Many Market circumstances make it a perfect time for small to medium real estate investors to purchase 1 or more foreclosure homes for their personal residence, resale or rental
Information is King
The beginning investor should learn to navigate the foreclosure process. If you put the time and effort in it will translate to savings. If you spend five hours a week researching, it is well worth it.
For many consumers the foreclosure process can be very disheartening. Good properties are obtainable, but finding those properties demands research, preparation, doggedness and patience. The foreclosure process starts when a property falls in arrears on a mortgage loan. Numerous owners of property that fall into foreclosure have been struggling financially for a year or more before they give up, which normally means that the house has not been receiving general maintenance for a while.
This might include everything from missing doors to ripped out kitchen sinks. Remember front yards, broken appliances and windows, and dirty floors, carpet and walls are found in even the wealthy areas of foreclosures. This could be a positive or a negative for a home buyer. Homes in poor condition might fetch bargain prices, but if you make the repairs and then resell the property you might just make a small fortune. The 1st unwritten rule of real estate is location and does apply to these situations. If you walk into the home and trash is everywhere, but the foreclosure is in a rich area with high resale values, just hold your nose, walk through the entire home and look at making an offer well below asking.
Investing in Foreclosures
Once a house has been located, search public records. You'll need to look for outstanding liens on the property, since these will often drive up the price of the purchase price. Liens are generally placed on a house for outstanding property taxes. Be sure to also pull comps (sales in the area) to help asses a true value and the likely profit.Explore local state foreclosure laws. A few states such as Pennsylvania and Ohio do require the mortgage lender to sue the homeowner and get a court order to sell the house, a process known as judicial foreclosure. There are other states including Texas and California which follow the non-judicial foreclosure process, which does not need a lawsuit to sell.For beginner investors, buying from the mortgage lender is the safest way to purchase. Virtually all foreclosures are returned to the bank or investor during auctions. While homes in great locations and in respectable shape generally do not sell to far below market, rundown homes, however, can be picked up well below market.
Safest Way to Purchase Foreclosures
Lender owned homes provide the safest deal for buyers who are new to foreclosures. There's no risk of taxes, liens or tenants to evict, only what shape the property is truly in. A mortgage lender who is anxious to sell just might be willing to offer very attractive terms.The mortgage lender might offer to finance the home at interest rates under the market or even allow a lower than normal down payment. If the mortgage lender has already ordered an appraisal and their deal includes title insurance, which is normal, then much of the risk connected with purchasing foreclosures early in the process can be avoided.
Foreclosures do not have to be previously owned homes, a few foreclosed properties are brand new. These homes are not as easy to identify and rarely appear on national lists. In many areas, when the economy slows it leaves many builders of new mid to upper end properties over extended with few buyers or prospects. When this happens, the banks that supplied the construction loans take possession of the properties and then attempt to sell them. These are the famous hidden foreclosures because no one associated with the sale of these homes will refer to them as foreclosed properties.
Innovative investors often find homeowners who are about to go into default and are attempting to keep some of the equity in the property. If found in time the homeowner is ordinarily willing to receive a small percentage of the difference between the equity and the homes market value. Pre-foreclosure buys do offer outstanding bargains but they require persistence most of all. Creditors are often hounding homeowners at this stage, so it can be very trying to actually get through to the homeowner. If the homeowner is contacted, the buyer could be in for a big surprise. Homeowners in default might not have phones or electricity, and they might have a variety of personal and legal problems. What's more, they more than likely need some place to live before they can move out of the house the buyer wants.
This can be a high risk, high reward proposition, and is not for first-time foreclosure buyers.
Many auctions happen on the county courthouse steps, and they present two distinct disadvantages: Buyers may not be able to inspect the home, and they will have to put up the entire purchase price the same day. HUD runs auctions to help it unload properties it has acquired through defaults on federally backed mortgages. The great deals are hard to find if you go this route, but the cost of getting started with good credit can be very low as many mortgage lenders will loan the full price of the foreclosure or more.
