In my book “The Reality of Real Estate Investing” I describe 25 of my deals in detail as “Cases in Point”. To emphasize techniques I teach throughout the book. Below is one of the very first deals I did.
Case in Point # 5, Barry
I was looking through the list of properties approaching the
auction one day and came across the address 1255 W. Barry in the
Lake View area of Chicago. I knew the location was a good one. The
judgment amount was about $2,300. The plaintiff was the City of
Chicago. This information indicated to me that the city was
foreclosing on a demolition lien. Although I was not familiar with
the values, I figured the lot had to be worth at a minimum
$30,000. On the drive by, the lot was not particularly impressive.
It was an overgrown corner lot (25’ x 125’) with some debris.
What was impressive was the area.
There was great evidence of development taking place. I decided it
was worth further investigation. I went downtown to research the
court file. I learned that just over five years earlier a Michael
L. bought a five-unit building on the lot from a David J. on
contract. He signed a mortgage note for $21,000. Apparently
Michael let the building deteriorate until the city tore it down.
I set out to locate the owner Michael. I came up with three
different addresses; however, he had moved from each one. I felt I
was at a dead end trying to locate him.
Then I decided to see if I could locate David J. I went to the
phone book. There were about twenty five names. Half-way through
the list I found the right person. I verified that he was the
holder of the note. I mentioned that it looked like he did not
come out of his deal with Michael L. very well. He said, “Yea, he
never made a single payment and ran the building down.”
I said, “Yes, and the city tore it down and is now foreclosing on
the lot. It looks like you are about to get wiped out.”
“Yea,”“ he said. “I had an attorney pursuing it, but it has
been five years, and he has not been able to do anything; so I
guess I’ll just let it go.”
I said, “Well, would you consider signing over your mortgage note
to me to see if I can do anything with it?”
He said, “For nothing?”
“Well, I would be taking a chance because we do not know for sure
if I will be able to do anything or not.” He said, It would not
be worth my time to meet with you.” I said, “What would be worth
He said, “Fifty dollars.”
I said, “OK, I will risk fifty dollars; do you know of a notary
He said, “Yes, at the Currency Exchange around the corner.”
“Great, I can be there in an hour. Oh, by the way, I just
noticed that your wife is also on the note. Will she also be
available to sign the paper work?”
“Well, OK, if it doesn’t take long,” he said.
I called my attorney immediately to ask what paper work I needed
to do to have the owners of a note sign over their interest to me.
It was a simple letter of assignment. I got it together and picked
up David J. and his wife, They lived in a newer town home in the
desirable Lincoln Park area of Chicago. He mentioned to me that he
owned several properties and that he had just made a mistake with
this one. We went to the nearest Currency Exchange. They signed,
it was notarized, and I gave them the fifty dollars. My impression
was that they thought I had just bought something that had no
value. I was very hopeful that I was not wasting my time or money.
I was by no means a seasoned investor at that point. In fact, I
would say I was still green. However, I felt good about what I had
just done. Now I needed a partner because I had no money. I knew I
had to hire an attorney to file foreclosure on my note. That would
be $2,000 to $3,000. I had to pay off the city of Chicago $2,300
for their demolition lien, and there was another couple
thousand in back taxes.
The next night I got a call from David J. He told me that he had
gotten a call from an attorney also interested in buying the note
from him. He said, “Maybe you tricked me and I should not have signed over
my note to you. I want you to give it back.”
I responded, “I did not trick you or do anything dishonest.”
He said, “Well, how about we get together and talk about it before I have to
get my attorney involved?” I told him I would have to consult with my
partner and get back with him. I did, and we agreed that I should
talk to him. When I met with him and his wife, he basically
repeated himself, and I did the same. I pointed out that they
thought they were selling me nothing. I only knew I was sticking
my neck out for fifty dollars and hoping I would be able to do
something to make a profit. We left it at that point and said we
would both give it some thought. I never heard from him again.
I offered a 50% partnership to my attorney, since she advised me
on how to secure the note in the first place. She paid off the
demolition fee and back taxes, and we hired a foreclosure
attorney. About two and a half months later the
foreclosure attorney received a request for a pay-off letter on my
note from an attorney representing Michael L. Apparently still as
the owner, he entered into a contract to sell the lot to a
developer for $105,000, who planned to build a row of
Remember, the face value of my note was $21,000, and no payments
had been made for five years. After calculating all the back
interest and cost we had into it protecting our mortgage note, a
check was cut to me at the closing for $49,500. Minus the $6,000
my partner had put out in expenses. We were left with
$42,500 to split.
All of this took place within three months. It was not bad for a
guy who did not know much but was willing to risk a little and put
forth the effort to make it happen.
Proves the point as so many of my deals have that consistent, persistent effort = Success!