Gaining a Perspective on Foreclosure Investing Have you come across a signboard placed in front of a house around your street corner that reads – “Lender Foreclosure – Public Home Auction”? And you thought to yourself, “What a lovely house, why would it be put up for auction?” The answer to your question lies in the words “Lender Foreclosure.”
What are foreclosures?
A foreclosure occurs when a person who has borrowed a loan is incapable of paying his dues. The lender then steps in and puts the asset, which was used as a security deposit, up for sale to retrieve the pending loan amount.
Has an idea just popped into your head? Do you feel like making a bid at the public auction and buying off that house? And once you purchase the property, you can take off the “Lender Foreclosure” signboard and replace it with another one that reads “Real Estate – Property for Sale/Rent.” Now you’re eyes are probably gleaming with the words “profit”, but foreclosure investing is a term that needs to be fully understood before you decide to make an investment of any kind.
The Three Stages of Foreclosure Investing
The process of foreclosure investing consist of 3 stages, namely
- Pre-foreclosure
- Foreclosure Auction
- Real Estate Owned (REO)
Although foreclosure investing is quite profitable at any of the given stages, understanding the techniques and strategies of investing in each stage is of great importance.
Pre-Foreclosures
Pre-foreclosures occur before the auction sale of the asset. The stage begins once the lender sends a legal notice to the borrower stating that he has defaulted and if he is unable to make payments, legal action will be taken against him. At this point, you can step in and make a deal with the owner of the property, who might want to sell off his property to clear his debts and avoid foreclosure.
Thus, the home owner is entering into a short sale. It is likely that the property will be sold for a much lower price than its market rate. Another advantage of making an investment in the pre-foreclosure stage is the hassle that you will avoided in the process of an auction.
The Foreclosure Auction
Once the property reaches foreclosure, the lender puts it up for a public auction to recover his money. This presents an opportunity to the general public to place their bids and own the property. The lender will want to recover the defaulted amount and therefore start the bid at the pending amount. Hence, buying property at an auction can be favorable because of its possible low cost.
Real Estate Owned
When no sale occurs at an auction on account of no bids, the ownership of the property gets transferred to the bank. This occurs when the loan amount exceeds the market value of the property in question. With this transfer in ownership, the property gets categorized as a non-performing asset belonging to the bank. This property can now be sold by a real estate agent or the beneficiary of the loan himself, on behalf of the bank.
The foreclosure investment strategies listed above are applicable throughout the United States. The foreclosure market is constantly buzzing with activity, with a number of homes facing foreclosure. However, when you decide to venture into the field of foreclosure investing, it is essential for you to conduct in depth research about the available property and its market value and possess sufficient knowledge to help make your investments a success.
