Why Bank Failures Can Mean Subvending Contracts For Foreclosure Cleanup Businesses

Did you know that just 60 days or so into 2010, over 20 banks had already failed? In 2009, hundreds of banks across the United States failed. While no one likes to hear of banks failing in communities across the country, it can be good news for foreclosure cleanup business owners and others who operate real estate service businesses (eg, plumbers, general contractors, electricians, etc.). Why?

Because these failed banks are often acquired by larger and/or more solvent financial institutions, which means they need the services your company can offer.

To explain, when a bank fails, it falls in the hands of the Federal Deposit Insurance Corporation (aka the FDIC). This is the initial step. Failed banks go on to be acquired by other banks, as mentioned above, because they have customers that still need to be serviced. This is, in part, why you see the FDIC seal in every bank. They protect the everyday consumer in case a bank fails.

Understanding What Happens When a Bank Fails & Why It Helps Real Estate Services Businesses

Oftentimes, once a failed bank falls into the hands of the FDIC, they contract with larger property preservation companies to handle the maintenance of the failed bank’s real estate assets (eg, foreclosed homes, foreclosed commercial properties, etc.).

And this is where it gets interesting for you, the little to mid-sized foreclosure cleanup business owner. You see, these large property preservation companies are, in many cases, simply taking too long to handle all the requests for foreclosure cleanup work because they are just overwhelmed with the number of properties on their roster.

These properties can’t sit idle just because the bank that owned them failed. They need inspections, yard maintenance, winterization, boarding up, lock changes, etc. And, these larger companies simply can’t keep up.

Add to this – the more banks that fail, the more properties fall into the big guys’ laps. So what do they do? The contract with small to mid-sized foreclosure cleaning companies (like yours!) to help them at least try to keep up.

If you’re one of the lucky ones to be properly set up as a foreclosure clean up business – ie, licensed and insured — you can target those handling failed banks to get foreclosure cleaning jobs.

Who to Target When a Bank Fails to Get Ongoing Foreclosure Cleanup Jobs

As a foreclosure cleanup business owner, you would contact the REO asset managers within acquiring institutions (ie, the FDIC or whichever institution took over the assets of the failed bank).

While it may take some elbow grease to get through to them, getting an “in” with just one of these companies can provide you with all the foreclosure cleaning jobs you will ever need. So it’s definitely worth it to put in the time it takes.

Buying Your Dream Foreclosure For 3.5% Down – FHA HUD Loan

A FHA (Federal Housing Administration) loan is especially suitable for first-time home buyers. The U.S. Department of Housing and Urban Development (HUD) acquires FHA-insured homes which have been foreclosed. HUD homes are made available for sale through websites run by management companies contracted by HUD. Real estate agents who are registered with HUD can present offers on behalf of their clients. The agent’s commission is paid by HUD.

HUD homes are sold on an ‘as is’ basis with no warranty. Since HUD does not take responsibility for any repairs, it is important to have the home inspected prior to making the offer. The down payment for FHA loans is only 3.5%, which is significantly lower than the 20% paid for conventional loans. This down payment can come from own savings, family members, employers or charity organizations. Closing costs for FHA loans are also significantly lower than conventional mortgages. An exception to the 3.5% down payment is the HUD $100 down payment initiative. Buyers can now purchase a HUD foreclosed home with only $100 down payment.

FHA has designed various mortgage loans for the public. Depending on an individual’s ability, one can select either an FHA fixed rate mortgage loan or FHA adjustable rate mortgage loan. There are also other special loans like the graduated payment mortgage loan, energy efficient loans, and other loans for other different needs. However, one of the most popular FHA loan programs is the FHA 203K Mortgage. This mortgage enables individuals to acquire financing to renovate their present homes. In addition, the FHA 203K mortgage can also be used to purchase and rehabilitate a house in a different place. Once the buyer decides which FHA mortgage suits them, they can go ahead to apply for the loan. Professional advice for choosing an appropriate loan can be provided by a mortgage loan broker.

Despite the friendly terms of FHA mortgage loans, individuals have to fulfill certain FHA mortgage guidelines. These requirements are in accordance to federal guidelines. To get an FHA loan, one must have been in stable employment, if possible with the same employer, for two years. The borrower should have a minimum credit score of 580, and a debt-to-income ratio of less than 41%. Monthly payments should not exceed 30% of the borrower’s salary. FHA will allow individuals to purchase a home three years after a foreclosure, and two years after a bankruptcy.

Since FHA loans are insured by the federal government, they come with competitive interest rates and lenders are likely to give friendly terms that will simplify the process of getting a loan. Even with less-than-perfect credit, FHA loans are easier to obtain than conventional mortgage. In particularly designated areas, K-12 teachers, law enforcement officers, emergency medical technicians and fire fighters can buy a home at price 50% less than the listed price. In addition, evacuees from hurricanes Rita, Katrina or Wilma can buy a HUD home at a discounted rate.

