The good old days of doing business on a handshake have gone so far away that the Hubble telescope couldn’t find them. Even at my tender age, I have witnessed enough legal action resulting from deals gone awry, sellers-turned-psycho, and downright skullduggery to make even the most hardened investor’s blood curdle. And the heat of the battle takes place, unfortunately, in one of the best arenas to make an honest living in: real estate—pre-foreclosure investing.

Who is to blame? Sometimes the seller, sometimes the investor. If I had to make a guess as to who causes the most problems, it would be sellers. Over the years, I have only heard of a handful of unscrupulous investors who tricked homeowners who thought they were getting a loan into signing a deed, forged documents, took over a loan and pocketed the rent payments, or something equally evil. Of course, these are the only incidents you hear about on the news. My guess is because “Fair and Honest Investor Buys House, Makes Profit” isn’t a very sexy headline.

The real concern, and the focus of this article, is sellers in default who either:
A) Lie about their property, its condition, their hardship story, etc, in a deliberate attempt to defraud an investor, or
B) Experience seller’s remorse after their problem is solved, and use false accusations that they actually believe in an attempt to undo what they agreed to.

Which do you think is the more common scenario? I don’t believe it’s A. Although the old expression “buyers are liars and sellers are worse” has some truth to it, I think that most sellers in default are honestly seeking a way to solve their problem through ethical means. And any untruths they do tell can be uncovered with the proper due diligence prior to purchase.

Therefore, I think that B is the more common scenario in which fraud is committed. And by “committed,” I mean “frantically slung as a weapon by the seller in a misguided attempt to undo a transaction that is perfectly legal by making you the scapegoat for their own selfishness, irrationality, and/or situational ethics.” This doesn’t make headlines, but it does make a frequent topic of conversation at local REIA meetings, where I have heard similar stories told ad nauseum.

Scenario B is far too common, but even more so when a pre-foreclosure investor does things that make them more likely to be accused of fraud. I have listed three unsafe scenarios below. I will preface them with a golden nugget of wisdom that I have gleaned from years of networking, news-watching, and personal experience, and then voice my opinion on the subject with more passion than Basic Instinct, Don Juan Demarco, and The Notebook combined.

“No matter how many times you explain how the deal will take place, how slowly you go over it, how many times they tell you they understand, or sign and initial a document that spells everything out in excruciating detail in 4th-grade English using size 16 font, sellers in pre-foreclosure will immediately create and believe their own memories of what they agreed to the very second that their payments are caught up.”

If you are not familiar with the concept of implanted memories, just remember the movie Total Recall and you’ll know exactly what I’m talking about (but with a little less violence). The unavoidable fact above must always be remembered, dealt with head-on, and used to guide your decisions when working with sellers who are behind in payments. And now for those three unsafe pre-foreclosure scenarios:

1) Asking them to sign blank documents – I think the wild, wild, western days of showing up at the seller’s house with a mobile notary and getting them to sign a deed and blank documents for any and every conceivable type of transaction (short sale,cash offer,subject-to, note, deed of trust, etc.) on their kitchen table are over. This shoot-first-ask-questions-later style of getting a deal done has “Six o’clock evening news scandal” written all over it.

While it may certainly be more convenient for the investor to get everything signed in advance and then figure out what kind of deal is possible later, and though the investor may truly have the seller’s best interests at heart, think of how it will appear to a judge when the seller says later in court, “He had me sign all these blank documents, and told me he’d take care of everything, and I didn’t know what I was doing…”

I don’t think we can afford to be so cavalier in our dealings — at least until pre-foreclosure investors cease to be perceived as vultures, guilty until proven innocent, which I calculate will happen approximately three times the length of time from now that hell will take to freeze over.

2) Letting the seller stay in the house – I cannot think of any kind of transaction so generous, so humane, so… hazardous. For starters, leasing the house back to the seller is a risky gamble (since, in my experience, 9 out of 10 of them will miss at least 2-3 rent payments per year, which, unless you have a money bin as bounteous and deep as Scrooge McDuck, will cause considerable damage to your cash flow).

