Foreclosure Process: Best Time to Get In
When should you buy a foreclosed home?
You can benefit from bank and government foreclosures at any stage. However, finding better opportunities that other investors and buyers are missing can make a big difference. You can buy a foreclosure home:
- directly from the owner before judicial foreclosure process starts. You need to locate preforeclosure opportunities.
- at foreclosure auction (public auction by IRS, U.S. Customs, or sheriff’s sale)
- from the lender after it becomes the lender’s own property (REO - Real Estate Owned).
Examine your options carefully when buying foreclosure homes
The first option above is the best if you succeed in making a deal at this stage. The third option is more common. There is a temptation to raise the price unnecessarily during auctions. Also, you may not have a chance to inspect the house for sale at an auction. Estimating foreclosure repair costs is important to determine your profit margin and bid price.
Some lenders have their own staff to sell their REOs while others prefer to sell through real estate agents. Your real estate agent will be able to find such properties for you. You can also buy from banks, credit unions and other mortgage lenders directly without having a real estate agent.
Tip: You take a high risk if you buy a property at auction in a state where the original owner has the “right of redemption.” Try to buy the property before the judicial foreclosure process starts or buy it from lenders as REO to eliminate the risk of redemption.
Sources of foreclosure properties
Most foreclosure homes are owned by:
- lenders (banks, credit unions, saving banks, etc.) that financed the purchase of the property
- government agencies that guaranteed or insured the mortgage loans for the property
To find foreclosure opportunities, contact:
- county clerk’s office for their listings
- bank lawyers dealing with the sales of their bank’s REOs.
Hidden foreclosure market: You might expect that lenders would advertise the properties in their portfolio to get rid of them fast. Unfortunately, this is not the case. Lending institutions don’t like to acknowledge publicly that they had many foreclosed properties.
Prestigious banks and other lenders do not want to list foreclosed properties in newspapers or in other public media. They are ashamed of their bad loans. Advertising these properties publicly would acknowledge their failures.
You need to find out about such bargains.
Why are foreclosures below-market prices?
Lenders and government agencies having foreclosure properties want their money back.
- And, they want their money back fast! Faster sale is important. Faster sale means lower prices.
- They want to recover their money. Their main concern is to get their money back. They don’t profit from proceeds that exceed what the borrower owes (loan principal plus accrued interest plus late payment penalties plus any other fees). They are not interested in selling the foreclosed properties at maximum price.
- They are not in the real estate business. Every single day they deal with these properties is a waste of their time. Getting rid of these properties is their main concern.
As a result, higher or lower price of foreclosure property is not their main concern.
Set up your foreclosure goals and decide on your foreclosure strategy before taking any action.
Consider foreclosure homes for sale even if you are looking for a home to live in. Then, you may start buying below-market priced homes foreclosed by the banks and government agencies to make quick profit by flipping or leasing for continual income.
About the Author: John Anderson worked as real estate agent, Realtor® in Florida and Virginia and certified home inspector in California. He publishes foreclosure newsletters on bank and government owned foreclosures.
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