Success Stories

This is a true story, with only the names and address changed.

Denver — It's 10 am, and the Denver County list of new foreclosures has become available. Miles and Melanie, who head up my staff, get right to work entering the info into our data base, adding the critical data I need to evaluate each property. (Read the details in Make Money With Foreclosures.)

They input for each property the foreclosure (case) number, the owner, and the property address and zip. They put in the NED amount (the principal balance outstanding on the foreclosing deed of trust), the lender and the interest rate. They enter the NED, or foreclosure date.

Drawing on several sources, they input the properties' tax assessed value (TAV). Then they calculate the loan to value (LTV), based on the ratio of the NED and TAV, and input that info. Soon after receiving the foreclosure from the county, they have the data on line, and ready for me to analyze. Time is key in this business, and the quicker you are, the better your chance for success in getting a property when an owner wants to sell.

On this day, three of the 25 new foreclosure properties catch my attention because the NED is several thousand dollars less than the TAV. One in particular seems promising: the NED is $93,588, compared to the TAV of $162,700. Opportunity begins to knock.

I weigh two factors: One, I know that the pay-off for the loan will probably come in at an estimated 10 to 12% more than the NED amount because of back payments, late charges and foreclosure fees. So I would probably have to pay a minimum of $102,000 for the place, not counting cash to the owner or money owed against the property for any liens, other deeds of trust or judgments.

Two, the house is in a desirable Northwest Denver neighborhood, farther than I'd like from the hub of desirable activity at 44th Avenue at Tennyson, but still within a range that might add value above the TAV.

I begin to think this foreclosure might be worth a drive by. My associate Julie agrees, and she's out the door within minutes.

In the office, Melanie quickly orders an O&E (showing owners and encumbrances) that will show any additional recorded liens or judgments on the property. She also researches comparable properties in the area to establish a fair market value (FMV). She phones Julie with her conclusion — the house is worth an estimated $165,000.

By then, Julie is in front of the house. In my operation, we put our observations of a property in our "notes" section so we're all on the same page in evaluating a house. Julie's notes are the basis of the following report.

"Cute frame house," Julie writes. "On the corner, rather beat up, paint peeling, back porch a makeshift disaster, needs new roof. Garage standing, but barely. Basement windows too small for egress."

"I go to door," she continues. "I can see in window, hardwood floors, dated kitchen, only sparse furniture, but dogs barking from basement; must be occupied."

Julie knocks on the door. "Woman answers. Says that Ted isn't here. That she's his girlfriend. That he'll be back at 3:30. I tell her I want to talk to him about the house. She says they're moving. I give her my card."

By the time Julie returns to the office, she thinks the value might be higher than $165,000 because of the area. I agree, but it's a subjective call. The comps don't prove it.

"But there's a good window that overlooks the lake," Julie tells me, "and it's right across from the park."

On that basis, we up our estimated FMV to $170,000. We subtract our costs from that figure: fix-up of $25,000, and realtor's commission and other costs. The question then becomes, how much does Ted want to sell his place for?

Meanwhile, Miles has received the O&E from the title company. The report, which has a small margin of error, shows only the foreclosing deed of trust, with no liens or judgments. There's a caveat, however: there could be liens that have been recorded, but haven't had the time to show up.

Nevertheless, Julie returns to the house at 3:15. She knocks on the door. No Ted, no girlfriend, no dogs.

Nervous now that she's missed speaking with Ted, she drives the neighborhood, returning to the house again and again. Finally, she sees a large van-truck parked out front. She thinks Ted has come back, but there's still no answer at the door, no lights in the house, and no dogs. She stops a man walking by the house.

"I thought that might be Ted's truck," she says, smiling. A smile goes a long way.

"It's mine," says the man. "I park here sometimes."

Julie keeps watch on the property until late, but Ted doesn't show. She drives by it first thing in the morning. The truck is gone, but there's still no answer at the door.

She swings by it again at about 10:30 AM, and sees a large van-truck similar to the one that was parked there earlier. But then she sees that the truck is open, and two men are looking inside. She parks the car.

"Hi," she says, approaching the taller of them. "Are you Ted?"

"Yeah," says a man in his mid-forties.

"I spoke with a woman here the other day," Julie says. "She says you're moving."

The man nods.

"What are you going to do with the house?" Julie asks.

The man shrugs. "Let it go, I guess. It's in foreclosure."

"I know, but you can still bring the mortgage current and stay if you want to," she says.

"Nah, I'm done with it. We're packing up now."

"Well, there's still equity in the house," she says.

"Doesn't matter to me," the man says. "I already got a place in Arizona."

Julie thinks for a second. "I'll give you $500 cash for a Quit Claim Deed to it."

The man frowns. "I wouldn't do anything for 500 bucks."

"No?" Julie says.

"No, but I'd do it for $1,000." he says.

Julie springs into action. She phones Melanie to prepare a Quit Claim Deed, plus a detailed written agreement affirming the purchase of the property, and a plain-speaking statement saying that Ted knows he's selling the property, that he knows this is not an agreement to provide financing or a lease-back, that he doesn't expect to share in any profit from the future sale of the property. (See Make Money With Foreclosures.) She calls me to get $1000 out of the safe. She organizes a traveling notary public. And she's back at Ted's place within 45 minutes.

Ted reads and signs the documents and pockets the cash. "Thanks," he says, "I'm just glad to be out from under it."

Now that's a success story.

At the end of the day, Ted was happy he got the cash he asked for. Could he have gotten more had he listed the house with a realtor? Yes. Would he have done so? Probably not.

The workmen we hired were happy to have been paid to move the junk left in the house, sweep it out and clean up the yard.

The realtor was happy to list the property As Is for $185,000.

The investor who bought it for his rental portfolio was happy.

And I was happy.

Even though I had to install a new furnace to get the sale to go through and extend the closing date an extra month, the transaction was a good one. As I suspected, the amount owed the bank at closing had blown up to nearly $103,000 — about 11% over and above the NED. There were also other costs, but at the end of the day, when the proverbial cash register drawer opened — ka-ching — the net profit was around $40,000.

Now that's a Real Deal.