The Foreclosure Process Made Easy for Beginner Investors

Foreclosure means seizure of a property and selling it off. When a borrower is unable to pay off his dues, the lender lays claim on the collateral. Such a claim entitles the lender to the ownership of the property. He can then choose to sell if off to recover the dues.

Different states have different laws when it comes to foreclosures. If such investments pique your interest, it is important to know the state laws.

Investors have a variety of arenas to look at. Higher returns interest them. Seasoned real estate professional, Jeff Adams, states that while other avenues can yield a regular return, foreclosed properties are one of the brightest options since they more often than not come at lower rates and promise higher returns.

It is important to understand the process of foreclosures especially for the ones who wish to invest therein. This process has several stages and the home / property-owner has many opportunities to make a sale thereby putting an end to the foreclosure.

The Process

  • If the owner misses 3 to 6 of his payments, the lender issues a ‘Notice of Default’ through a trustee.
  • The reinstatement period begins and the owner must clear his debt during this phase.
  • The two parties involved can work out a solution in the reinstatement period. Usually, lenders tend to be open to figure out a way that can help both the parties.
  • If a solution is not available, the repayment is due to happen within 3 months.
  • In case of further default, the owner receives a ‘Notice of Sale’ which is also posted on the property. After a few days, the notice gets published in local newspapers.
  • An auction is held. The opening bid is equal to the sum of the debt, interest accrued, unpaid bills and additional fees incurred during the process.
  • The property gets sold off to the highest bidder and the foreclosure comes to an end.

When assisted by the right team of consultants, a foreclosure is not a very complicated process. Jeff Adams throws light on some of the advantages of investing in a foreclosed property:

  • Foreclosed properties can be available at extremely low rates.
  • After purchase, the property can be sold off at a much higher price thereby increasing your net profit.
  • Foreclosed properties are always sold off in the condition that they are seized. In all likelihood, you will get a house that just needs some basic repairs or fixes.
  • Currently, hedge funds are buying foreclosed properties at a fast pace. These are then put up for rent till a good selling price can be obtained.

Everything has a flip side. Make sure to be alert and aware of all the disadvantages involved in foreclosed property investment. It is not always as good as it looks. Try and see things beyond the price of the property. Safety issues, history of the property, legal concerns and documentation must be in place. Do not depend solely on your ability to identify good properties. Foreclosed properties are a different game and need a high level of expertise and advice.