If you give them an option to buy it back, you’re walking on thin ice. Because, if for some reason they are not able to buy it back again (missed payments, worsened credit, stricter lending environment, decreased property values, etc.), you will become the bad guy for daring to ask them to move out so you can finally recoup your investment, free up your funds, and thus avoid becoming broke, busted, and disgusted.

And if you lease back to a seller whose house you bought subject-to, put on your headgear and get ready to rumble. You might as well drive to the nearest courtroom and have a seat, because you’re going to go there soon anyway — ask me how I know this. It’s just too easy for a seller to wish they hadn’t sold their house so badly that they actually believe they still own it, or should own it. And, because so few attorneys know anything about subject-to deals, it won’t be hard for them to find one to put you in the hot seat.

3) Advancing funds prior to closing – Imagine meeting the kindest, sweetest, most innocent seller you’ve ever met. They’re in foreclosure through no fault of their own (illness, tragic accident, etc.) and have tried everything to fix their situation, with no success. You finally get in touch with them a day or two before the auction, and agree to save them from their pending disaster. But there is one problem — you won’t be able to close on time.

Maybe the title company can’t get the title search done fast enough, schedule you soon enough, your private lender is on vacation, or something. If you could just delay the auction one more day, you could conduct the closing and be the hero. But, of course, the only thing that will buy you the time to close is to reinstate the loan now, before the closing. The helpless seller’s credit, dignity, and financial future is in your hands. Do you do it?

Although it goes against every altruistic bone in my body, I would not advance any funds before closing even if it means they lose their house and I lose a deal. I promise you that if you do, you will, in all likelihood, witness a formerly sweet, rational, and grateful seller transform before your eyes faster than you can say Bilbo Baggins. Your funds will be tied up with no legal recourse other than to enforce your contract to buy, which will take more money and several months, in which time they may fall behind again and lose the house (and your money) to foreclosure.

Or, you could be sued after all you’ve done and be accused of taking advantage of the seller, even though your funds are being held hostage at their mercy. And even if you have them sign a note and deed of trust as security before reinstating their loan, you may be going into dangerous territory by breaking lending, licensing, and possibly usury laws. The potential downside makes it not worth the risk.

So the moral of the story is this — given the current legal climate, the fallen nature of sellers once their problems are solved, and the inherent financial risks, it is wise to avoid the three types of pre-foreclosure investment methods mentioned above. It’s not enough to be honest and do what you promise. It’s also not enough to have excellent documentation and CYA agreements. They can certainly help your case in a lawsuit, but don’t think for a minute they will actually prevent suits from arising to begin with. Instead, you have to avoid the very appearance of fraud, even if it means losing a few deals (which is infinitesimally better than losing a few lawsuits — or even winning them, for that matter).

Nothing is worse than a lawsuit, even when you win. It will cost you a teacher’s salary in legal fees (not to mention the legal fees of your private lender, if you used one and they are named in the suit) as well as tying up your invested funds and hostage profit for 1-2 years. That’s a 1-2-3 combination of knockout blows to your cash flow, and could put you out of business. And in bad economic times, litigation only increases because everybody needs money. Therefore, when it comes to protecting yourself from false accusation while investing in pre-foreclosures, an ounce of prevention is worth 60 megatons of cure.

Perhaps the most well-known method of obtaining foreclosure properties is buying them at the auction. The foreclosure auction is a live bidding process, just as you may have imagined. The auction is typically conducted at a public place, such as a courthouse. In some states, the county Sheriff or his deputy will conduct the sale. In other states, a referee appointed by the court will conduct the sale. Although the process is slightly different from state to state, the basic idea is the same – the property goes to the high bidder. The first bid will usually be made by a representative of the foreclosing lender. The lender can bid up the amount that is owed to him, without actually tendering money. If nobody else bids, the lender gets the property. In a majority of cases, nobody will show up but the auctioneer and the lender’s representative. Thus, in most cases, the lender gets the property; the less equity in the property, the less people show up at the auction.