What Is a Lien and Foreclosure?

A lien is a notice attached to your property which puts everyone on constructive notice that a creditor has a claim. A lien is typically a filed and recorded in the county public records (if involving real property) or with the secretary of state (if involving personal property). Why does a lien help a creditor? Well… in order to sell or refinance the property, the borrower’s lender is going to require clear title on the property as a prerequisite to the loan. Thus, a lien existing on your house has the negative effect of clouding the title and thus prevents you from selling your property. In order to clear title on the property, you must pay off the lien and have a release filed in the county public records putting everyone on notice of the discharge of indebtedness. If the lien is not paid off, certain lien holders can choose to foreclose on the property and recover what they owe.

The 7 Most Common Types of Liens

Property Tax Lien: When a homeowner fails to pay the taxes on his property then the city or county in which the property is located has the authority to place a lien on the property and force a sale if the taxes are not paid.

IRS Lien: An IRS lien is filed by the federal government for the failure to pay your taxes. If you happen to have equity in your property, the tax lien can be paid out of the sales proceeds at the time of closing. If the home is being sold for less than the lien amount, the taxpayer can request the IRS discharge the lien to allow for the completion of the sale. The taxpayer can also can ask that a federal tax lien be made secondary to the lending institution’s lien to allow for the refinancing or restructuring of a mortgage.

Mechanics’ Lien: A mechanic’s lien is a statutory lien that secures payment for services and labor and materials related to improvements performed on real property. State statutes creating mechanics’ liens vary by state. These statutes provide for the criteria and circumstances required for creating, filing and perfecting mechanics’ liens. Mechanic’s liens are usually classified as super liens meaning they may be superior to all existing liens previously recorded against real property, including a mortgage lien intended to be a first priority lien.

HOA Lien: Homeowners that live in a covenanted community will often be required to pay a periodic fee to the HOA to cover maintaining the community. For example, the HOA will collect fees to pay for things like landscaping, security, or maintaining the common areas such as pools, tennis courts, workout rooms, and clubhouses. To determine the amount that each homeowner must pay, the HOA will typically develop a budget and divide the total expenses by the number of homes in the community. The homeowner must pay his share on a predetermined basis throughout the year. Additionally, the HOA may levy special assessments for one-time expenses if the HOA’s reserve funds are inadequate. For example, an HOA may levy a special assessment to pay for a new road that is damaged or to replace the guard gate. If the homeowner becomes delinquent in paying their monthly fees or special assessments, a lien will be filed by the HOA and automatically attach to the homeowner’s property. This lien cloud’s title on the property and can be foreclosed in order to satisfy the debt.

Judgment Lien: A judgment lien is a type of lien that is created upon recording when a lawsuit is won against you and then attached to your property in order to receive payment upon the sale of it.

Utility Lien: A lien filed upon a property by the city or utility service for failure to pay a utility bill such as water or electricity.

Divorce Lien: A lien filed upon the property as the result of a divorce decree.

Are all liens the same?

No! Liens vary in kind and in priority. Priority is critical to a lender, and the benefits to having a first priority lien such as a first lien mortgage on the property are very important. A lender holding a senior lien in the form of a mortgage on real estate is entitled to repayment of its debt from the proceeds of a mortgage foreclosure sale before the repayment of any junior lien holder. This is very important because a foreclosure extinguishes all interests in the collateral (aka the house) that are junior to that mortgage.

What is the foreclosure process?

The foreclosure process differs from state to state. In Florida (a judicial foreclosure state), the lender files a lawsuit by way of a complaint with the clerk of courts and serves along with a summons to the borrower. The lender will include any other junior lien holders in the complaint in order to foreclose out their inferior interests such as co-borrowers or unknown tenants that may have a leasehold interest in the home. Once the borrower receives the complaint, he has 20 days to file an answer. If not, the lender will file for a default judgment. However, if the borrower files an answer, then the lender will either file subsequent affidavits in supporting his position and refute any affirmative defenses in the borrower’s answer. If the lender was unable to obtain a default judgment, a lender will likely file a motion for summary judgment. A motion for summary judgment can end a case if the lender is able to show that “no genuine issue of material fact exists and that it is entitled to judgment as a matter of law.” Most foreclosure cases end this way simply because the facts are not in dispute and entitlement to judgment is easily established as a matter of law. If the lender prevails at summary judgment or at trial if the judge failed to grant summary judgment, then the lender is granted a final judgment for a foreclosure. The judgment sets a sale date of the foreclosure (typically within 60-90 days). It is up to the lender to publish in a newspaper for two consecutive weeks prior to the sale the date and time of the foreclosure. Proof of that publication is needed to ensure all other parties received constructive notice of the sale. At the sale, the property is then sold to the highest bidder with the lender receiving a credit for his bid up to the final judgment amount. The borrower then has 10 days after the sale to file an objection to the court issuing a new certificate of title to the property in the name of the prevailing bidder. Upon recording of the new certificate of title by the clerk, the prior homeowner must vacate the property. If the homeowner does not vacate the property, the new owner may evict the old homeowner by filing a motion for writ of possession and sending the sheriff out the property to execute the writ. The sheriff will post the writ on the property giving the prior homeowner 24 hours’ notice to move out. If the homeowner does not move out, the sheriff will physically make you vacate the premises.

