Foreclosures have been on the rise for the past few years. Unfortunate though it is for the person(s) losing their homes, it is not without benefits for others, particularly real estate investors. As with practically everything in life, someone’s misfortune is an opportunity for someone else. However, before you and I (Jeff Adams) get deeper into it, it is necessary to know all about foreclosures.
What is a Foreclosure?
When the home owners are unable to make the mortgage payment on the property or repay the loan interest then their properties are confiscated. This is called foreclosure.
The borrowers are given a stipulated time to amend things and if they fail in spite of it, their properties are seized.
Thus the single reason that brings on foreclosure on a property is the default on mortgage payments. But the reasons for default on mortgage payments could be many- divorce, loss of job, medical condition etc. However, whatever the reason, there is no consideration for any kind of reason for non-payment and foreclosure is imminent.
Since these properties come into the real estate market for sale due to non-repayment of loans, the prices are always lower than the prevailing market rates. Thus neither home-owners nor lenders earn profit out of it. In fact, quite a number of times, foreclosed properties have to be sold off whilst incurring huge losses.
Different Ways of Foreclosure
A foreclosure can be done in innumerable ways. It depends on the lending as well as the receiving party. The various types of foreclosures are:
- Judicial Foreclosures
The foreclosure is termed as judicial foreclosure when the court is involved in the foreclosure. The judicial foreclosure is further categorized into a sales foreclosure and a strict foreclosure. The former involves openly selling the property in an auction whilst the latter involves handing over the property to the money lender.
- Non Judicial Foreclosures
In case of non-judicial foreclosures, the court is not involved at all. However, one can carry out with this foreclosure only if the home owner agrees to it. Otherwise, the money lender shall have to take help from the court. If the borrower agrees, then a clause stating that the property will be sold in an auction in case he or she fails to pay the loan is added to the document.
However, even if the court is not involved, the money lender and the mortgagee will have to comply with the laws of the state when carrying on with this process.
The scheme of things in both foreclosures is different. The nature of foreclosure majorly depends on the money lender and the mortgagee. It is best if done through mutual consent.
The Other Side of Foreclosures – The Good of it All
There are two sides to every coin. While a foreclosed property spells loss for the seller, the buyer can benefit significantly. If the buyer of the foreclosed property is an investor then he or she is bound to earn a lot of money. After all, he is able to buy at low prices and can sell at the current prevailing market price, which is bound to be higher.
Taking Decisions about Foreclosed Property
If you have purchased a foreclosed property for investment purposes, the decision on how to proceed further is crucial. It is not a very simple decision and cannot be considered just on the surface. You have to dig deeper and look at various perspectives before making the decision. . This situation can cause a lot of loss as well as a lot of profit, so you had better be careful that you don’t up losing money.
As with any other investment, while investing in foreclosed properties too, you need to constantly check on demand and supply ratio. You will have to look at the prevailing situation before logically deciding the prices and the interest rates of the foreclosed property that you have purchased. Sometimes, your property might get stuck due to high prices. Hence, one has to be very careful whilst deciding the prices.
It is possible that just then the real estate market is going through a slump. In that case, the smarter alternative is to put the property on rent rather than sell at low value. This way, you get a fixed monthly income rent, on which you earn interest too.
However if on the basis of your real estate experience and understanding, you feel that the market is only going to plummet further, it might be better to sell right away at the best price you can get.
So essentially, there are no easy answers and you have to do your best, guided by market trends, your experience and of course your instinct.
Thus, getting hold of mortgaged property under foreclosure will prove highly beneficial to you if you work it out correctly and you can earn high profits.