Buying at the auction is not for everyone, especially beginners with limited funds. You need cash, and lots of it, to buy properties at auction. If you have access to a large credit line or have a money partner, you can sometimes find real bargains at foreclosure auctions. Do not get too excited, though, because most properties either have too little equity for people to bother with, or have so much equity that a large crowd will show up to compete. Despite popular beliefs, a real steal at the auction is very unlikely.

Finding Out Where the Auction Is Held

The auctions for your city or county are usually published in a legal newspaper or the legal section of your local paper. You can also subscribe to information service providers that will fax, mail and/or email you this information on a regular basis. If you are following a particular property, contact the lender’s attorney or the trustee for information about the sale date. Call the day before to make sure the auction has not been postponed or delayed by the lender or by the borrower filing for bankruptcy.

Before Going to the Auction

Before you even consider bidding at the auction, you need to do some homework. Remember that your bid at the auction is absolute; there is no backing out. Your due diligence in researching the property can be quite time-consuming, and chances are you will not get a huge bargain. Sounds discouraging? It is, but you should try it a few time to get a feel for the process. Choose a few neighborhoods that can familiarize yourself with and bid only on those properties.

Check the Condition of the Property

You need to drive by the property to find out what condition it is in. Good luck in trying to get inside, since the homeowner isn’t likely to let you in. If people are living in the property, you can make the assumption (most of the time) that there is running water and electricity in the house. However, you must assume the house needs at least the basic cosmetic upgrades: carpet, paint, new appliances, new kitchen cabinets, new vanity in the bathrooms. If the house looks vacant, take a peek inside the windows. The less information you have about the inside, the more conservative you need to be with your fix-up estimates.

What to Bid?

Before you bid on the property, the most important factor you need to think about is what you intend to do with the property if you win the bid. Are you going to live in it? Fix and sell it for cash? Flip it “as is” to another investor? Finance it and rent it out? Each one of these strategies will change your maximum bid price. I would suggest that you take the most conservative approach, that is, ask yourself what price you would need to pay if you had to resell the property quickly. In other words, don’t bid what you think will be the high bid, rather bid what you want to pay!

What You Need to Bring to the Auction

Contact the attorney, referee, sheriff, trustee or other official to determine how much money you need to bring to the auction. In most cases, you must bring a percentage of the winning bid price (usually 10%) in the form of certified funds, the balance being due in 30 days. In some states, the entire balance is due the day of the sale. Rather than bringing one certified check or money order, bring several smaller denominations, since it makes giving the deposit easier.

Tips for Buying at the Auction

You must arrive on time. Most auctions begin and end in a matter of minutes. If the auction is set for 10:00 am and you arrive at 10:05 am, you may be too late! If you are going to a county building, it will likely be in a part of the city which parking is a problem, so arrive extra early. Get a feel for the other bidders at the auction. It won’t take you long to figure out who is a pro and who is a “looker”. Even if you don’t buy the property, make friends with the pros so you have someone to sell other properties to at a later time. Don’t get in a bidding war! Many beginners get caught up in “bidding fever.” Don’t be one of them. Determine what you want to pay before you come to the auction, and don’t bid any higher!

Over the past two years, a dozen states have passed foreclosure “protection” laws, and many states are following suit. Even in states where there are no specific foreclosure protection laws in place, there’s plenty of power within the state Attorney General or County District Attorney’s office to prosecute a real estate investor.

Here’s some of the things you need to do to stay out of trouble:

GET ALL AGREEMENTS IN WRITING

Oral agreements are not good anymore, and they often lead to a dangerous “he said, she said”. If you get a deed from an owner across a kitchen table, it is a legal transfer, but you should document everything first with a contract and/or set of good, clear disclosures. These disclosures include the fact that the owner is losing his property, his equity, and his right to any proceeds from the home. Although giving a deed should make this obvious, some people truly think that they are entitled to something more because they are still living in the house. Also, some investors do offer vague promises to sellers for a right to re-purchase the house at a later time, which can be misconstrued. Always document every agreement you have with the seller in writing.