How to Add "Commercial Trashouts" to Your Foreclosure Cleanup Business

According to an article from DS News, an in formative real estate publication that focuses on foreclosure trends and other aspects of the mortgage default servicing industry, $23 billion dollars in commercial mortgages will come due this year. This translates into the fact that right at two thousand commercial mortgage loans are set to mature over the next year.

Of those, over thirty percent will likely NOT pass their refinancing tests, according to Fitch Ratings, a global rating agency that focuses on data, research and credit opinions for the world’s credit market and investors.

Commercial Business for the Trashout Industry

What does this mean for the cleaning foreclosures industry? In a word, PROFIT!

A foreclosure cleanup business provides services ranging from interior and exterior repairs, to maintenance, debris removal, securing properties via the boarding of windows and doors and changing locks, to occupancy and vacancy inspections, painting and more. Much of the banter around the foreclosure cleaning industry focuses on residential trashouts and maintenance; however, with the unfortunate dose of commercial mortgages scheduled to head for trouble this year, foreclosures cleaning on the commercial front can be a solid outlet for business contracts for new and existing foreclosure cleaning enterprises.

Commercial trashout and cleanup accounts can stem from office buildings, daycare centers, gas stations, retail stores, restaurants, multi-unit apartment buildings, and similar real estate.

Less Competition in Commercial Foreclosure Clean-outs

Commercial foreclosure cleaning accounts will have less competition because most businesses in the industry focus on residential trashouts.

Simple to Add Service to Existing Business

A foreclosure cleanup business owner can add commercial foreclosure clear outs to their list of services easily by simply ramping up on equipment and supplies and targeting professionals who handle commercial foreclosures.

For example, as a trashout business owner, start by compiling a list of commercial real estate brokers in your geographical area and reach out to them. Also, do a little digging and create a list of commercial lenders in your city and contact them about your cleaning foreclosures business. Use the term, “Commercial Foreclosure Cleanup” in your literature and conversations with the professionals you contact.

Also, by browsing business sections of newspapers to see what’s going on in the industry in your own town and keeping an eye on real estate multiple listing services online, you can fast become familiar with commercial foreclosures coming down the pipeline.

Win Mind Share and Ask for “the Sale”

Stay in touch with the listing brokers and agents of these properties. Win “mind share” by reaching out to them consistently with professional material and following up with a phone call to see if they have any questions about your services — and to see if they need you to give an estimate on a commercial property. Always ask if they have a property needing an estimate. Ask for “the sale” every time, at the end of every conversation.

Network for Consistent Business with Larger Payouts

Also, consider networking at Chamber meetings, business breakfast meetings, realtor gatherings, etc., and announce this new commercial division of your cleaning foreclosures company.

Commercial transactions usually have a bigger payout, are more formalized, and can lead to consistent work once you’re in good with a broker or lender.

How Commercial Differs

Note that commercial cleanouts will differ from residential cleanouts in that you will likely be dealing with larger spaces, smaller timeframes, and likely addendums to any contract you may present for signature. Also, you may have to work around security systems (i.e., a business being foreclosed on may be housed in a large commercial building, and your entry and exit may have to coordinate with front lobby security).

Further, you may have to clean industrial-sized equipment. For example, in cleaning a residential home, you’ll be accustomed to cleaning standard-sized stoves, dishwashers and refrigerators. However, in handling cleaning and trashout duties for say, a restaurant, you’ll be working with restaurant-sized freezers, refrigerators, stoves, hoods, and the like. This means your cleaning solutions will need to be stronger and you’ll need more of them.

Be Aware of Environmental Rules

Also, in handling commercial cleanouts, you may have to dispose of materials you won’t necessarily come across in a single family home. For example, with restaurants, you may have to dispose of tubs of cooking grease. Simply review environmental rules to ensure you’re following proper procedures in disposing of materials that may be hazardous to the environment.

Roll-off Container vs. Vehicle

Another factor in working with commercial trashouts is the sheer amount of furniture and materials that may need to be removed from a unit. For example, if you’re cleaning out a daycare center, you may have desks, chairs, books, file cabinets full of papers, toys, mats, etc. to dump. Ensure your vehicle is large enough to handle the job, or consider renting a roll-off container for the yard.

Lucrative Aspect of Your Business

There are several factors to consider if you decide to venture into commercial foreclosure cleanup. But with billions of dollars in commercial mortgages maturing this year alone, it can be a lucrative aspect of your foreclosure trashout enterprise.

Much success to you on the commercial front of the mortgage services industry!