subject: To Buying Foreclosuresby Simplescreening.com [print this page] The abundance of home foreclosures occurring in the current troubled real estate market provides opportunities for real estate investors.
A foreclosure property can be defined in various ways, but includes one or more of the following stages of the entire process. It is a property that is:
>> In serious loan default, whether or not the default notice has been filed,
>> Being sold at a foreclosure auction, and/or
>> Owned by the lender following the foreclosure auction.
Successful investing in foreclosures requires knowledge of not only all the same real estate issues of importance for any purchase of real estate, but also detailed understanding of foreclosure laws and the foreclosure process in the investor"s particular state.
States that use mortgages conduct judicial foreclosures, which go through the court system and tend to be lengthy and more complex. States that use deeds of trust conduct non-judicial foreclosures, which are handled outside of the court system and usually are faster and more straightforward.
In particular, investors should be familiar with how much due diligence will be allowed, how long the process takes, who is the managing authority for the foreclosure process, what steps lenders are legally required to take, and what options and/or safeguards are available to borrowers in default.
Stages of Foreclosure
In considering the foreclosure market, the investor must consider different phases in the foreclosure process as listed above.
Pre-foreclosure
Because of circumstances, an owner may stop paying on the loan. Eventually, the lender will declare a default, send a Notice of Default to the borrower, and publish the notice of foreclosure action in public records.
The period between the date of the Notice of Default and the scheduled public auction varies significantly among states from a minimum of 21 days to a maximum of 445 days. It is during this period that active investors and motivated sellers can try to negotiate a deal. The investor must then perform adequate due diligence and close escrow in a timely manner.
However, the investor should understand that other options are available to the owner regarding curing his default and keeping his property. Potential options include refinancing or selling the property or offering the lender a deed in lieu of foreclosure, thereby stopping the foreclosure process. There are also numerous programs designed specifically to help owners retain their properties.
Public Auction
The greatest profit potential, buying at auction, also has the greatest risks. The risk varies among states, depending primarily on whether a state uses mortgages or deeds of trust for security and the length of any redemption period.
Buying at the public foreclosure sale is a unique process. Properties are sold "as is" and there is often little or no opportunity for thorough inspection and analysis of the subject property. Properties are sold to the highest bidder and no warranties or guarantees are given. The successful bidder at these sales must have cash available to complete the purchase transaction within a very short time, often immediately after winning the bid. In addition, the property may not actually permanently belong to the successful bidder until the expiration of a statutory redemption period.
When buying at auction, liens senior to the lien being foreclosed come with the property. Included might be IRS and/or property tax liens and/or senior mortgages. Investors should never bid without having obtained a preliminary title report and should always buy a title insurance policy, preferably an extended coverage policy. Investors should also understand that successful bidders may have to evict tenants and/or owners.
Lender Owned
Real Estate Owned (REO) properties are those defaulted properties that have been purchased by the lender. Most lenders sell the properties through real estate brokers.
Potential advantages for most REO properties include that the lender has evicted occupants if necessary and has cleaned up and repaired the property in preparation for sale. Also, investors usually have time to inspect and evaluate candidate properties, prepare purchase offers, obtain financing, check the chain of title or obtain a preliminary title report, and follow standard escrow closing procedures. Finally, the lender may be willing to provide financing with good terms.
However, the disadvantage is that because such work has already been done, the property is usually priced at market or near market with little room for negotiation. Also, there are often owner-occupant candidates who are competing for purchase of properties.
by: Philip Smith
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