One of the real estate investment strategies is to buy foreclosure homes. When done right, this could be one of the most profits a real estate investor can make. In fact, it has been widely popular from year 2009-2011 in US. Because of the legality issues involved, foreclosure property investment takes longer and more hassles, so often real estate investors would overlook this strategy.
So what is foreclosure? Foreclosure is a procedure where a lending in situation or bank repossess or take hold of the property because the owner or borrower fail to make the payments according to the terms of mortgage or loan. There two types of foreclosures, the judicial and non-judicial.
Judicial foreclosure is a legal procedure done through the courts to obtain judgment for the foreclosure. When people purchase a property and they don’t have enough money to purchase outright, they borrow from a lender or bank. In exchange for lending the money the bank will hold a lien against the property. If the borrower does not make payment according to the terms, the loan goes into default and lender can exercise the lien against the property. This will be made after several notices are given to the borrower to make the payments current. If no attempts are made to make repayments, then legal procedures will follow. After the court judgment is made, the bank/lender will now have legal possession of the property so that they can start the selling of the property to get back the loan capital . Legal documents will be filed including the lis pendens or a notice that legal action is pending on this particular property. Another term for this legal action is mortgage foreclosure.
Non-Judicial Foreclosure is a procedure does not require court action because the title stays with the lender until full payment on the loan is made. At the start, the lender issues a deed of trust which can include a power of sale clause on the property. This involves sale of the property by the mortgage holder without court supervision. When the borrower doesn’t make the loan payments according to the terms, a Notice of Default is sent to the borrower. After a specified holding period, a Notice of Trustee Sale can be posted on the property. This process is much faster than a Judicial foreclosure because the owner of the home does not have a redemption period (or has a very short one) to get back up to date with payments.
Pre-Foreclosures: (before the auction)
Properties with Notice of Default are called pre-foreclosures. These properties may be bought from the homeowners or from the financial institution holding the mortgage before the start of the foreclosure process. The homeowner can be relieved of his financial liability through this procedure and the buyer can obtain the property at a lower cost.
Since you are actively dealing with the owner facing a house foreclosure sale and not waiting for the house to go to foreclosure, you are effectively helping the owner of that particular house keep their credit rating healthy. The way in which this works is you offer the owner of the house facing a house foreclosure sale, a reduced amount of money to take away the title deeds to that particular property, which as said before would help reduce the risk of bad credit for the current owner. Gaining a house facing a house foreclosure sale in this manner will allow you to potentially buy the house or whatever type of property it is at a lower rate of possibly 60 to 70% of the current market value. This means you as the new owner of that property have acquired a real bargain and helped the previous owners keep their credit clean.
Bank Auction Foreclosures: (at the auction)
The properties with Notice of Trustee Sale are categorizes as auction properties. The banks or lending institutions place a foreclosed property into auction to get back the loan capital on the defaulted property. Prices may start from the outstanding amount of mortgage which can be an opportunity for buyers to get lowest cost for the property.
If you are thinking of getting a house at a house foreclosure sale then it is extremely important that you gain access to the house first to view it before putting your bids on the selected property. This will then allow you to see how much you will be willing to pay for the house and whether or not it is the right house for you. A good point to understand before going to the house foreclosure sale is to give yourself a budget of what you are willing to pay for the property before you actually go to the house foreclosure sale. Make sure you stick to your budget strictly otherwise a few months or years down the line you may be facing your newly acquired house going into a house foreclosure sale again.
Bank Owned Foreclosures: (after the auction)
If there are no bidders for the property for sale or the minimum bid is not met, the property becomes a bank owned property. The bank or lending institution can then start selling the property through a brokerage firm and get back their capital for the loan.