We are often asked about mailing to “pre-foreclosures” or homeowners that have received a Notice of Default but have not yet gone into the foreclosure process.  We’re not enthusiastic about this strategy for a couple of reasons:
  1. Listsource seems to have limited data, so that forces us to look at local data sources which are often limited in the types of “filters” you can apply to their homeowner data
  2. But the larger concern is that most people in “pre-foreclosure” status don’t have enough equity to sell us their property at the discount we require (at least 30% off the ARV).

To illustrate the issues, we recently looked at the viability of this strategy for Jimmy Huen – our exclusive licensee in the SE Houston, TX area (Sugar Land, Missouri City, etc.).

Jimmy has the option of using a local data source from a company called Real Acquisitions.  They claim to be experts in the collection of this data in that market.  We cannot speak to the quality of their data or the “filters” they have available.  But that’s an example of one of those local data sources that you might have to use due to the limitation of our in-house data source (Listsource.com).

You can use Listsource.com to get a “Pre-Foreclosure” list…. there are some apparent limitations with Listsource.com, but what we can see illustrates some of the issues with mailing to “Pre-Foreclosures”.   Let’s look at that source for Jimmy’s territory in Houston:Tiny-White-Box--Spacer

This is the number of ADDRESSES in this WBH territory:
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Of those, this many are Single-Family Residences (Property Type > SFR):

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That’s a good ratio – means Jimmy doesn’t have a lot of condos or townhouses in those areas.
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There are 2 ways to ask Listsource for Pre-Foreclosure data.  One is via the PROPERTY tab, where PRE-FORECLOSURE is an option in the property menu.
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If we select that, Listsource gives us 236 records:
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The other way is to go to the FORECLOSURE tab, and select DEFAULT (PRE-FORECLOSURE) INITIATED, where we are asked to supply a date range.

We asked for NODs initiated in the last 3 months.  Listsource gave us ZERO!

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We then tried other date ranges, all the way back to the past year and still got ZERO records.

So we tried a different setting – FORECLOSURE EFFECTIVE DATE – and looked for foreclosures recorded in the last 6 months.

This gave us a result of 99 records:

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So – we have those 2 ways to get the data from Listsource – one giving us 236 records and the other, 99 (in the last 6 months).

Now, we want to look at one final filter, which gets at “the real problem” with mailing to pre-foreclosures.  It’s very important that they have equity – unless you are going to attempt short sales (which can be complicated and time-consuming, with no guarantee that the lender will agree to your price). (Note: Licensee Ben Daniel posted on the WBH Facebook page about a strategy of assuming these notes and then owner financing the properties – this could be a way to profit on these deals.  For this article, our focus is on our ability to purchase & flip them for a profit…).

To illustrate this issue we’ll start the larger result we got above (the 236 records) and add PROPERTY >> EQUITY % of 31% or greater.  The count dropped to only 71 (that’s 30% of the total 236 records):

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CONCLUSION:

It’s not unusual to find that certain filters in Listsource will not work in certain counties, because they can’t always get the same data from every county or bank/lender.  This seemed to be that case for the Default Initiated filter in Jimmy’s area – Listsource does not have the data available to support that search feature on the Foreclosure tab.  We were able to find 99 records using one of the other filters on the Foreclosure tab – so sometimes it pays off to try different ways to get at the same answer (ah, I just LOVE Listsource =).

We did get those 236 records using the PROPERTY tab >> PRE-FORECLOSURE filter.  Unfortunately, when we also added PROPERTY >> EQUITY % of 31%+, the number of properties here dropped to only 71.  (And our concern with this search setting is that we have no idea where they are getting that data or what parameters were used to define when a property is in “pre-foreclosure”. This setting is basically a “black box” – we don’t know how it really works.)

71 records is not much and it presents another challenge – the minimum for our fulfillment center is 100 (when using First Class postage) to 200 (when using Standard Bulk postage).

But – unless your strategy is short sales – mailing to pre-foreclosure data without the Equity filter could result in sending direct mail to a group where 70% CANNOT NEGOTIATE A 70% ARV DEAL WITH YOU.

Using an alternative data source for Pre-Foreclosure data

Jimmy might have more confidence in the pre-foreclosure data from Real Acquisitions – they are a Houston company that should have a better handle on that data.  We’re not sure if Real Acquisitions has an Equity % filter.  If they do, that would be great (if it’s accurate data).  If not, Jimmy might end up mailing to that 70% of homeowners that cannot negotiate a deal at the discount rate we typically require.  And if that’s the case, it speaks to…

Our larger concern about mailing to pre-foreclosures

This group is characterized by people with serious financial troubles that cannot be solved by selling their property because they have little or no equity.  Many of them would have to PAY $ AT CLOSING to get out of their houses.  That’s why they let them go all the way to foreclosure; they don’t have any other options.  Someone with 50% equity would be foolish to allow their house to go into foreclosure where they would lose all their equity.  Those homeowners would simply sell the house and cash out prior to foreclosure; of course, this is the group you want to reach, but as you can see (if the Listsource data is valid), there are not many in that situation.  MOST PEOPLE IN PRE-FORECLOSURE HAVE LESS THAN 30% EQUITY IN THEIR HOUSES.  As a result, we have not been a strong proponent of mailing to this list unless an Equity % filter can be used.

We’ve heard of some gurus and coaches that may have workable strategies for working pre-foreclosures, so that’s another option that might avoid some of the pitfalls of simply mailing to people who are in “pre-foreclosure” status.

We hope this helps you in your evaluation of data sources and strategies for the Pre-foreclosure/NOD group.

ADDED AFTER THE ORIGINAL ARTICLE WAS PUBLISHED ~

After posting the article, we considering whether targeting pre- foreclosures might be a more viable strategy in a large territory. In Clark County (Las Vegas; Travis & Janie Schurr), Listsource says 444,000 SFRs, of those 3,843 in “Pre-Foreclosure”, and of those… ONLY 281 (just 7%) have 30% or more equity. Again, we don’t know how Listsource is tagging those as “pre-foreclosure”, but this seems to back up the idea that it’s hard to find a large pool of people in pre-foreclosure who also have equity.

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What do you think?

Have you had success with finding and mailing to “pre-foreclosure” group in your market?  Let us know in the comments to this post back on our private “WBH MASTERMIND GROUP” Facebook page!