EXPLAIN THINGS IN PLAIN ENGLISH

Even though you have a good written disclosure, it’s no excuse for pushing papers under the seller’s nose to sign without reading. Explain everything clearly to the seller so he understands the implications of the deal. If you are afraid of telling the truth, don’t do the deal. The seller must go into the transaction with his eyes wide open. Imagine that the local news station was filming your deal and act accordingly.

DON’T OFFER THE SELLER A RIGHT TO REPURCHASE

Although you can offer the seller a lease-back with an option to re-purchase at a later time, this kind of arrangment rarely works out. Some state laws restrict this kind of agreement with a cap on the profit you can make on such a deal, which all but makes it impractical. Vis-a-vis these laws, a homeowner can claim such an arrangment was a “disguised” loan and get the property back by filign a lawsuit. Either way, it’s generally a bad idea to leave the seller in the property. Make a fair deal, give him some cash, and get him to move on with his life.

COMPLY WITH FORECLOSURE PROTECTION LAWS

Know your state foreclosure protection laws, known as “foreclosure consultant” laws. Generally speaking, these laws requires a written contract with state-required disclosures and a rescission period, anywhere from three to ten days. The rescission gives the seller the right to cancel the agreement. It is recommended you give a seller a 3 day rescission even if the law does not require it. If the deal ever blows up and you are in court, it will go a long way for your credibility.

Before you begin prospecting for profitable short sale opportunities you must build and develop your buyers list. If you’ve studied my course then you have enough knowledge to locate and close as many short sales as you are willing to work for, but the most important piece of the puzzle is having buyers on hand waiting to buy your short sale deals.

When people hear the word “list”, one of the first things that come to mind is that hundreds of investors with deep pockets are needed to make a buyers list. Although having a large active list would be ideal, it’s not likely for most investors nor is it necessary. Your list should include both investors and traditional home buyers. In my first 24 months as a short sale investor my buyers list consisted of just a handful of investors and traditional buyers. A few were individual investors who were interested in acquiring 7-10 rental homes each and some were investors seeking wholesale deals. In addition, I had several first time homebuyers that I sold property to at huge discounts.

Within my first 9 months, I sold 4 properties to one investor and 8 to another. I kept 6 for myself that I either held as rental property or wholesaled within 6 months of purchasing them. My days were spent finding deals that fit mine and my buyer’s needs and speaking with potential buyers that I could add to my contact list. So in reality I worked for 3 clients (my 2 investors & myself). Yes, I started doing short sales mainly for the long term investment opportunity. Buying and holding is one of the best strategies to use if you want to acquire large amounts of equity with the least amount of adversity.

I share this story with you to say that a quality buyers list is not soley determined by the quantity of investors you have, but rather on how many “ready-to-buy” investors you have on hand. You will know your investors are willing and able when they’re being proactive and calling to see what you have available or when they are trying to grab the deal from you even before the ink dries.

Once you have a list that resembles something like this, you can now go out with confidence and find short sales that you will not only successfully negotiate but make a profit on as well. What’s the use doing all of the work to get a short sale accepted and not being able make a profit? Let me answer that for you, there is none! Building your buyers list now will reduce the possibility of your deals falling through due to not having an effective exit strategy.

How Do I Build a Buyers List?

The first thing you need to do is take out a sheet of paper and make a list of all of the people that you know. The people that you know are called your circle of influence. Unless you have been living under a rock your whole life, this exercise should take a while. The purpose of this brainstorming activity is so that you begin to build your list with people you have a relationship with. Those of you who are realtors have probably been taught this same strategy.

For example, think of people who you’ve spoken to recently that mentioned buying a house or investment property. Also, think about people you know who are risk takers. You should also focus on people you know that have lots of friends and associates. In other words, let your mind stretch as far as possible to come up with a large list of rough prospects. I know that I said that it is not necessary to have a large buyers list, however, it is helpful to start off with lots of prospects to give you the greatest amount of potential investors to begin working with.

