Foreclosed real estate properties usually end up at auctions. This is the easiest and the most convenient mode for a lending institution or the bank to realize whatever possible recovery out of a bad loan against the mortgaged property.
Loans against Property Mortgages
The role of the lending institutions begins at the time of buying the real estate property. The real estate investment requires huge capital beyond the capacity of an ordinary investor. Fortunately, there are scores of lending institutions ready to fund property purchases if the buyer has the capability of making a mere 10% to 20% down-payment of the cost of the property. The buyer has to mortgage the property in question to the lender to secure the loan.
Interest Rates and the Types of Mortgages
The loan is repaid in monthly installments spanning several years, which becomes affordable to a modest monthly income earner. The property becomes self-owned after the full mortgage payments. These periodic mortgage payments include a small portion of the loan principal and the interest thereon. The interest rate on the loan is either fixed at the inception of the loan, varies as per market condition or is determined by combining both the elements. Accordingly, they are classified as Fixed Rate, Floating Rate and Hybrid Rate mortgage loans.
Defaults and Foreclosures
Buying a home or real estate property for self use, rental income or for investment by raising mortgage loan looks like an enticing investment idea at a time when real estate prices keep galloping breathlessly. But uncertainties of life can often skew such a neat, long term financial game plan. Personal calamities like divorce, arrest, chronic illness or job loss can abruptly put a stop to the anticipated regular income. Such situations can render a person incapable of paying mortgage installments.
When the lending institution realizes that recovery of the outstanding loan is not possible, it initiates legal steps to repossess the mortgaged property known as foreclosure. The lender hands over the foreclosed property to a professional auctioneer for quick realization of the dues through auction sale of the property.
Auctions (Various Types including Online Auctions)
The number of foreclosed properties has hit an all time high during recent years. According RealtyTrac.com, a website that tracks data on foreclosed real estate properties, about 10 million homes have fallen to foreclosure since 2006, which is more than the foreclosure figures of earlier two decades. This is clearly a housing scam – involving greedy property dealers, reckless lending institutions and lethargic regulatory bodies – gone bust. It is a sad story of nationwide economic depression and untold misery of millions of home owners.
The tremendous activity of foreclosed property auctions seen during the recent past is an offshoot of this mega housing bust. It is also a great opportunity for enterprising investors to pick up tantalizing and hitherto out-of-reach properties at throw-away prices at the flood of auction sales. No wonder Jeff Adams, an online columnist, zealously exhorts the prospective investors to bet their money on the housing properties caught in the stormy winds of foreclosures.
Types of Auctions
There are different types of auctions, many of whom are conducted online, each specializing in a particular type of property:
- Farmlands and ranches (Sotheby’s Realty & LandsofAmerica.com)
- Commercial real estate property (Williams & Williams)
- Real estate property seized by the U.S. Government and the Treasury Department for the violations of federal law and tax defaults (Treasury Dept. Website)
- Ultra Luxury and Unique Properties (Platinum Real Estate)
- Housing properties which include foreclosed homes (Auction.com & RealtyBid.com)
Online Auctions of Real Estate
The massive scale of nationwide foreclosures and their subsequent auctions would have been Impossible to handle had it not been the proliferation of websites dedicated to online auctions. Auction.com and RealtyBid.com are two major sites dedicated to online auctions.
The online auction sites offer highly informative, transparent, fair and cost-effective bidding platforms for participants all over the nation or the globe without moving away from one’s home or office desk. The participation starts with:
- The creation of an online account
- Downloading the verification document and faxing the signed copy to the website’s office
- Searching prospective properties online
- Bidding online when the live bidding process for a particular property begins
- Depositing a specified percentage of the bid amount through online transfer for the winning bid
The completion of the required paperwork, financing and obtaining the title documents can be completed in less than two weeks at the website’s main office or its branch. The websites also conduct open houses for briefing the participants.
It is also prudent to conduct the prior site inspection of the property of your choice in order to the state of its present condition. Furthermore, the bidder should ensure beforehand that the property is free of encumbrances, tax backlogs, squatters or other problems.
However the buyer should exercise proper precautions to ensure that the property on auction sale has clear title, free of any lien and is maintained in good condition.
