Page 14 - From Ghetto to Gucci: The Basic Principles of Flipping Houses

So now in California, you have a house that’s going to sale as a foreclosure. How do you find
out the information about whether or not it’s a first or second loan that is going to sale? How do
you find out what other liens are on the property? To find out, you’ll have to make good friends
with your local title company, and order a title report on the property that’s going to sale. Getting
a title report will cost between $100-200, but is usually free if you sell the house through that title
company. On this title report, you will see every lien that is registered against the property, how
many loans are on the property, and everything against the property that will give you a clear
view of what the legal ownership of this property looks like.

Because when you buy at a foreclosure sale, you’re not just buying the property, you’re not just
running the risk of taking on other loans if you buy a first or second, you’re also taking on other
liens. In California, you run the risk of taking on a variety of liens. Tax liens, IRS liens, business
tax liens, mechanic’s liens, garbage liens and lis pendens will all stay with the property after you
purchase it. This means that if you purchase a property with $5,000 in garbage liens, $3,000 in
IRS liens, $2,000 in personal tax liens, etc, you are responsible for that full amount. There is no
getting around paying those fees eventually.

Foreclosures are a messy business. Foreclosures almost always have additional costs beyond
the mortgages. I’ve seen foreclosures that have happened because the main breadwinner was
arrested, because heirs inherited the property and did not pay any costs, because businesses
catastrophically went under, etc. There’s no getting around the fact that most foreclosures are a
result of a complete financial catastrophe, so they usually carry the costs of that financial
catastrophe in the form of liens beyond the mortgage.

If you go to a foreclosure sale, you’ve got to understand that the odds are high that you’ll have
to take care of liens as well. Rarely will you find a house that you only need to pay the “sticker
price” for at a foreclosure sale.

But regardless, if you’ve got that title report, you know about all of the liens that are on the
property. You know what additional costs you’ll have to pay beyond the purchase price of the
house itself. You’ll use those liens to calculate the true cost of the house.

Once you’ve got this total cost of the house, you’ll be able to focus on the other aspects of
finding foreclosures, how to quickly calculate repairs to foreclosures, and how to bid at auction.

Foreclosures – Assessing Value

When you buy a foreclosure, not only are you assuming liens on the property, but you’re also
assuming other risks as well. You’re assuming the risks of an unknown property, because it’s

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