When a bank forecloses on a home, they may also be responsible for possessions or trash the former owner leaves behind. Usually, a bank will hire a contractor to take care of the cleanout. Foreclosure cleanouts can be a lucrative business with some contractors earning between $500 and $2,500 per property.
Foreclosure cleanout, however, are hard work and require flexibility since contractors can be called at any time, day or night, for an immediate cleanout. Though all property that is not affixed to the home, such as free-standing appliances, furniture and personal items belong to the homeowner and should be removed upon leaving, this is not always the case. Therefore, it essential that a crew cleanout the home before it is sold.
If any items are left behind after the former owner has vacated the property, the new owner may choose to store them and notify the former homeowner. Some states, such as California, require the new owners to inventory the items left behind and give the former homeowner a list. A deadline to remove the items from storage is usually set. If the former homeowner ignores the deadline, they may lose their possessions.
Contractors working the foreclosure cleanout business also make money selling items that have been left behind if these are not stored. Though contractors should check with their client before selling any items, oftentimes banks want the property cleared and rather not assume responsibility for any items that have been discarded by the former owners.
How to Start a Foreclosure Cleanout Business
For those interested in starting a foreclosure cleanout business, there are some guidelines that should be followed:
- Reference the purpose of the company in the company name. For example, a name like Springfield Foreclosure Cleanouts will let people know what the company does and where it is located.
- Obtain any and all licenses needed to operate a foreclosure cleanout business. Oftentimes, a local chamber of commerce can provide the necessary information. Also, apply for general liability insurance coverage, as well as workers compensation insurance if the company will have several employees.
- Sign up for training courses that will ensure all employees have the skills and know-how to effectively handle the task at hand. If purchasing a franchise of a foreclosure cleaning business, the franchisor will probably provide a training guide, as well as work guidelines.
- Execute an effective marketing campaign. Nowadays, that means having a well-designed website, showing before and after pictures, and taking advantage of all local advertising opportunities. It is also essential to be in contact with banks, real estate agents, and real estate owned (REO) management companies, which handle foreclosed properties.
- Foreclosure cleanout contractors guarantee repeat business by making the properties they handle look good. Banks and agents will notice of the property is clean and easy to sell, ensuring that they will contact the foreclosure cleanout company on a regular basis.
- The cost of setting up a foreclosure cleanout business is minimal since most of the work involves manual labor, such as moving furniture and appliances, removing carpet or tiling, and hauling trash. Other foreclosure cleanout services, such as changing the locks can be subcontracted to a locksmith if necessary.
Among the services generally provided by foreclosure cleanout companies are the following:
- Changing locks on doors
- Debris removal
- General cleaning
- Plastering/drywall repair
- Pressure washing
- Replacing or boarding up windows
- Roof and gutter cleaning
- Securing other entryways
It is also essential that when taking on a job, the client be provided with a contract that clearly states that the foreclosure cleanout company is authorized to enter the premises and is not responsible for the items that are removed during the cleanout. This letter will also come in handy if during the cleanout a disgruntled former homeowner questions the company’s presence on the premises.
Foreclosure cleanout work is considered a retail business; therefore, the company must report any sales tax collected. When cleanout services are provided for properties owned by the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac), these services are considered government contracts and are therefore are not subject to retail sales tax. The services provided by the foreclosure cleanout company would be reported under the government contracting classification. Government contractors are responsible for sales tax on all materials added to the properties. For information on government contracting, visit the U.S. Small Business Administration (SBA). A foreclosure cleanout company is also responsible for the solid waste tax when disposing of debris or trash at a dump or transfer station.
Banks are extremely motivated to hire foreclosure cleanout crews since many cities have passed bylaws that impose fines of hundreds of dollars per day per unkempt foreclosed property since these encourage theft and vandalism and lower the property values of surrounding homes.