Demystifying the Foreclosure Process

How To Be Your Own Bank Pt 2.

Foreclosure can be a daunting prospect for private lenders or mortgage note investors. Misunderstandings about the process often lead people to assume that a foreclosure would automatically result in the loss of their investment. However, this is not necessarily the case. It's important to understand that foreclosure doesn't have to be a bad thing for you as a private lender. In fact, it can actually work in your favor.

For example, if you lend on a property that is worth $140,000 but you’ve only lent out $100,000 (70% loan-to-value), the worst-case scenario is that you, as the lender, will end up with the property back, which is worth at least what you lent. This means that even in the event of a foreclosure, would not lose money.

In the video above, Derreck Long from Quest Trust Company and I discuss the foreclosure process in the state of Texas. It is important to note that the foreclosure process differs by state and so it is important to familiarize yourself with the State foreclosure laws where your deal is located prior to originating a private real estate loan.

The Texas foreclosure process typically begins with a notice of default provided by the lender's attorney. If the borrower is unable to make the necessary payments, the property will eventually go up for auction. The property is auctioned off to the highest bidder, with the minimum bid starting at or near the private loan payoff amount or appraised property value. This can often lead to a bidding war, with the property being sold to the highest bidder.

There are other exit strategies you, as a private lender, can take should no one bid on the property, or should you wish to keep the property instead of selling it to the highest bidder. In the video above, Derrick describes how you can work with your attorney so that you end up owning the property after the foreclosure. In this situation you have many options in front you. You can keep the property as a rental, list it with a real estate agent and sell it off in as-is condition, remodel the property and sell it for top dollar or sell it with owner financing (creating a new private loan for yourself).

The key with private lending is to insure that the property is worth more than your loan amount. As long as you have an equity “cushion” or “safety net” (meaning the property is worth more than the amount you have loaned out against it) the risk of losing money as a private lender is quite low.

While foreclosure can be a daunting process, it's important for private lenders to understand that it doesn't have to be a negative outcome. By being knowledgeable about the process and working with a skilled attorney, lenders can ensure that they are protected and potentially even come out on top in the event of a foreclosure.

If you would like to talk more to Derreck Long and his team at Quest Trust Company, visit https://www.questtrustcompany.com/. Please note that I do not receive any compensation, referral or affiliate bonuses or commissions by sending you to Quest Trust Company.

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