Foreclosure is Not Always the Best Option in a Non-Communication Situation

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Foreclosure is Not Always the Best Option in a Non-Communication Situation

Have you ever had a loan that you tried to reach out and talk to the homeowner only to get less than a stellar response? No? Well, you haven’t worked too many loans have you? 

I am often asked what appropriate responses are to a borrower that refuses to listen. So I always say, “You got three options.  Choose any one and we’ll talk in a week. 

Option 1: you can run around screaming and throwing a tantrum. Maybe someone will listen. 

Option 2: I have some boxing gloves I’ll let you borrow, ok? You can take ‘em to the guy’s house and challenge him to a street brawl right there! 

Option 3: Well, I gotta guy. His name’s Lenny. Lenny “the fish” Scarliotti. He’ll take care of him! Fuggedaboutit!” 

That gets rid of most people, leaving me to talk to the more serious investors with actual answers.  And if you seriously considered any of those three options, I think you might need to look into another pastime, my friend. 

In reality, most investors, if they cannot get the borrower to respond “quickly enough” tend to [start] a process of foreclosure.  They assume that the borrower will be freaked out and come running and crying pleading for a way out. Or, at the least, the investor will happily assume ownership of the home without having to actually foreclose. Sometimes that happens, it’s true. 

Just as often, though, things rather unexpected happen. The homeowner lawyers up and sues the investor. And, unless the investor did everything perfectly by the book, they may well win the suit. Or, perhaps, the homeowner  just abandons the home, sometimes even pulling out the copper, destroying the walls and generally laying waste to the property. This could cost thousands to repair. 

Even if they just move out, it can still cost a lot of money getting the home prepared and kept for future sale. That might have to be done for months as the proceedings for foreclosure happen. 

Really, jumping the shark straight to foreclosure can be one of the worst decisions an investor can make. Instead, let’s look at three rules you should remember when trying to communicate with the homeowner. Before we get into this, it must be understood that regardless of anything else, one thing must be absolutely understood: in this market of non-performing loans, regardless of position, most of them have not been worked in several years and sometimes all it takes is picking up the phone and trying to work something out with the borrower. 

The first rule is this: Get ahold of the borrower before you make any quick move. That might be the rub, though, actually getting ahold of the borrower. There are many ways to do so including blitz campaigns and “shock & awe” campaigns wherein you alert the homeowner of all the options available to you. Remember, do NOT threaten foreclosure unless you are actually going to do so. This first rule is all about persistence. 

The next rule is about gaining an understanding. Even as a “cold-hearted” investor, you’ll need to have a heart and listen to what happened in the homeowner’s experience. When you find out why they stopped making payments, you can often create a solution that is beneficial to all parties. Just because a person has stopped making payments does not make them nefarious and bad. In other words, have compassion. 

Finally, after all other options are exhausted, including face-to-face contact, then proceed with the legal procedures, including foreclosure. When you do so, make sure everything is above board, use an appropriate entity to begin the suit and always follow all the steps of foreclosure.  I’ll talk more about those steps in the future, but suffice it to say the more square you are, the better the outcome will be, which in turn creates a better income.

Unfortunately, this final straw, foreclosure,  is sometimes the only thing that will signal to an investor that you’re playing serious ball.  It’s also expensive and can be a drawn out process. When you attempt to first talk to the homeowner with compassion, you will more often than not save yourself money, stress and even time in getting a return on your investment.

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Saprina is a nationally recognized expert in mortgage and trust deed investing. She has over 18 years of collections and mortgage experience, and has worked debt portfolios for both national financial institutions and individual note investors. She has extensive experience with loan modification, foreclosure, short sales, cash for keys, and mortgage deficiencies. Saprina is a sought-after speaker and readily shares her knowledge and experience.