If the property is to be used as a rental, many banks may require as little as 10% down. Foreclosure properties purchased in good areas at below market values that appreciate yearly can be a strong investment strategy for many buyers. properties used as rental properties give many investors valuable tax deductions while the house increases in value and builds equity.Article Source: http://EzineArticles.com/2012137
The most likely result in the foreclosure process is that the homeowner will lose ownership and then possession of their home. However the foreclosure procedures vary depending on which state of the USA.
Let me explain. There are two types of foreclosures and each state of the USA follows either of these procedures.
1. Foreclosure by Trustee Sale.
When a property is purchased in the states that follow this foreclosure procedure, the county issues a deed which a trustee holds until the mortgage is paid. When the homeowner defaults on the house payment, the bank or lender notifies the trustee to begin foreclosure proceedings. The property is sold and the proceeds from the sale goes to the lender to cover the loan.
2. Foreclosure by Judicial Sale.
In the states that follow judicial foreclosure, when the homeowner defaults on the house payment, the bank or lender files a claim for the balance of the loan from the homeowners. The courts work out the settlement but this can take up to six months or even longer to resolve. During this time, unless the borrowers can work some solution out with the bank, the chances of losing the home is excellent.
So what happens when homeowners miss a couple of house payments? The lenders send out reminder notices. One will arrive probably a fortnight after the first missed payment. When it time for the next payment the 30 day notice will be sent and probably late fees will be added. If the homeowner does not contact the bank as is often the case, the next letter is at 60 days and is more serious. At 90 days the bank commences formal proceedings. Their attorney then posts out the Notice of Default notifying the borrower that they have failed to fulfill their payment obligations. It is also published in a publicly accessible publication such as the local newspaper, a fortnight to several weeks prior to the auction.
It is during this stage that the homeowner should be taking action and not suffer from the dreaded paralysis of analysis. It is also the best time for foreclosure investors to initiate some form of contact. In most cases the best option for the homeowner is to sell up and find somewhere else to live.
Whether you sell computer software or invest in foreclosure properties, any successful business owner will tell you there is always required reading. In the case of investing in foreclosure properties, the required reading is the weekly foreclosure notices. For these types of investors the foreclosure process starts to get serious when the Notice Of Default (NOD) or the Notice of Foreclosure is posted. It is a public document and the investor needs to find where to find it. The requirements for posting foreclosure notices vary depending on where you reside. As a foreclosure investor, it is important that the investor determines the requirements in that state.
Once the Notice of Default is posted you can bet that every man and his dog foreclosure investor in their area will pick up the scent and knows about the property. The competition increases and any investors interested in buying the property prior to auction are likely to be trying to contact the homeowners.
Hopefully you can now see the advantage of contacting the homeowner prior to the posting of the foreclosure notice. Unfortunately the only way of knowing this is by the grapevine or word of mouth. The investor who arrives first and whom the homeowners trust the most is typically the investor who will most likely get the property.
It is not always easy contacting distressed homeowners in this pre foreclosure stage. This why many foreclosure investors prefer to wait until the official foreclosure notice is posted. Some homeowners remain in denial and may be unwilling to accept the fact that foreclosure is imminent. The posting of the NOD removes any doubt and may spur the homeowners on to take action.
What useful information does the foreclosure investor find on the Notice Of Default?
* Lists the names of the homeowners so you can personalize your approach.
* The name of the attorney or trustee in charge of the liquidation process.
* The location of the property or a legal address so that you find out the information you desire.
* The name of the bank or lender foreclosing on the property.
Every bit of research the foreclosure investor does on the property being foreclosed upon is going to assist him in putting together a deal that benefits everyone involved.
Just because a Notice Of Default is posted it does not necessarily mean that the property is going to be auctioned off. Any time prior to the sale, the homeowners can work with the lender to cancel or at least delay the foreclosure sale.
For this reason it is important for investors to watch the properties from the day the foreclosure notice is posted to the time they are sold. Sometimes an investor may find that a particular foreclosure sale is adjourned and by following the adjournments the investor can find out when the property does go up for sale. If patient the investor may be able to contest the property with less competition
Summing up, if you find out about prospective foreclosure properties prior to the posting of the foreclosure notice and if you can handle dealing with distressed homeowners during the pre foreclosure period, you have the competitive edge. The next best thing is to do your required reading and take action to contact the homeowners.