Foreclosure Investing

The Complete Guide to Investing in Foreclosures

To the novice, foreclosure investing can often appear to be irresistibly attractive. The possibility of making a fast profit of 50% or more is a pretty enticing lure. The reality, however, is that the success of any foreclosure deal is dependant upon a list of several complex factors.

Let's begin by looking at the process. Foreclosure is a legal procedure initiated by a mortgage holder to reclaim a property due to the failure of the borrower to make payments on the loan. In some U.S. states, the borrower is allowed a period of time to make the necessary payments to make the debt current and halt the foreclosure proceeding. After this period lapses, the title for the property reverts to the lender.

A wise investor will wait until the foreclosure process is complete before attempting to acquire the property to avoid getting caught in the middle of someone's legal process. Any thought of attempting to 'rescue' the current owner in exchange for whole or part ownership would be foolhardy. At minimum, an investor should wait until a Notice of Default has been issued.

Foreclosure auctions are quite common and easy to find, but tricky nonetheless. Avoid bidding blind on a property at all costs. There is no substitute for first hand knowledge of the legal status and physical condition of a property.

Because foreclosures are sold 'as is', unlike other properties, there is no title insurance granted and no warranty provided.

Even an experienced investor should have, at minimum, a professional inspection performed. You will want to know if any major repairs are needed or just some cosmetic improvements. The roof, plumbing and foundation should all be checked for any serious problems or defects. If any serious problems are found and you are willing to invest the time and funds needed on a 'fixer-upper', then discount your offer accordingly.

Other types of foreclosures include the 'short sale' deal and the REO or real estate owned (by the lender). A 'short sale' occurs when the lender is willing to settle for less money than the amount which is outstanding on the loan. REO's are properties that are auctioned but not bought. Some extremely good deals are available, but extreme caution should be excersized.

Remember to do the necessary research by having a thorough inspection performed as well as adequate title research. Major defects or any encumbrances in the form of tax or other liens need to be factored into your plans for foreclosure investing.




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