What I Know About Foreclosure

When I started learning about foreclosures, it was actually not at my own direction. I was sailing around the Caribbean on a 60 ft Swan (nice sail boat), when I found out that my Captain had worked in the foreclosure business. Well, not exactly. He had actually had a business buying tax liens from his local government somewhere in Rhode Island. Apparently business was lucrative because in RI you can charge 20% interest on the past due tax bill. That’s a mighty nice return for basically doing nothing!

The reason that foreclosures were involved is that often when people get behind on their property taxes, they will never be able to catch up on their bills. This is both because of the 20% interest I mentioned, but also because property taxes are one of the very last bills we stop paying when we can’t afford our debts. Anyway, when you don’t pay on the lien for a long enough period of time, the lien-holder can force the property to go to foreclosure auction, and ultimately end up owning your house. Sufficed to say, not paying the government when you owe them pretty much always works out VERY badly for you.

Anyway, my Captain clearly had made a good deal of money doing this because he was “self-made,” no more than 45 or 50, and was sailing his boat around the Caribbean instead of working any more. This is when you think to yourself… Hmm.. I need to do what this guy did!

It’s not that simple though. In North Carolina, where I’m from, you can only charge 9% interest on liens you buy from the government, and given that you can make that with a good mutual fund, there’s not much point. What you CAN do, is buy houses at foreclosure auctions and flip them for a nice profit. Often this profit can be 20%-50% of the value of the home… sometimes more. The problem is, this is a much more labor intensive process than buying tax liens because a house that you think is a winner can turn into a dud very quickly. I’ll cover this more later, but for now, on with the story…

So I came back from the Caribbean determined to figure out how I could be a part of this business. I put in a lot of time at my county courthouse (at that time, Orange County, NC) and learned as much as I could. I talked to as many attorneys and other real estate professions as I knew. I ordered internet courses on the subject and read those (by the way, if you’re curious, don’t waste your money). I logged nearly every significant transaction that occurred in my courthouse for almost 6 months before I even decided to set foot in the ring, so to speak. At the end of all of this, I finally felt ready to buy some properties.

Having researched my opportunities carefully, I decided to pursue a condo that was less than 2 miles from my house. It was empty and, as far as I could tell, the owner had completely disappeared. Strangely, someone ELSE had been coming in and remodeling the place already, despite it being on the chopping block. The actual auction had already occurred, but in North Carolina, there is a ten day upset period during which a new bidder can come in and outbid the last bidder. Since the last bid was still about 80% lower than the actual value of the place I figured, “this is the one.”

In NC, you must outbid the previous bid by at least 5% to upset it, and you must have a deposit of 5% of the total price you are bidding. So, on a sunny Spring morning, I rolled down to the Orange County courthouse, check in hand, to upset this bid. What happened next changed EVERYTHING about how I treated foreclosures from that day forth.

Many people had told me while I was researching that they had “tried foreclosures once” and there was no money in it. Based on the next event that befell me, I can say unequivocally that that is not true. When I got to the courthouse, I was offered five-thousand dollars to just walk away. I didn’t have to do anything… just walk away. Think this sounds fishy? So did I… but that’s a whole other story.