Foreclosure Investing
Foreclosures: 3 Different Opportunities
There are three approaches to buying properties in foreclosure depending on the stage of the foreclosure process: pre-foreclosures, buying at auction and buying from lender after the foreclosure sale (REO’s).
If you buy from the delinquent property owner before it goes to auction, you have bought a pre-foreclosure deal. Buying at the auction is fairly straightforward. If nobody bids or does not bid high enough, the lender will buy back the property. Buying from the lender after the auction is called buying REOs (Real Estate Owned).
REO’s: The Risk Is In Your Favor
You may have slightly more risk with an REO than you would in a traditional real estate transaction, however, REO’s are certainly less risky than buying at the auction. Since REOs are somewhat similar to a regular sale, they can be pretty safe. You might not get a seller’s disclosure however.
Pre-Foreclosure’s: What You Should Know
The next riskiest foreclosure purchase is a pre-foreclosure sale. If an owner of a pre-foreclosure disappears, you risk not getting anything from him after the sale. A pre-foreclosure seller might be desperate and may not be honest about certain factors concerning the property.
One thing to remember is that there could be liens on the property. Most liens on the property, such as delinquent property taxes, could become the burden of the new owner if not investigated previous to the sale. In addition, a complete title check would need to be completed to be sure one knows exactly who the owners of the property are.
If the owner is currently in bankruptcy then the deed may not be valid until it has gone through the bankruptcy court proceedings. Checking with the bankruptcy court or local records is one way to check out whether a potential seller has already filed for bankruptcy.
Advanced pre-foreclosure buyers will pay the owner money for a deed and record the deed themselves in the land records office of the county the property resides in. The pre-foreclosure buyer must be very astute in order to perform these transactions. Federal and state lawmakers are creating new laws to protect homeowners and investors from scam artists.
With the advice and guidance from a knowledgeable real estate investment broker, such as The Home Field “Team”, If you sign a proper sales contract, perform structural inspections, work with a knowledgeable escrow agent you probably will not be at much risk.
Foreclosure Auctions: What You Need to Know
Unless you are working with a dedicated real estate investment broker, buying at the auction is certainly the most risky foreclosure purchase. At the real estate auctions, there aren’t any real estate agent to guide you and no escrow and title information.
In most cases, the winning bidder is required to pay all cash at the time of the sale. In addition, the winning bidder does not receive any warranty at all! This means that it will be necessary to find out whether there are any liens or existing loans against the property and in what lien priority they are placed.
Typically a purchaser cannot gain access to the property, thus, inspections and tests you would normally perform on a house in a traditional sale cannot be performed in an auction sale. You are buying the property “as is”.
If you are the winning bidder and the property is occupied by someone, maybe not even the former owner, you will have to do an eviction. Vandalism and theft from the current occupant is not uncommon.
Like most risky investments, a certain risk/reward can be obtained or lost. Foreclosure auction purchases can be very profitable for those who do their due diligence and are willing to compete against other lenders and real estate investors.
