Pssst - Wanna Be a Real Estate Millionaire? (Part11)

Chapter 11: Getting the deed

The term “Deed” means title to the property. In some states, it is called a Grant Deed (not to be confused with Trust Deed which is another form of mortgage). Your objective is to either get the deed itself or get some sort of recordable option on that deed. We’ve briefly discussed these concepts above. Now it’s time to go into some detail.

As difficult as this may be for you to accept, I (and many, many others) have actually had people just give me the deed to their property. For legal purposes, I’ve given them anywhere between $10 and $100 in exchange, but for all practical purposes, I got the property for nothing. In every case, the former owner had problems, either with the property itself or in some personal aspect of their life that made the property ownership a burden to them. By giving the property to me, they seemed to feel that they had eliminated those problems. In some cases, there was a fair amount of equity. In others, they were behind in payments and facing foreclosure. The only property I will not accept is the one that may be subject to the Superfund clean-up requirements. This is a complete subject unto itself, but just be aware that if a prior owner has dumped hazardous materials on the property, you will be required to pay for the cleanup. That can become prohibitively expensive.

There are several but separate circumstances where “Getting The Deed” is important. The first is simply “outright.” You might have approached a prospective seller with the question: “Will you sell me your house for what you owe against it?” That’s no different than buying a car by taking over the existing payments. It’s certainly one of the “Nothing Down” examples. If the owner simply gives you the deed, you now have several choices. You can turn the property into a rental in which you have no upfront investment. The cash flow would pay the mortgage and property taxes while you’d enjoy the tax deductions.

Perhaps you could flip the property to another investor or to an end-user and make a nominal mark-up on the difference between the existing mortgage and the sale price. Maybe the house needs significant repairs and you would market to a rehabber. Possibly the property only needs modest cosmetics and you could then market it as a pretty house. The possibilities are endless. You have no money invested so you have no risk. Just accept the fact that many investors obtain deeds to property with no money: not their own and not that of a financier.

Frequently, you will encounter people who are behind on their payments and may already have received a notice of default (NOD). You will be happy to try to help this property owner, but you must first obtain the deed to the property. Then you attempt to market the property to another investor or end-user with the idea of using the proceeds to bring the payments current and ultimately have the new buyer refinance and pay-off the old mortgage. Then and only then does the former owner get completely off the hook. It is most important that you inform the previous owner that you will not personally be making the payments nor bringing the payments current. You will do your level best to find a suitable buyer who will ultimately be able to pay off the old mortgage and thus release the former owner from that credit responsibility. Note that you have not made any promises you can’t keep, you’ve not written a check and you’ve not assumed responsibility for the bank loan. As such, it’s pretty hard for you to lose anything except perhaps the time you’ve devoted to this effort. If you are unable to find a suitable buyer, you can simply return the deed to the former owner.

If a property is not saved while it is in the NOD phase, the next step is foreclosure. There is always a period of time between the actual filing of the notice of foreclosure and the foreclosure itself. When you encounter this situation, you will still get the deed but you will now contact the lender who is in the process of foreclosing and request what is called a short sale. You do not tell the lender that you have the deed. You tell the lender that you are a friend trying to help the property owner save their credit. You contact the Loss Mitigation Department of the lender and request their short-sale package. The details of how to specifically do this is beyond the scope of this chapter. What you accomplish, however, is to get the lender to reduce the amount of the outstanding loan. Suffice it to say, the lender does not want to repossess the property and would be happy to work out some sort of settlement. There may also be a second mortgage and perhaps even a third or fourth. You negotiate with every lender to get them to reduce their claims on this property. Once you’ve obtained the signed offer to reduce the amount owed, you can proceed with the marketing of the property. Please note you’ve converted a property that probably had no equity into one in which equity was created by simply getting the bank to reduce the amount owed on the property.

NOTE: Stay tuned for Part 12 - Options & Lease Options