Foreclosures: Back to Basics

Foreclosures: Back to Basics

As the market slows, the potential for foreclosure grows. While the market was hot and interest was low, many were paying big bucks for their dream digs. Real estate investing went from a gamble to a guarantee. By using alternative loans like ARM or interest only loans, first time buyers and those with poor credit were able to afford houses. Now, as interest rates climb and the market slows, those with adjustable rates or approaching the end of their interest honeymoon are struggling to make their payments. Whether you are an investor looking for a new angle or a homebuyer on a budget, this is the time to learn the art of foreclosure real estate.

There are several stages in the foreclosure process: the Notice of Default (NOD), Notice of Sale and the Trustee Sale (Auction). The best time to purchase a home is when it’s in Pre-foreclosure, this is any stage prior to auction.

In most states foreclosed homes, while in Notice of Sale, are required to be listed in a local newspaper for several weeks prior to auction. If you’re willing to put a little elbow grease into your investments this may be a good place to start and perhaps contact the owner before the auction. This is probably the best chance to get the home at a good price and in good shape.

Essentially, pre-foreclosure means the bank or lender does not officially own the loan yet and the current owner may be willing to sell you their house at a great deal. Usually by the time the lender or bank acquires the property they will tack on additional fees and attempt to sell the home closer to market value. Additionally, this means the buyer and the seller develops a relationship and are less likely to sabotage the deal in some way.

On the morning of the auction, the home’s bid begins at it’s default amount plus additional fees set by the lender. If no one bids on the home, the lender acquires the property and the property is now Real Estate Owned (REO). It is now up to the mortgage company to sell the property.

One danger of buying at auction is the property is usually bought “sight unseen” and requires full payment within 24-hours. Frequently, when an owner knows their home will be foreclosed, they give up. They know they will be evicted and put absolutely no love into the house. Things like general repairs will go unfinished, lawns can become unruly and sometimes damage is intentionally inflicted just to spite the lender.

Many have turned a healthy profit by investing in foreclosed properties, but like anything else, no matter how good it sounds this is not a get rich quick option. Like any good business there needs to be a certain amount responsibility involved. Like all self-employed businesses there is a great amount of gain and a great amount of loss in this business, so be careful when rolling the dice.

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