Real Estate Foreclosures: Double-edge Sword or Heaven Sent?

By: Peter Conti

It's completely understandable...investing in real estate foreclosures can be irresistibly attractive. The lure of landing quick profits from 40% to 50% or more is enough to get anyone's attention! But if you're thinking about taking the foreclosure plunge it's prudent to proceed with caution.

You have a small bucket of factors that'll make the difference between experiencing the thrill of investor success, or the agony of foreclosure defeat. You need to have the right knowledge and walk in prepared.

If you're new to investing...lets start off simple.

Foreclosure is a legal process whereby a mortgage holder, such as a bank, takes over possession of a property due to default on the mortgage loan. In the US, some states have what's called, 'strict' foreclosures. This legality attempts to let the borrower have some time to make good on back payments. The borrower is given period of time to bring the debt current. Failing to do that, the title reverts to the lender.

You don't want to be in the middle of someone else's legal headaches.

And some advise to avoid offering any kind of legal rescue in exchange for part or whole ownership of the property. You absolutely MUST educate your self with accurate information from those with experience in this area. And there are ways to creatively help others solve their foreclosure problems with win-win methods.

In addition to accessing accurate legal information for your location, here are some other considerations for you...

Some legal foreclosure proceedings allow the borrower to have the 'right of redemption'. This gives them a finite period to 'cure the loan'. In other words to make back payments or strengthen their credit so they can reclaim title to and possession of their property.

You must be aware of critical clauses in their contract and get expert legal advice for your state or location.

But after the foreclosure is complete, or beyond question, you can create a plan to invest in the property. Some like to keep an eye out for deals in which a Notice of Default has been issued.

Then you have auctions on foreclosed property. These are quite common but still you need to do your due diligence. Never bid on a property without some first hand confirmation of its legal status and physical condition.

Here's why this is so important...

Auctioned foreclosures are sold 'as is'. Just like autos and other vehicles. And the difference with other property sales is there are no warranties or granting of title insurance.

A few things you should do at a minimum...

Arrange for a professional inspection to be performed. And you should do this even if you're an experienced investor. No property is totally free from minor defects and issues. You just want to be sure it doesn't need major repairs like a new roof, foundation repairs, or serious plumbing issues, etc.

On the other hand, if you're looking for a fixer-upper to flip then major repairs may be acceptable. Only you know about your strategies and available resources. If you're looking at major repairs, of course you should take those into consideration in your offer.

One other method of foreclosure investing is the REO, or Real Estate Owned. It's owned by the lender. REO's are properties that are auctioned but have not been sold. You can find some very good REO deals. But again you must exercise caution and do your homework!

Lastly...there's the 'short sale' foreclosure deal. In this situation the lender agrees to accept less money than is outstanding on the loan. You'll negotiate directly with the lender and come to terms. And all the due diligence cautions apply in this situation, as well.

Remember! Do your research. There are more considerations the wise foreclosure investor needs to consider. It's possible to specialize in this area and do very well. You just need to get the right education from someone who has successfully been there and done that.

Foreclosures
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