from the owner in foreclosure
	at the auction (foreclosure sale); and if the property does not sell,
	from the lender

Obviously, these are entirely different scenarios.  

There is a strong tendency to favor one method over another in your business initially, although experienced investors eventually may use all three methods.  If you are new to buying foreclosures, you will probably start by buying directly from the owner.  

The key to your success is going to be organization.  

Start by using Foreclosure Data software to locate properties in your area that have large equities.  Choose about a dozen candidates, take photographs and enter them into the software.  

Buying Foreclosures from the Owners

Your next step is to contact the owners.  Since 9 out of 10 foreclosures are single family residences, most of the owners can be found at the properties.  There are several philosophies about how to reach owners.  The most obvious is the telephone - if it is listed and if it is still connected.  

Knocking on doors is probably your least efficient way to reach owners, however some professionals will tell you it is the best method of all.  

For some reason, owners in foreclosure are rarely home.  The best methodology is by mail, which is virtually guaranteed to get to the owner.  Keep in mind that it may take numerous letters before you can attract the attention of an owner in foreclosure.  A unique letter will be helpful.  

Generally, your most efficient methodology will be a letter writing campaign.  Using Foreclosure Data, you will find that seventy percent or more properties in foreclosure will have equity at some level.  You should send letters to all of these people.  Further, you will need to send letters repetitiously.  

This is not as expensive as it sounds.  

For $35.00 dollars you can mail 100 letters.  You should have a campaign of sending 200-300 letters per month.  Results are virtually guaranteed if you are consistently mailing.  You only need to send letters to the people on your daily list of foreclosures and you will be successful.  

Every month, a number of people will contact you asking whether you can assist them.  Spending a few hundred dollars per month is well worth it when you can make $25,000 or more for every foreclosure purchased, especially when you consider there is no other overhead.  

Experience has shown that a low key approach, whether in person or by mail, is the best course.  Letting the person know that you occasionally buy foreclosures and that you may be able to help them after evaluating their situation is really the essence of your communication with them.  Although you don't say it, try to convey the impression that you are a non-professional.  

Your goal is to have a meeting in which you can discuss their problem and how to resolve it.  The usual approach is to offer a sum of money in addition to paying the existing arrearages.  You have to leave a significant profit for yourself, and the best way to explain this is that if you take over the mortgage, pay the owner money, fix up the property for sale, and wait for it to sell, you have to receive a profit for your efforts and risk.  

Your ultimate goal, of course, is to pay the owner the smallest amount of money possible for his equity.  Unless you receive this profit, you must move on to other properties.  

But, what if there's no equity?

You have used Foreclosure Data Software to find properties with equity.  However, there is a way to make money with properties that have no equity.   That is to do a short sale with the lender, paying them off at an amount lower than the existing balance.  

In a hot retail market this is extremely difficult because the lender has no motivation to reduce their loan.  But in a soft market, some lenders may be interested in receiving a lower sum and walking away from the foreclosure.  

Remember, foreclosures usually take about six months, causing the lender a significant loss.  Lenders have to pay large expenses to fix and sell properties.  You will also need the cooperation of the buyer in a short sale and normally he will receive nothing, except relief from the foreclosure.  For many this is enough, because of the extreme pressure they have been under.  

Buying At A Foreclosure Auction

If no one is successful in buying a property from the owner in foreclosure, it will go to sale.  You need cash to participate in foreclosure sales.  

Many investors use a combination of their own capital and a line of credit.  The day before the sale, they borrow the amount they believe they will need.  If they don't use the money they return it to the lender or use it for the next sale.  

Since there is no title insurance available at foreclosure sales, you will need to know precisely what is on the property before you make a purchase.  Since you have had several months to get information from a title company, you will know what the liens are, but beware of last minute filings by creditors.  You can check with the title company the day before the sale, preferably in the late afternoon.  

Make every effort to inspect property before the sale, as foreclosure properties are often in disrepair.  You may have to buy property without inspecting the interior.  All sales are final and there is no recourse.  

It is sometime said that foreclosure delivers the clearest title available because it nullifies all liens after the one in default.  But remember, notes and liens ahead of the note in default will remain on the property and become your responsibility.  

As a general rule, you will not want to buy properties for more than 75% of the retail value at any point in foreclosure.  Be kind to yourself, always leaving sufficient profit to make your business worthwhile.  Don't fall into the trap of believing that any property purchased at a foreclosure sale is a bargain.  

Buying Property From The Lender

Sometimes a property does not sell at the auction.  It then reverts to the lender.  Lenders are generally not happy to receive property out of foreclosure since they are in the lending business and not property owning business.  They are usually understaffed to handle property.  

Immediately after the lender becomes the owner, attempt to reach the person who has responsibility to resell the property.  Convince him or her that no one knows the property better than you do and you will buy it immediately - at a discounted price.  

If this price is approximately 75% of the market value, you can borrow the entire purchase price from a hard money lender.  Afterwards you can refinance to a better loan or simply resell.  

You will have to be very persistent with lenders.  They will say paperwork is needed before they can sell the property or that it has not been released for sale, but it is important for you to make contact with the lender early and for you to submit a written offer as soon as possible.  The truth is, they can sell you the property at any time.  

As to price, lenders are obviously going to be less negotiable in a hot retail market, however since you are going to cash them out above their loan in most cases they are being made whole, even though your offer is below retail, so your offer should be interesting at the least.  You will also be relieving them of the necessity for reports, paperwork, inspections, repairs, and other time-consuming procedures.  

As mentioned, try to pay no more than 75% of retail when buying foreclosures.  A common rule is that you will need 1-5% for fix up and 8% for selling, leaving you with about 10 to 15% profit.  If you follow this rule you will always have a healthy profit in the foreclosure business.  

Getting The Money For Buying Foreclosures!

If capital is a problem, you can usually borrow the amount you are paying the seller from a hard money lender who will put a second or third on the property you are buying.  Later, after you have taken title, you can usually refinance to a good long term loan and pay off all debt.  If you sell the property the hard money lender will be paid off.  

Always use a grant deed or warranty deed (or equivalent) when transferring property to yourself.  Never use a quit claim deed.  Also, use an escrow or attorney so that you pay the seller cash only when you are receiving a deed.  

Never give someone in foreclosure money outside of an escrow - you may end up as an unsecured creditor in a bankruptcy with no chance of getting your money back.  

What if there are other liens or mortgages?

Most properties in foreclosure have only the loan that is in default on the property.  But if there are other liens or mortgages, you have an opportunity to create additional equity for yourself.  

You can ask the lien holders for a discounted payoff or they will face the possibility of being wiped out at the foreclosure sale.  Discounts of 50% or more are not uncommon.  In general, these other lien holders will be interested in your offer.  You can even say that you will not do the transaction unless they cooperate, although you may end up going forward anyway.  Pay them off through escrow, so you will know for certain that you are getting the deed.