Foreclosure is a specific legal process by which the mortgagee (lender) acquires the right over the mortgaged property for recovery of the defaulted loan. The lender usually sells such property through auction sales.
Personal calamities or contingencies such as divorce, relocation, arrest or pure financial failure forces a borrower to stop making further payments of mortgage loan installments. During the times of economic recession the financial crisis is experienced by a large number of people, who raised loans through property mortgages. Their inability to pay the regular installments results into large scale foreclosures. The widespread auction of such properties becomes very common.
The lending institutions are eager to pass on the foreclosed properties to professional auctioneers in order to recover as much money as possible out of the bad debts through quick auction sales. It is detrimental to their money lending business to block the essential capital resources by accumulating idle properties. The singular nature of their business renders them incapable of taking on the responsibility of maintenance and operation of real estate properties.
The flood of auctions and the scarcity of funds with the public make it a buyers’ market. It is a hey-day for hedge funds and for bargain hunters venturing into real estate market. Many a good real estate property becomes available at highly discounted prices. Jeff Adams, a savvy investment advisor, encourages the people with money to grab good investment opportunities in real estate during such difficult times. The bad times will soon pass and the market will rebound with vengeance. The prospect of making huge profits with a little patience becomes imminent and very enticing.
A lending institution cannot keep on accumulating foreclosed properties. That would block the capital flow, which is the main resource for the business turnover of a lending institution. The lending institution also does not have the adequate set up to hold and to transact the real estate properties. They hand over such properties to professional auctioneers for quick disposal.
Home Loans & the Mortgages
The mortgages have become a necessary part of real estate transactions. Investment in real estate is capital intensive. An ordinary investor cannot raise the required funds upfront. Waiting to accumulate the required funds will lead to lose the timely opportunities to buy. Moreover, the real estate prices keep on increasing, thus pushing the target fund required farther and farther away.
Although foreclosures become an unfortunate and unavoidable fall-out of the stressed out economic system, the benevolent governments usually give high priority to public housing. The banks and lending institutions have dedicated departments advancing home loans against property mortgages. The interest structures built into those loans can be fixed, floating or a mix of both. Loans are issued after providing a down payment of 10% to 20% of the cost of the property.
The interest on loans determines the cost of borrowing and, ultimately, the overall cost of the property and also the investment decision.
The Process of Foreclosure
• Foreclosure, as mentioned earlier, is the legal acquisition on mortgaged property for default on loan.
• Pre-Foreclosure: This is the notice from the lending bank to loan defaulter prior to initiating foreclosing action. This gives enough time to the borrower to raise the funds by the sale of the property, if required.
• REO: In the event of no bidder for a property put up on auction, the ownership reverts back to the lender, which is known as Real Estate Owned (REO).
Based on the judicial nature of the foreclosures, they are categorized as judiciary and non-judiciary.
The judiciary process enables the borrower to reclaim the property upon settling the outstanding dues. The non-judiciary foreclosure is handled by the third party, where no redemption period is stipulated.
Auctions of Foreclosed Properties
As most of the foreclosed properties go for auction sales, it offers an enviable opportunity for the quick and the ready to invest into real estate properties. Some of the really prized properties go for grabs at discounted prices when foreclosed properties are auctioned in large numbers.
The auctioning process is nowadays conducted online, which makes it pretty easy for computer savvy investors to bid from their offices or homes. Two popular online auctioning websites are Auction.com and RealtyBid.com. All the relevant information concerning the auction and the properties available for auction can be obtained from these websites. Overall, the entire process gets completed within a matter of a few days. It is transparent as well as cost-effective.
It pays, however, to ascertain the condition of the properties that you want to bid by making an on-site inspection. The experience shows that the picture is not as rosy as it appears. It is also important to make sure that those properties are free of encumbrances.
Finally, be aware that hedge funds may already be there ahead of you. They can sniff the profits from far away like vultures. They have huge funds at their disposal to manipulate the markets to their sole advantage.
