6 Must Ask Questions When You Are Talking To Owners Of Distressed Properties

One strategy that can be very rewarding when buying foreclosures is negotiating directly with the owner of the distressed property. These homeowners are often misinformed and unrealistic, and it’s your job as a real estate investor to extract the proper information from them in order for you to make an informed decision on the property.

Here are 6 must ask questions you should be asking in your communication with the owner of a distressed property:

1. How far behind are you? Every state has different laws regarding the foreclosure timeline, so it’s imperative that you understand this process. Using this knowledge when asking the homeowner how far behind on their mortgage they are, you can formulate a pretty good idea as to how much time they have before the lender repossesses their home. You’ll be surprised at how many people do not realize how little time they have left.

This is the lead in question that I use when I first approach the homeowner. It’s a great way to break the ice, and allows them to get comfortable with you before moving on to the more “personal” questions.  Most of the time, you will not get a specific answer, but more of a general time interval, such as “about a year” or “I stopped paying my mortgage when I got laid off in so and so”. When you start talking about events and time, it helps get the homeowner’s guard down, and they start sharing with you in a more open manner.  This information is also a critical element in determining whether this investment makes sense for your business.

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2. What is your mortgage payment? Usually this number is on the tip of the homeowner’s tongue, because they’ve either tried to get the payment lowered, or have complained enough about how high it is to anyone that will listen. Make sure you are one of those listeners. Finding this information out coupled with how many months they are behind will allow you to structure how deep the homeowner is in arrears and add an important factor to your investment equation.

3. How much do you owe? Besides back payments, knowing the total payoff amount for the mortgage is essential when buying foreclosures.  Usually, the homeowner will know how much the initial mortgage was, and how long they paid before they went bad.  If not, simply asking to see their last correspondence with the lending institution should provide all the information you need to get a starting point when doing the negotiation for the property.

4. Do you have more than one lien on the property? Always make sure that you have the entire picture as far as who may be attached to the property in question.  While some homeowners think they are only obligated to pay off a mortgage in first position, second (and even third) mortgages as well as any liens must be factored in when making an investment decision. While you can run an abstract or titles search and find out the whole story, it would help to have an idea before running the report and wasting your time and your money.  The last thing you want to be is blindsided by a large tax lien or a judgment held against the property. Keep in mind that depending on how deep in the muck the homeowner is, there may be issues that they are just not aware of.

5. Are you the only decision maker?  When you are presenting a deal for a distressed property, it’s important that all decision makers are present to hear the offer.  You are spinning your wheels going into your presentation, no matter how polished and convincing it is, without all decision making parties present and accounted for.  If not, no matter how well your deal is received, it will likely get cracked, if not entirely broken.  This means you will have to work twice as hard and take time away from other things you could be doing (like making more deals!). Don’t think for a second that presenting to multiple people will make you feel outnumbered. Your odds are actually better because you will easily see who is in control and who you have to focus on in order to make the deal happen.

6. How much do you need? When it comes down to finalizing any deal with the owner of a distressed property, there’s only one thing that matters- what’s it in for them.  They don’t care about how much they owe, they just want to know how much they could get to move on and into a new life. I never ask them how much they want, because inevitably that answer will only set me back in the negotiations as they will have unrealistic expectations.  It’s important to know the bottom line number that will assist them in getting their feet planted and starting anew. You may not be able to give them everything they want, but you may be able to give them what they need.  Be sure to ask them not once, not twice, but three times with the last time stressing what they really need to make this happen.  You’ll be surprised how the number changes and they have negotiated for you already.

Asking the above 6 questions is your first step in determining the proper tactics needed in order to make a deal happen.  Buying foreclosures requires following a set process, and these questions provide the information needed to choose the best process to follow.

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