Beginning in April 2007, I started researching and crunching data related to foreclosures in Los Angeles County.  Back in 2007, the idea was to buy homes at auction to fix and flip.  Happily, I avoided buying any homes at that time because I was outbid on every home I was interested in.  But my experience over the last 22 months has allowed me to compile a solid list of resources for finding and analyzing foreclosures in California.

My research led me to several data providers and to several websites that provide better data and more information than others.  Below, I describe my usual method for analyzing an opportunity, and include the sites I utilized regularly.

Basic Principles

I highly recommend Ward’s site, ForeclosureForum, for getting a basic understanding (or even a more advanced education) of the foreclosure process and the various stages of foreclosure.  This is where I started learning.

From there, I began to explore the sites providing data.

Data Providers

There are several data providers for foreclosure data in California.  The best one by far is ForeclosureRadar.com.  It is a web 2.0 site with an easy interface and timely data (updated daily).  My search criteria included zip codes, type of property, auction/reo, lot size, square feet, date of loan, amount of published bid, etc.  The variables searchable are many, and you must find what works for you.  But FR is a great value at roughly $50/month.

Other data providers include:

County Records Research – A solid provider, but more  expensive and less useful interface. One option to improve this source is to use CRRPro software, but the end result is still inferior in my opinin to FR.

RETRAN – I used this site prior to finding FR.  It has good data, but is less user-friendly.  Still, it is a good option, albeit a bit pricey.

I do not recommend (and will not link to) realtytrac.com or foreclosure.com, or any of the other sites that seem to rank well in google.  I don’t know why anyone would find these sites useful, especially considering that they are (probably) getting their data from one of the above sites, and generally are inferior in every way to the sites linked above.

Researching a Property

There are many sites that provide details about a specific property when you type in an address.  I have used Trulia, LALife, Zillow and Movoto to start my quest for more details.  I prefer LALife because I could get APN numbers, detailed information on square footage, lot size, comps in the neighborhood, sales history, and the birdseye view showing me the neighborhood and the state of the house as of the date on the satellite photo.

I also usually pull up the address on Google, and see what the first few listings are.  If there is anything about the home, the owner, or any other related information, I pull it up.  Otherwise, Iclick through to the map on Google Maps.

You may have your own preference for those sites.  But I do recommend LALife, especially if you haven’t seen it before AND you are interested in property in LA County.

Once I have seen the detailed information, I then go to government sites.  The links here are particular to LA County, but you can probably find similar links for your county.  For parcel information, go here.  For property tax information, go here (accept the terms and search using the APN).

After verifying that you are interested in the property, you can contact a title company to get a report verifying lien priority and title information, or you can research it yourself.  I went to the county building in Norwalk to do the research myself when I started.  But that was time consuming and tedious.  However, I highly recommend that you do this at first AND pay for a title report from a reputable title company.  By researching the title by hand (searching by name(s)), you learn a great deal about the foreclosure process that you really should know!

At this stage, you know enough about the property that it looks promising.  But now you need to put eyes on it.  Did it burn down?  Is it a crack house?  Is it well-maintained?  Is it occupied?

Go see the place and find out.  There is no excuse for not looking.  It is amazing what you will learn by going out and looking at the property.  If you plan to buy at auction, you have to go see the property before you go to bid.  Period.

[. . . to be continued in part II. .  .]

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If you are anything like me (and I can only assume that you are), you would love to have a more money at the end of the month, rather than more month at the end of the money.  So you stay up late, staring at the ceiling, waking up your spouse with bad business ideas and false epiphanies at 2:00 a.m.  Then–fast forward to 3 months later–you still have nothing to show for all your brainstorming.

My God you are sick. . . . . Just like me!

I, however, have a darker perspective from my day job.  I am general counsel at a construction company and I am confronted daily with the inherent hazards and unforeseen risks of doing business in California.  Lawsuits are rampant, regulation is stifling, and your customers are liars or worse!   What kept me up for many nights is the idea of taking on all of that potential liability.  So, I would get a good idea and then fret over how to insulate my existing assets from the lawyers, creditors and customers.