The reason you will want to start off with you circle of influence is because many times the people who will buy or lead you to those that do will be someone you know. The two investors I spoke about earlier were both referred by former co-workers.

The next thing you need to do is print up a stack of Buyer Information Forms (this form is included along with the legal forms and documents disc in the course). Then, start speaking to the people on your list and use this form as a guide to gather necessary information. You do not have to ask the questions as they appear; instead ask the questions in a conversational form so it does not seem obvious that your questions are predetermined. Begin speaking to the people on your list that you feel the most comfortable with so that you can develop your flow. You can now keep a record on all of your prospects for easy access. The form will tell you what type of property your potential buyer is looking for, how soon they will be ready to purchase, their price range, are they looking for a residence or investment property, how they will fund the deal, and so forth.

After you’ve made contact with everyone on your circle of influence list, you will then need to expand your list to others outside of people that you know personally. I highly recommend joining a real estate investors club or at least another business networking organization. Many of the people that you meet at these types of settings will be looking for their next profitable investment. If you can offer other investors real estate deals at huge discounts with minimal risk, you’ll attract a pool of reliable buyers with deep pockets just waiting to snatch your deals up.

Developing Your Buyers List

Once you have a list of potential buyers to start building your list it is now time for you to develop it. How do you develop your buyers list? Well, the first thing you will need to do is qualify each person on your list. You’ll want to separate your buyers into three categories.

1. Hot – Your hot buyers are those investors who know exactly what type of property they want and have the immediate resources to close a deal within the next 15-30 days. They are risk takers. Many of these investors have in the business for a while.

2. Warm – Your warm buyers are those investors who have somewhat of an idea of what they want but may also be open to suggestions if you have something worthwhile. They are your moderate risk takers. These investors are also financially able to buy but may be 2-4 months away.

3. Cold – Your cold buyers are those investors who have an interest in investing but may not be sure what they are looking for and may not be willing to assume much risk. If an absolutely great deal comes along at the right time they may jump on it. However, they are probably 6 months to a year away from making a purchase.

Once you have compiled and categorized your list the very next thing you will want to do is begin locating short sale opportunities. Begin putting out signs, posting internet ads, using car magnets, and posting flyers to create your initial buzz. As a result of you doing these things consistently, you’ll most likely get several calls from other investors inquiring about the deals that you have available. These investors should be added to your buyers list and categorized accordingly. Many of the investors that contact you will be “hot buyers”. I have several buyers on my list that contacted me initially after reading one of my signs or internet ads.

Your list is a continuous process so you’ll want to add new buyers and investors to your list on a daily to weekly basis. The more depth and qualified buyers you have for your short sale deals, the more money you will make. Do not make the mistake of going out and negotiating short sales without having a buyer or workable strategy to find one. Having buyers for your deals will make your job so much easier and give you the confidence and ability to put more deals in your funnel.

I submitted a short sale and the bank said no, so what is my next step? Great question.

First of all, it’s important to realize that you’re only going to get 70% of your short sales accepted. That means that 30% of your deals will fall apart. If you submit ten short sales, you will close seven. Knowing your numbers going in will prepare you mentally when the bank does say no. Don’t take it personally; remember, it’s just a numbers game.

The bank may say no for several reasons: high BPO, an inexperienced loss mitigation rep, or possibly a foreclosure sale date that is just days away. One of the most common reasons the bank will say no is because the BPO came in too high and the bank feels the property is worth more than it actually is.

What is a BPO? It means “Broker’s Price Opinion.” When a short sale package is submitted, the bank will send a real estate agent or Broker to the property to judge its value. To insure a low BPO, we like to meet the agent at the property. We take the liberty of giving the agent our complete short sale package. We run comps for the agent, give copies of our pictures, our list of repairs, and walk the agent through the house room-by-room. We want to make the homeowner come to life by showing the agent the property, family pictures, and explain how a low BPO will insure a successful short sale thus giving the homeowner a chance to start over.

