Vacant, foreclosed homes have a negative impact on neighborhoods and communities. Banks and other mortgage lenders frequently want to get these properties sold as soon as possible. Because of the nature of foreclosure, it is often necessary to remove the personal possessions and debris left behind by the property's previous owner. If you are in the cleaning or junk removal industry, foreclosure cleanout contracts can be a lucrative revenue stream.
What are Foreclosure Cleanouts?
When a property owner is unable to make his or her mortgage payments, banks have the option of foreclosing the mortgage, evicting the owner or his or her tenants and taking possession of the home or building. After the eviction, it is then up to the lender to sell the home to someone else.
Relations Between Lenders and Property Owners
In an ideal situation, lenders and property owners work together to make the foreclosure and eviction process run smoothly. This may even mean that a lender will agree to not foreclose on a property in exchange for the owner giving up his or her rights to the property and moving out voluntarily. Lenders will even sometimes pay cash to owners who agreed to leave voluntarily and leave the home in excellent "broom swept" condition. This means that all personal property has been removed from the home and that it has been cleaned so that it can be shown by real estate agents to possible buyers.
Unfortunately, these amicable agreements do not always happen. In some cases, owners or tenants refuse to leave a property voluntarily and may not even be prepared for a sheriff's eviction. In other cases, residents will simply abandon the property and move elsewhere. As a result, a foreclosed home may contain personal property that belonged to the previous occupants.
Personal Items, Debris and Damage
Personal property usually needs to be removed before a bank or lender is able to put the home back on the market for sale. Other factors that may need to be considered include the possibility that a home has been structurally damaged by an angry owner or tenant, that the home may contain potentially dangerous debris such as drug paraphernalia or that the place has been infested with insects or rodents.
Because standard moving and cleaning companies are usually not equipped or willing to take on jobs involving the removal and disposal of large amounts of personal property cleaning up debris or dealing with structural issues, some junk disposal businesses specialize in foreclosure closeouts. If you operate a junk disposal business, learning how to find and bid on jobs can greatly increase your profits.
Foreclosure Cleanout Considerations
Cleaning up a home after a foreclosure isn't just a matter of moving personal possessions from one property to the next, nor is it as straightforward as a typical junk removal project. There are several factors that you will need to consider when deciding whether to take the job, training your people and writing up a bid. Here are some of them:
While many properties in foreclosure are perfectly sound and safe to enter, some of them are not. This may be due to the fact that the previous owner allowed the property to fall into disrepair or because an angry owner or tenant has damaged the building in an attempt to take revenge on the lender.
A third reason why a foreclosed property may be structurally unsound is that some lenders failed to properly secure the property after an eviction. This can result in squatters, vandals and thieves entering the property and causing significant damage. If you suspect that a property may be unsound, request that the lender have the property inspected before you and your team enter the premises.
Infestations and Hazardous Materials
Foreclosed homes may contain hazardous materials, such as used hypodermic needles, chemicals used in the manufacture of drugs, human or animal waste and vermin infestations. Personal protective equipment, such as heavy boots, gloves, face masks and goggles can provide some protection against these hazards. However, there are some hazardous waste issues that need to be dealt with by professionals. If that is the case, you will need to contract with a company that is experienced in decontamination before you can proceed with the cleanout.
Junk Storage or Disposal
You will need to determine what you are going to do with items that you retrieve from the home. In some cases, the lender may want you to place these items in storage so that the previous tenant or homeowner can retrieve them at a later date. In other cases, it will be up to your company to dispose of the personal property that you collect.
As a foreclosure closeout company owner, it will be up to you to develop relationships with recycling centers, charitable organizations that collect items for resale or distribution and junkyards. After the cleanout, you'll be responsible for sorting out these items and dropping them off at their respective destinations.
Vacant buildings can lose their value quickly. As a cleanout specialist, flexibility is key. You'll need to ensure that your vehicles are reliable and that you have a team that is ready to go to work on very short notice.
Finding Foreclosure Clients
If you are just starting your business, finding foreclosure clients can be a challenge. While your first instinct may be to identify banks looking for foreclosure cleaners, this may not be the best approach. This is because banks and mortgage lenders are in the business of lending money, not clearing out and selling houses. While you may be able to work with smaller banks and mortgage lenders, particularly if you have connections with their ownership or management, you may need to look outside the banking industry for clients.
A better approach would be to seek out REO real estate agents and brokers. REO means “real estate owned,” and REO agents and brokers specialize in the sale of foreclosed properties. These agents and brokers are typically hoping to turn over properties quickly and will be in need of reliable foreclosure cleanout specialists.
Other possibilities for finding clients include developing relationships with contractors, locksmiths, board up companies, movers and housecleaning services. locksmiths and board up companies are often called in to secure foreclosed properties after an eviction. They may be willing to suggest your services to a lender or a real estate agent. The same is true for contractors who may be asked to make repairs to a damaged property.
Movers, Cleaners and Developers as a Source of Referrals
Movers and housecleaning companies can also be a good source of referrals because they may be contacted by novice real estate agents or bank representatives to handle a cleanout. These businesses may not be able to handle a full foreclosure cleanout, but may be happy to refer your company to callers. In addition, housecleaning companies may be willing to offer follow-up services after your crew has completed the cleanout.
Another source of business may be developers or property buyers who agree to purchase foreclosed properties on an as-is basis. These companies and individuals typically purchase foreclosures at very low prices and then either rehab or rebuild the property so that it can be sold to a new owner.
Finding these individuals and businesses can be a bit of a challenge: Counties often publish notifications of foreclosures as well as real estate sales. You may be able to get the names of purchasers from these notices.
Before approaching possible clients, make sure that you are appropriately licensed, insured and bonded to perform cleanout and junk disposal services. Your local Small Business Administration office or municipal business licensing agency can provide you with information about the types of licenses and permits you'll need to operate legally.
Preparing the Bid
Don't bid on cleaning foreclosed homes until you have reviewed the properties you'll be working on. Unfortunately, it is not unusual for banks, buyers or real estate agents to understate the amount of work needed to clear out a property. When considering a property bid, take into consideration the size of the property itself as well the nature of the property that needs to be cleaned or removed.
For example, if you will be hauling out large appliances, such as refrigerators, stoves or washing machines, you will need a larger crew and perhaps special equipment for removing these items safely. You will also need to consider what junkyards or recyclers will charge you for disposing of these items.
Other considerations include the number of crew members you will need for the job, the length of time that it will not only take to complete the job but also transit time to and from the job site as well as waste disposal facilities.
Foreclosure Cleanout is Not House-Cleaning
Foreclosure cleanout services are not house-cleaning services: As a cleanout company owner, you are primarily concerned with moving property and debris out of a home. You may offer house-cleaning as well, either by your own team or via subcontracting with a third-party company. In either case, your proposal should treat house-cleaning services, if any, as a separate service that is billed accordingly.
- Check with your local small business administration office to determine what licenses and permits you will need to legally operate your foreclosure clean-out business. Depending on where you live, you may need to register with your state's department of revenue and secretary of state, as well as with local offices.
- Locate local sources for clean-out equipment, such as dumpsters and storage units, and obtain pricing for the equipment. This can help establish proper pricing for foreclosure clean-out jobs.
- Establish business relationships with subcontractors before bidding on foreclosure clean-out jobs. Some jobs may require services that are not within your abilities, such as electrical wiring, plumbing repair or drywall replacement.
Lainie Petersen lives in Chicago and is a full-time freelance writer. She has a long career in business and media and focuses her writing on business, legal, and personal finance issues. She holds a master's degree in library and information science from Dominican University.