The Best Guide to Foreclosures and Foreclosure investing

Foreclosure is a word that stirs a mixed vibe when uttered. It is demeaning to the person whose property has been foreclosed and is a goldmine of profitable opportunity to someone reasonably experienced in investing in real estates. Which emotions will be evoked in you depends on which side of the equation you happen to stand.

What is a Foreclosure?

Simply put, it is the legal procedure or event that takes place when someone is not able to repay the installments he is expected to pay his lender from whom he has borrowed funds for the purchase of a property. There could be many reasons why the borrower fails to make the payments in time including unemployment, illness, break-up or divorce, or even death of the person. For whatever reasons, when he is unable to do so, the lender takes action in order to recover the balance loan by selling the property in question.

This, in essence, terminates the borrower’s or mortgagor’s right to redeem the estate that has been mortgaged in order to secure the loan. In this way the lender or mortgagee such as the bank or the financial institution that has lent money to the borrower secures the legal rights for the sale of the property.

The process of Foreclosure

Foreclosure process begins with a formal letter called Notice of Default or NOD, sent by the lender to the borrower who defaults in making a timely repayment of the stipulated installments. This notice is typically issued when the repayment has been delayed at least for about a period of 3 months. This period may vary for different states.

This is a legal warning to the mortgagor to sell the property to raise the funds for the repayment. It enforces him to surrender all the rights over the property to the lender.

A Rising Trend and a Lucrative Investment Option

More and more American houses are undergoing foreclosures in recent years and the number is growing by day. An estimated number of around 4% of homes in America are facing a foreclosure.

Since foreclosures are growing rapidly, there are many profitable opportunities for you to eye for. According to the real estate expert Jeff Adams, this time is ideal to tap into the huge pool of foreclosure investment options available at greatly discounted rates.

Most of the lenders including the banks and other institutions are willing to accept a short sale in order to avoid possible foreclosure auction. Such a foreclosure auction proves more expensive to the lender as it leads the lender to losing far more money in the form of the various fees to be paid.

The 3 Types of Foreclosure Investments

Following are the main ways in which you can invest in foreclosure property deals.

  • To buy a pre-foreclosure property:

This is the best option as it helps create a win-win situation for both the parties involved namely the lender and the borrower. In pre-foreclosure, you deal directly with the owner of the property and the lender is seldom involved in the transaction. However, you must undergo a meticulous research before you make a decision about the investment.

  • To buy foreclosures at an auction:

In order to secure a property well-under the market price, a foreclosure property auction is a wonderful place. The highest bidder wins the property through the process of bidding on the auctioned property. However, this can be the riskiest option of the three and a thorough understanding of the proceedings is the key to make it work for you.

  • To buy Real Estate Owned (REO) foreclosures:

In this type of securing a foreclosure property, you deal with the lender. This is the best way to find a foreclosed property deal. The only disadvantage being that you get these properties from lenders near market value.

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