How to Buy Foreclosures
Real estate foreclosures are an increasingly popular investment, with the opportunity to make significant profits in a relatively short period of time. There are three ways to buy foreclosures.
Once foreclosure proceedings are initiated on a property, it will be sold at public auction unless the homeowner finds a way to repay or renegotiate their loan. Details of public auctions are published in local newspapers and on foreclosure websites. You may also be able to obtain auction details from lenders or the local county court.
Prices at auction reflect the outstanding debt on the loan rather than the value of the property, so you can pick up some genuine bargains. However, full payment is usually required at the point of sale in the form of cash or certified funds.
Note that properties sold at auction are offered 'as is'. It may not be possible to arrange a formal inspection and the property will not be covered by title insurance. It is essential to conduct a proper title search before the auction to make sure there are no conflicting claims of ownership or additional debts on the property.
If a foreclosed property fails to sell at auction it becomes the property of the lender, who must then sell it on to recover their losses. This is known as Real Estate-Owned (REO) property. REO's are usually resold through established real-estate brokers. Foreclosure websites offer extensive listings of REOs for sale.
As well as private lenders, the VA and HUD sell on large numbers of REO's every year as a result of foreclosure on VA or FHA-insured loans. Finance is usually available for REO foreclosures - often from the original lender or loan-insurer. However, REO's generally sell at close to market value unless there is a glut of properties on the market.
By far the largest profits on foreclosures are obtained through pre-foreclosure sales. Homeowners who are facing foreclosure may be willing to sell their home at a loss to pay off their debts and escape credit damage. However, this is a very direct and personal way to buy a foreclosure and it doesn't suit every investor.
Homeowners are often suspicious of investors who offer to buy out their property to help them escape foreclosure. There are plenty of sharks out there who make a living from exploiting or defrauding desperate families. Scams such as phony counseling and equity skimming are widespread.
If you intend to buy pre-foreclosure property, you must first find homes that are at risk of foreclosure - either from websites and newspapers or by following up notices of default. The next step is to approach the homeowner directly with a cash offer for their home.
Your ability to make money will depend on your sales skills. However, not everyone investor is happy using hard sell techniques on someone who may be losing their home due to divorce, loss of employment or bereavement.