Usually, agents and appraisers are asked to value properties at the high end of the scale. Most homeowners trying to purchase a home need top value in order to qualify for the loan. Therefore, it is unusual to ask for low numbers. This is why we meet the agent at the property: to plead our case and ask for the lowest BPO possible.

Assuming the bank said no because of the BPO, our first step is to challenge it and request a second opinion. Our conversation with the loss mitigation rep goes something like this: “My friend is a real estate agent. She ran comps and says the person who did your BPO is crazy. My friend also says the numbers are way too high. She works this neighborhood and is certain about the property values. Does your agent specifically work this neighborhood?

If not, he might be steering you wrong. It would be a shame for your bank to take the property at the sheriff’s sale, only to lose money. Why don’t we do the right thing and schedule a second BPO. I’m sure if you choose someone who actually works this neighborhood, that person will agree with me that the property is only worth $___________. Your bank is not in the business of losing money, is it? I didn’t think so. When is the best time to schedule another BPO, today or tomorrow at 5:00?”

The purpose of your conversation is to make the bank question the first BPO. Banks are not in the business of losing money. An incorrect BPO will come back later to haunt the loss mitigation rep.

Once we schedule a second BPO, we do our magic again. We meet the new agent at the property and plead our case. We had a recent deal where the first BPO came in at $295,000 and the second one came in at $215,000. The property was realistically worth $450,000 with a $350,000 balance. We originally offered $199,000. The bank was firm at $300,000. With an $80,000 difference in the BPO’s, the bank lowered its number from $300,000 to $250,000 making the deal work. It was a sweet deal for us. The key was the second BPO.

If, after a second BPO, we still can’t get the bank to see it our way, we pass and move on to the next deal. Your new four letter word is: NEXT. If one deal doesn’t work out, move on. Remember, you will lose 30% of your short sales. This is why we advise our students to work at least ten short sales at the same time. Then when one does fall apart, you’ll have no problem saying ….NEXT!

A short sale is when a mortgage lender agrees to allow a home owner’s property to be sold for less than it’s actual market value. The lender will discount a mortgage balance to give the home owner an opportunity sell the property and turn over the proceeds to fully satisfy an outstanding loan balance. In this instance, the lender has complete control whether to approve or disapprove the sale.

Most often, the lender will approve a short sale if the home owner owes more than the current market value, also called being “upside down.” Another reason for a short sale is to avoid foreclosure. Avoiding foreclosure can be a wise decision for the lender if the home owner has encountered a serious financial hardship or more importantly, if a short sale will result in a smaller financial loss than through the foreclosure process. Also, a short sale is a better option for the home owner for a number of reasons. First, even though a short sale does show up on a consumer credit report, it is far better than a foreclosure. A foreclosure creates a long-lasting back mark on your credit report and will drop a home owner’s credit score approximately 300 points. Also, the process is somewhat faster and less expensive than a foreclosure creating a superior choice if the market has softened.

While a home owner may think a short sale is an easy way out of an “upside down” property investment, lenders will not even consider a short sale until a notice of default has been issued and a valid reason has been presented to the lender. Typically, the lender will go over the home owner’s situation very thoroughly before approving a short sale. A loss mitigation department wills asses the situation and do data analysis before approving the sale. Most often there is a hefty amount of negotiating before a sale is final to ensure the lender is fully satisfied.

When a home is purchased, the bank or financial institution (usually a lender) holding the mortgage has taken a security interest in the property. If the homeowner does not fulfill his / her end of the mortgage agreement, usually because of missed payments, the security interest allows the lender a right to regain the money that is owed on the property. The legal process the lender will use to regain the money by selling the house through a public auction or traditional methods is called a foreclosure.

