The pre-auction acquisition method is a strategy by which you will be contacting property owners directly BEFORE a tax deed auction with the purpose of offering to buy the property directly from the owner.
If a property owner lets his/her property go to auction and it is sold there, in most cases the owner will receive nothing. So by offering to purchase the property before the auction, you will allow the owner to receive at least some compensation for a property that he/she would otherwise get nothing for.
There are a couple of main reasons why a property owner would allow a property to go to auction:
They can’t pay the taxes (financial reasons)
They don’t want the property (perhaps they inherited the property and live across the country and have no use for the property themselves)
Keep in mind that most people who want to keep their properties will do everything they can to redeem the taxes so that they don’t lose the property at auction. The pre-auction acquisition method targets that percentage of people who either cannot find a way to redeem the property or who otherwise don’t want to keep the property.
There are three huge advantages to using this strategy over waiting until the auction.
1) It eliminates most of the competition you would otherwise have at the auction. Auctions are starting to become more popular and more competitive as people realize there is money to be made.
2) You do not have to travel to the county to participate in the auction. The majority of counties require you to be present to participate in any auction for properties that are being offered for the first time. However, with the pre-auction acquisition method, you can buy properties BEFORE they are ever offered at auction in almost all DEED states and you will not have to travel to participate.
3) You get clear title to the property. Some tax sale properties have a litigation period associated with them where a property owner has a very slim chance of overturning the sale of their property. The time period varies from days to years depending on where you are investing. During this time there is a clouded title on the property; you own it but a bank won't lend money to someone trying to buy it from you. A title can be cleared by contacting the county and going through the required process they have in place, or it will just clear in time.
Be aware that the pre-auction acquisition method works best in TAX DEED states (which is GREAT if you want to get properties that you can turn around and sell quickly for a profit). In tax lien certificate states, owners have a 2-3 year redemption period and so they still have plenty of time to come up with the money to redeem their property before they lose it. So they have very little incentive to sell you the property right before the initial tax lien sale.
The first thing you will need to do is determine if the pre-auction method will work in the county you are interested in.
2 Strategies for the Pre-Auction Acquisition Method:
Shotgun Method – In this method, you contact many owners of properties on tax delinquent lists without doing any research on the property itself. When an owner expresses interest in your offer, then you do the necessary research to determine if you want to buy the property.
If you use the shotgun approach, you will complete your tasks in the following order:
Get a list of deed properties that will be available at a sale upcoming in the next 4-8 weeks (this allows you time to complete the process in most cases).
Send out a letter to the owner.
Follow up with a phone call a week later and arrange the sale.
Get the deed to the property from the owner after they sign it and get it notarized.
Research the property and its title.
Record the deed in your name (or your business name) and send the owner his/her money.
Redeem the taxes with the county.
Pre-research Method – In this method, you screen the property lists by doing your research before you contact any owners. You then contact only the owners of the properties you are interested in buying. This is the method John Beck uses.
If you use the shotgun approach, you will complete your tasks in the following order:
1) Get a list of deed properties that will be available at a sale upcoming in the next 4-8 weeks.
2) Research the properties and decide which ones you would like to purchase.
3) Contact the owners of the properties you are interested in and arrange the sale.
4) Get the deed to the property from the owner.
5) Research the property’s title.
6) Record the deed in your name (or your business name) and send the owner his/her money.
7) Redeem the taxes with the county.
There are advantages and disadvantages to both methods.
The advantage to the shotgun method is that you don’t have to spend a lot of time researching properties that may not even be available to you. You only spend time on the ones that are possible deals.
The advantage to the pre-research method is that you won’t be spending money on letters and postage or time creating deeds for properties that you ultimately won’t be interested in.
You need to decide which one will work best for you, or if you want to use both methods. Try both methods and see which one is most profitable.
THINGS TO KNOW
A list should be for an auction happening 4-8 weeks out – this gives you and the property owner time to complete the transaction before the auction. Keep in mind that if you want to get this done before the auction, you have to meet the county’s “drop-dead date” (the last date and time the property can be redeemed before the auction). Not only do you have to work things out with the owner, but you also must redeem the delinquent taxes before the “drop-dead date”.
Criteria for determining who should get a letter should be based on whether or not you can afford to pay the taxes and whether the property owner is a business or individual (go with the individuals).
Some people like to just send out letters to start with. However, calling the owner before the letter is sent can be very useful to determine their interest. If you get a voice mail, do not leave a message. Those calls are hardly ever returned. Try calling three different times. If you cannot reach them by the third try, send out the letter.
Example of a pre-auction letter:
Your Name
Address
Phone #
Date
Phillip Hinesworth
83 Possum Trot Dr.
Shelbyville, TN 58712
Dear Phillip,
My wife and I own several properties in Crabapple Lakes and we are interested in buying several more.
According to the official County records currently available to us, you own the following Crabapple Lakes lot:
Legal Description: Phase 1, Unit 3, Block 8, Lot 2, Crabapple Lakes
The records of the County Treasurer’s Office show that your property has three years of delinquent real property taxes and that it’s now eligible to be sold at the County’s next tax sale (e.g. real property tax deed foreclosure sale).
We know that because of delinquent property taxes and, especially the accumulation of many months of delinquent Crabapple Lakes Property Owner’s Association Maintenance Fees that many of the Crabapple Lakes property owners are abandoning their properties to the tax sale, and, consequently, receiving nothing for them.
If you are going to abandon your property and let it go to the tax sale, then we are interested in buying it. We will become responsible for your property taxes and, additionally, pay you $300.
If you want to sell your property then you must do the following:
1.Sign the enclosed deed, transferring title to your property from you to us in the presence of a notary public (an individual who can usually be found in any bank or financial institution). We will reimburse you the cost of the notary fee as well, which runs between $0 - $15, just let us know the amount.
2.Thereafter, send us the signed deed in the enclosed, self-addressed, stamped envelope.
Upon receipt of your deed we will have the title to your property researched to verify that you have clear title and that the property is buildable. Upon such verification we will send you a check for the $300.00 together with the cost of the notary fee.
If you need to contact us you can either call us at (888) 888-8888 or email us at yourname@gmail.com . If nobody answers the phone when you call then please leave a message together with your name, phone number, and the best times to call you back.
Sincerely,
Your Name
PREPARING DEEDS
You will prepare the deed by going to www.vuwriter.com (you must sign up for this free site) and clicking on forms on the left-hand side of the page. Then you will see abbreviations for every state in the United States. Pick one of those states and there are several documents for each state, including deeds. These deeds have been prepared by a title company and have everything that the different states require for a deed. Find the quitclaim deed for the desired state and click on the deed. A document will appear and you need to copy the information and paste it into MS Word or another word processor so that you can manipulate the document.
You can also go to www.google.com and search for "quit claim deed (state name)" and find many professionally created "PDF" quit claim deeds that are free to download and use.
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