pay? When times get tough, it's probably going to be the loan on this subject to deal.
Now I've heard several people who employ this very strategy say that they have the seller sign a CYA or a cover your. But we all know that in this litigious society that we live in, anybody can sue anybody for anything at any time. You don't even have to be guilty of anything to be sued. Guess who your seller is going to sue if the payments aren't made and their credit is destroyed even more than it already is. Even if they don't sue you, they can sure make your life extremely difficult and seriously hurt your business reputation.
I would just be super careful about this and really smart about it. That's all I'm saying. There are a couple of ways to legitimately wholesale a property you purchase subject to without opening yourself up for trouble later on down the road. One of those ways would be to close on the property, subjectto the existing financing, and then simply owner finance the property to your investor buyer. One other solution might be to purchase the property in a trust and make your buyer a beneficiary in the trust while you remain the director of the trust.
And yet another way would be to maybe create an LLC, offer your buyer a membership in that LLC while you remain the manager of that LLC. Being the director of a trust or the manager of an LLC, what it does is it allows you to stay kind of in the middle and it allows you to dictate what happens inside that trust or inside that LLC. So you see, there are multiple ways to bring value to your buyer without putting yourself at risk later on down the road. The last thing I'm going to say is we have an abundance of short sale investing gurus in the real estate investing space. Don't get me wrong, I think short sales definitely have their place and I referred short sales out to a specialist in my area.
But the problem that I have with short sales is that they seriously damage your seller's credit. If I can step in and I can actually help that seller save their credit, that's the route that I prefer to take whenever possible. So I prefer to employ creative strategies like subject to real estate investing versus getting into short sales. Not to mention short sales just take a super long time to get done most of the time. If you want to know more about how to market for sellers and pre foreclosure so that you can buy more houses with subject to financing, check out my course Marketing for Motivated Subjectto Sellers Over@subtoempire.com.
Okay guys, thanks so much for joining me here on Let's Talk subject two. If you like this video, go ahead and click the like button. And if you haven't already, please click the subscribe button as well. Don't forget to check out my other videos on the channel also check out my website at subtwo empire.com. All of the links related to this video can be found in the description below.
And as always, thanks for watching. We'll see you next time.