A foreclosure moves through three stages: pre-foreclosure, foreclosure, and the foreclosure auction. The pre-foreclosure stage is when the homeowner defaults on the mortgage through missed payments and the lender files a public Notice of Default. During the foreclosure stage, the process becomes official when the lender files a public and legal notice of foreclosure with the county Record’s Office. Soon after, the court will grant the lender a foreclosure and set a date for public auction of the property. The third and final step of the foreclosure process is the foreclosure auction, also called the trustee sale. At an auction the property is awarded to the highest bidder, a contract issued by the lender and a closing date on the property is set.

Although there is an auction, this does not necessarily mean the property is sold. Many times the lender will set a minimum price for the house which will not be met by the bidders. In this scenario, the lender will take ownership of the property and it becomes Real Estate Owned (REO) in an attempt the sell the house using traditional methods.

For a homeowner, a foreclosure presents a host of issues. The most important thing to remember is that a foreclosure will crush a homeowner’s credit score dropping it close to 300 points. Also, if the lender does not regain the full market value on the property, the lender can attempt to pursue the homeowner for the money utilizing the IRS.

With the continuously rising rate of foreclosed home on the market, some business savvy real estate agents are running regular bus tours of foreclosed homes for prospective buyers. Showing foreclosed homes as a method to promote sales, is evidently working in the favor of the agents and the bargain seeking buyers. Real estate agents from coast-to-coast are helping potential clients discover great deals on homes that are in relatively good condition.

The San Francisco Chronicle reported on one foreclosed home tour organization—Foreclosure Finder Tours , which runs weekly tours of foreclosed homes in the cities of Antioch, Brentwood, Byron, Discovery Bay, and Pittsburg—Contra Costa, California. In December of last year, a group of nine real estate agents at Intero Real Estate Services in Brentwood put together $20,000 to purchase a ten-passenger van; they now run four tours each weekend, where they usually visit around six homes per tour.

Cesar Dias a Realtor and loan agent with Approved Financial & Real Estate Center, located in Stockton, California, is reported to be one of the first real estate agents to begin running bus tours featuring foreclosures. Dias began operating his foreclosed home bus tour in September of 2007 with one bus. He now runs three bus loads of potential buyers on two trips every Saturday, between 11:30 a.m. and 1:30 p.m.; which visits about 10 homes per tour.

In Marlborough, Massachusetts DCU Realty charges its bus-riders–$20 for members of its affiliated Digital Federal Credit Union, and $25 for nonmembers. DCU Realty foreclosure tours visit Northborough, Westborough, and Shrewsbury. The weekly tours feature homes in varying stages of disarray and both modest foreclosed homes and luxurious foreclosed homes for sale.

It is no coincidence that the areas experiencing the highest reports of foreclosures are the same areas that are running the most tours of foreclosed homes. Contra Costa, California has the worst foreclosure rate in the state. Similarly, Framingham, Massachusetts has experience the region’s highest level of foreclosed homes.

Some homes are in considerably good condition, perhaps experiencing some overgrowth in the yards and dust collecting on fixtures within the house. Other homes have been reported as having been trashed, littered with unwanted belongings, damaged floors, holes in walls, broken doors, appliances and fixtures removed, etc. However, the fact that the homes are recently listed as foreclosed, tells the potential buyer that the home was recently inspected and deemed to be in sound shape and a habitable living space by the previous owner’s home inspector.

While the majority of these homes lack any major repair issues, the fact that many of them are fixer-uppers is something that the potential buyer must take into consideration. These homes are not move-in ready; in fact, these homes are far from ready for occupation. Be prepared to spend additional money to return the home to its original form. So before running out and purchasing a foreclosed home, be sure to do the math and add all expenses up before making that foreclosed home purchase.

If you are heading to the next foreclosure auction you would do yourself a favor by taking what little money you have and burning it in your fireplace. The only people getting rich in foreclosure are these so-called foreclosure “experts” selling homes on television for $70,000.