Finally, it hit me.  I would attempt to make a living on the internet.  This being 2008, I only missed the party by a dozen years or so.  I initially felt like the janitor picking up the auditorium at 6:00 a.m. on November 1st, after a Widespread Panic Halloween show.  But hey, I did my research, talked to friends about how they used the internet, and I figured that I would try my luck with a business online.  I have a good plan now (don’t you worry), but more on that later. . .

Selecting The Best Business Entity:

Sole Proprietorship, Partnership, LLC, “C” Corp or “S” Corp

Since I am an attorney, as soon as I decided to start a business my immediate attention went to the choice of entity to utilize and the tax consequences and potential liabilities of each form.  I ultimately elected to use the LLC because (1) it will require fewer formalities to run than a corporation would but still (2) provides some legal protection for the members, and (3) the LLC is not taxed at the corporate level, so all income is taxed at my personal rate.  The downsides of this election are that (1) a corporation has some tax advantages and (2) the corporation provides near certain legal protection for the owners, provided that they do not do something illegal or fail to uphold the corporate formalities and structure.

For me, a partnership was out of the question.  For one thing, I am just one person.  It takes two (at least) to have a partnership.

A sole proprietorship was also out of the question.  No matter how risk-free my new business may appear to be now, anything can happen.  So, I was left with a choice between and LLC and a corporation.

In California, LLCs are very common.  They have survived multiple challenges in the courts.  I am familiar with them because it is a common practice for builders to form an LLC for a single job.  They do this to protect the larger corporation from any catastrophe on a single job site.  Now, you are surely thinking that a corporation would do the same thing.  But the LLC requires fewer formalities and much less documentation to obtain that legal protection.   That combination of legal protection and user-friendliness was exactly what I wanted!

This site provides an excellent discussion of some of the considerations in choosing the correct entity.

Forming an LLC

In California, you can go to the Secretary of State’s website and search to see if your chosen nom de guerre is already in use.  Make sure that you search using the correct box.  I actually usually search in both to make sure that the name is not in use by a corporation or an LLC (you don’t want to violate a trademark or get into a battle about a name).

Once you find a suitable name for your LLC.  You can reserve the name using the form found here.  It costs $10.00, which is a small price to pay to make sure you get the name you want.  However, I usually skip that step and just go ahead and write up the Articles of Organization.  Fill in the form with your information, write a check for $70.00, and send it out.  Your Articles will get there just as fast as your name reservation form, and you save ten bucks.

After sending the form out, I usually wait three or four days, and then I start to check the website (using the name search) to see if the LLC is formed.  When it shows up with your name, you are good to go.

But you still have a little work to do.  First, I apply for a Employer Identification Number (EIN or FEIN) from the IRS.  They now allow you to go through that process online, and it is free.  This is a huge improvement from having to send in the forms and wait.  Believe me.  Secondly, you have to complete a Statement of Information Form for the Secretary of State.  The fee is $20.00.  I usually just wait for the State to send this form to me, but if you are excited, you can fill in the form here and send it in.

Final Documentation

The final step for now, is writing your LLC Operating Agreement.  By the way, if you are not familiar with Docstoc.com, go check it out through that link.  They have great selection and most documents are perfectly acceptable.  Now, I am a lawyer, so I wrote my own Operating Agreement.  If you are not a lawyer, or do not feel capable of doing this yourself–Go talk to a lawyer.  This agreement is everything.  Should any disagreement take place in the future, this document will govern how things play out.  You want it to be comprehensive, but elastic enough to cover unforeseen situations too.  So, go to a good lawyer and spend some money on this.  It is a great investment.

Also, you should go talk to your accountant about your new business.  Doing so now–after formation–will save you many headaches at the end of the year.  I know, I hate talking to accountants too.  

You Are Now The proud Owner of an LLC

There you have it.  Now you have to plow ahead and open a bank account.  Make sure to note your contribution in the Operating Agreement.  And then you can begin to move!

Stay tuned. . . next week, I will outline my Business Idea, and detail where I am in the process. . .

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