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Overview
There are three main ways one can "work" foreclosures to acquire title to property . . . 1) buying the property from the owners (trustors) before the trustee's sale, or 2) from the trustee by being the highest bidder at the trustee's sale, or 3) from the hapless lender (beneficiary) who got title to the property in the absence of anyone else overbidding their minimum bid at the trustee's sale.

Each of these three arenas have their respective champions trumpeting wonderful things about their chosen niche and why it's the "best" approach. And for them, that's probably true. And ultimately, you'll prefer one approach over the others too. So what's really important is to understand the requirements of working each area and then focusing on the approach that you're most comfortable and successful with. You might even work all three areas if you have enough manpower, leaving no stone unturned in your pursuit of foreclosure profits. Herein are the uniquenesses of buying the property from the trustors before they lose it at the trustee's sale.

Money Requirement
Your hard cash will go much farther in this stage because distressed owners don't have the luxury of time, fix-up cash, or marketing expertise to command the best cash-out deal for themselves. Also you can generally satisfy most secured lienholders on these deals just by bringing their delinquent loans current rather than paying them off completely when you take over.

Your capital requirement per deal has to cover such items as the seller's cash-out, delinquent loan payments, general lien payoffs (usually discounted), cosmetic fix-up expenses, and your monthly out-of-pocket holding expenses.

Your other expenses (property taxes, assessments, senior lien balances, sales expenses, escrow costs, loan fees, etc.) can be deferred and paid out of your refinance/resale proceeds. You can expect your average deal will take about $20,000 out-of-pocket and that your profit will be about $20,000 . . . taking a total turnaround time of about 6 months. So the more capital you have the more deals you can have going at any one time-and the busier you'll be keeping up with it all.

Knowledge Requirement
One way a novice speculator can eliminate a major foreclosure risk is to insist that the sellers provide them with an up-to-date title insurance policy through escrow that discloses all liens and ownership interests pertaining to the property before they invest in the deal. Since it's customary for the sellers to pay the premium you can deduct its cost from the cash you're paying them. Be sure to get a 2 year binder (for a 10% fee) on the policy so you can reuse it upon your resale. At that time you'll only pay a premium on the amount your sales price exceeds your purchase price.

Your walk-thru inspection of the property, plus the Condition Disclosure Report the sellers are required (Cal. law) to give you, detailing the condition and hidden shortcomings of the property, should eliminate the costly unknowns you're exposed to when buying at the trustee's sale.

Once you know what liens there are and the make-up and condition of the property you need to know what comparable property is selling for in the neighborhood. Then from that figure subtract all liens, back payments, late charges, fix-up costs, etc. for an accurate idea of the owners' equity.

Time Requirement
Working with owners before the trustee's sale affords you more than enough time (three months or more) to carefully put your deals together. Thus, without the pressure of imminent deadlines you can really work the business part-time (evenings and weekends) - especially when just starting out. But once you establish a workable routine and have several deals in process your hands will be full and the payoffs too good to continue working for a salary. That's when you'll have proven to yourself you can thrive and prosper in this business--working just for yourself.