These are the tools and techniques I've used successfully when looking for pre-foreclosure and REO properties. I hope other real estate investors find them as useful as I have.
The availability of pre-foreclosures depends largely upon the type of debt instrument recorded against property titles in each state, mortgages or deeds of trust (also called trust deeds or TDs).
TDs contain a "power of sale" clause that basically allows lenders to exercise their right to repossess collateral (in this case, real estate) for a loan in default WITHOUT having to file a lawsuit; mortgages do not.
Generally speaking, we prefer mortgages because TD foreclosures move too quickly (whereas lawsuits are slow and cumbersome) and provide limited visibility (mortgages have more public records associated with them, therefore they're easier for us to find).
To make it confusing, some states require lawsuits for ANY foreclosure, regardless of the debt instrument recorded; that's okay--it's the suit itself that gives us time to be able to work with the property owner, so those statutes actually work in our favor.
You'll probably want to do some due diligence just to make sure you're not wasting your time trying to go down an avenue that turns out to be a dead end.
To find out if pre-foreclosure is an option for you, call the County Recorder (or Recorder of Deeds) and ask them what type of debt instrument is recorded against a property's title when someone takes out a loan to make a real estate purchase.
If the answer is "a mortgage," you're on your way; if the answer is "a deed of trust" or if you don't get a clear answer, you'll need to do some additional research into state laws to find out what the foreclosure process is.
Try looking for statute, code, administrative law, etc. in Primary Materials under the "U.S. State Resources" section of www.findlaw.com (excellent material, and all free).
Finding properties in pre-foreclosure
Here are three ways to find properties in pre-foreclosure:
1. Try contacting your local county court. Ask if Notices of Default (NODs) have to be recorded as court documents. If the answer is "yes," find out how you can search the new filings; if the answer is "no," try one of the other options below.
2. Find out if the County Recorder has data available online. An easy resource to use is www.netronline.com. Simply click on "Property Data Online," select the state you want, then click on the county, and voila! You'll be able to see what (if any) info is available over the Internet through the various real estate-related offices in that county.
This is my preferred method because the county I live in makes title abstract data available on the web. Plus I can do what's called a KOI (Kind of Instrument) Search and look specifically for NODs that were filed on or after a certain date.
I do most of my research this way because it's easy and convenient, it's free (I love that word!), and I can also see any other liens or judgments that are be recorded against the property that could adversely affect the deal. If this option isn't available in your county, try option #3.
3. Look in the "legal notice" section of the newspaper. Look for properties that are coming up for sale at public auction (sheriff's sale, trustee sale, whatever), jot down the addresses, the property owners' names, and the tax ID, or at least as much info as you can get from the ad.
Then go to the County Recorder's office to look up those properties, find the NOD on the title, and see who recorded it; you're looking for a title or abstract company that you can work with. They provide you with a list of the NODs they've recorded, and when you close on any of those deals, you use their services for closing ("you scratch my back, I'll scratch yours"). I've also used this approach in the past with great success as well.
First of all, keep in mind that most lenders list with Realtors for a specific reason (cost-effectiveness, driven by several different factors), so we should respect that business decision and not try to work directly with the bank on REO properties until the Realtor becomes more of a hindrance than a help (happens more often than not, unfortunately). But try these steps, not in any particular order:
1. Most lenders these days have web sites. They may have a list of their REOs posted along with contact info for the Realtor listing the property for them.
Every lender's web site is different, of course, so you'll just need to nose around a bit; sometimes those listings are buried in some obscure corner of the web site. If I'm poking around on some lender's site and can't find what I'm looking for in less than an hour, I try a different approach.
2. Call lenders and ask to speak to someone who handles their foreclosures. (or REOs, or repos, or their real estate portfolio, or whatever they call them). Ask that person for the names of the Realtors they use to list foreclosed properties. If he says anything like "Sorry, we don't have any foreclosures," I find it very hard to believe that in this economy they haven't had to foreclose on any of their mortgages.
So it's more likely that I've reached a branch office and those repossessed properties aren't handled locally; they're all sent back to their corporate office to be managed at a central location, or they've been farmed out to an asset management company. Again, ask for the name and phone number of the person at Corporate who handles foreclosures.
3. Pay attention to business signs! Believe it or not, there's a Realtor's office on one of the main streets in my town whose marquee says: "FREE FORECLOSURE LISTING, NO OBLIGATION, CALL TODAY" I did, and got another list to start working on and a good contact to boot.
4. Check newspapers Check not only the local dailies, but also the "cheapie papers" like the Thrifty Nickel, Penny Saver, Green Sheets, etc. for ads posted by Realtors with REOs they're trying to sell:
- Lists of properties that the Realtor has: The ad will mention "bank owned," "foreclosure," "free list," etc. and will have a person's name or the name of a realty company and a regular phone number.
NOTE: I do NOT like ads that are only for government foreclosures (i.e., nothing but FHA, HUD, VA, FNMA-owned properties); I don't know who I'm calling, there's a "free 24/7 recorded message" or a toll-free number with an extension. These are usually subscription services, and more often than not, I find that their data is very limited, out-of-date, and over-priced.
- Individual foreclosure properties: Look for listings with key words like "bank owned," "foreclosed," "REO," "repo," etc. If that Realtor has one foreclosed property, most likely he's got others.
5. Attend the next public auction. Not to buy property, but to make note of what DOESN'T sell. Jot down the addresses, then a couple of weeks later, drive by to see if there's a sign in the yard. That's probably the Realtor who's selling the property for the lender. And again, if he's got the one foreclosure, he's most likely got others.
Regarding option #3 for finding pre-foreclosures and ALL of the research options for REOs, these aren't necessarily ongoing processes; they're just groundwork. Once you have those foundations laid and those relationships built, you probably won't have any need to continue to do these things. Always remember: Be polite but firm and be persistent.