Just think about it. If the median price home in your state is $250,000 then what in hell can you get for $70,000 dollars? The answer is quite clear, a shack, an empty shell and four walls, no sinks, no toilets, no bath bubs, no plumbing, no water tank, no heater and certainly no windows. You get four walls, many of which have had major holes pounded into the plaster by hostile former owners who went out of their way to destroy the property.

Homeowners who destroy their property in foreclosure should be sent to jail, but our liberal politicians and courts believe that personal property rights allow owners to destroy what they can no longer afford to pay for. It is a clear sign that capitalism and the judicial system are running amok.

I know of some cases in which former owners had parties on the eve of their evictions in which they invite their friends to bring hammers and chain saws to break through plaster walls just for the fun of it, such criminal destruction of property should be prosecuted to the fullest extent of the law. And until we do, these crimes will continue. A $70,000 bargain is not such a bargain if you need to put $150,000 into repairs and $20,000 into new appliances in the foreclosed property you just purchased.

The barkers on these foreclosure shows never tell you that most of these properties are dogs, real dogs. Do you want to own a house in a neighborhood surrounded by drug dealers and empty houses growing marijuana inside? How safe is your investment if it is surrounded by gangs, former prison inmates, and rapists? Then why would you be convinced that this $70,000 property is a bargain? Or are you like most of these buyers who are just planning to do the minimum amount of repairs so they can make a “killing” by pawning it off on some other poor bastard? Unfortunately our American society has evolved into this “Brave New World”.

Being convinced by television infomercials and auctions that anyone can instantly gain riches and the technical skills of investing in risky real estate is dumber than dirt. Americans are currently discovering that the vast majority of people don’t have a clue what they are signing when purchasing a home, the sub-prime mortgage melt down reveals this lack of knowledge. Believing now that these same consumers are investment gurus capable of wrestling property deals away from the big boys are out of touch with reality. The high rollers of real estate investment buy all the good property on the foreclosure market. What usually ends up on the auction block are the dogs!

Do not get snagged by the hype being fed to the general public by television commercials produced by the very same scam artists that hyped people into believing they could afford to buy a house with no money down and refinance it when the prices go higher. The sleazy salesmen holding these “get rich quick” schemes are the ones making the millions.

I watch these foreclosure auctions and my immediate thought is about B. T. Barnum, the famous man of the circus who once said: “A sucker is born every minute”. And the people in the audience are ripe for the picking.

Under the glaring lights of the television cameras and the smooth-tongue auctioneer plus the barkers running up and down the aisles screaming “Buy!, Buy!, Buy!,” this is nothing more than the 21st century equivalent of selling snake oil.

Buyers beware.

Real estate professionals have been surprised to learn that the wave of foreclosure-related incidents, which have been sweeping across the US are not only affecting homeowners but renters as well. Recently everyone has become aware of how the mortgage and housing crisis is affecting mortgage companies and homeowners, not many people realize that renters are being evicted in record numbers due to the fact their landlords have fallen behind on their monthly mortgage payments.

Landlords and banks have no legal obligation to notify tenants when leased or rented properties enter foreclosure. Often times they are unaware that there is a problem until it is too late. Many come home to discover an official eviction notice from the bank posted on the front door.

To make things worse, many of these displaced renters lose out on cash security deposits because some desperate landlords have pocketed the money and vanished. Now the tenants have to come up with extra cash to start over again, which means money for deposits, first months rent, and moving expenses. How many of you have enough money saved to move if you were suddenly evicted?

Those reentering the rental market find that due to a shortage of available rental units, finding comparable housing in the same price range is a challenge. Millions of homeowners have moved from homes because they sold them to avoid foreclosure or lost them to repossession. Those former homeowners are now renting or leasing, adding significantly to the number of renters in the USA. But during the 2000s, as home prices surged, builders and developers focused on single-family construction and shifted away from the creation of rental units. So the rental market is experiencing a sudden spike in demand at a time when the supply is inadequate. That bodes well for investors who are landlords, but puts additional obstacles in the path of evicted tenants quickly and urgently seeking affordable housing options.