There is more to profiting from foreclosures than just buying properties for pennies on the dollar and reselling them for more. You have other options as well. This article covers three distinct ways to profit from your foreclosures:
The first way is to bid at foreclosure sales, the second is buying an REO or directly from lenders, and the third is negotiating sales with property owners in distress.
But first we should understand a few things about foreclosure. Foreclosure is a direct result of a defaulted loan. If a borrower can not manage to make their mortgage payments as scheduled, or if some other obligations like property taxes can not be met, then foreclosure can be a possibility. There are other things that can cause it as well, like broken contracts, or transferring a mortgage without lender consent, or trying to make renovations that actually lower the property value, or even shirking on the fees for the homeowners’ association. Many things can set the wheels in motion.
A legal filing of a ‘notice of foreclosure’ will be used to initiate the process. This letter will be the formal announcement to all property owners, and other parties as well as the general public, that might have some legal claims in this matter, that action is taken and will force sale of said property. The borrower will receive this notice at least 30 days before the sale (most usually between 60 and 180 days), then it gets posted online or in the paper as a formal public notice.
The borrower has several options in response for stopping or delaying the foreclosure. One is to negotiate a new payment schedule with their lender or maybe refinance the loan. The second is to file their own legal defense and take the matter to court and tie it up for a year or so. And the third is filing for bankruptcy which will stay the foreclosure automatically. There are times when a bankruptcy proceeding can actually annul the foreclosure sale, even if it has already taken place.
But without any loan solutions, or when legal actions fail, then when the date arrives for the foreclosure sale, the highest bidder take the property at auction. And this is one of the places that you can make a good profit dealing in foreclosures.
The Actual Foreclosure Sale – These sales usually mean a loss of money for the lenders, for the lien holders, and for property owners as well due to the fact that the property goes for prices lower than market values. That’s part of what makes these auctions a bit difficult, they are not your typical market transaction.
The only information that’s given is in regard to the legal description. And it is a ‘cash only’ deal. You have no allowance for “contingency” financing. You buy the property ‘as is’ and you get no guarantees of the title or condition. You are not warned of any environmental hazards or even if it’s occupied. This means that you can turn some really big profits here, but it can be risky. Bidding blindly can come back to bite you. You must do some research.
Dealing With REOs – When a lender wins the bid at an auction, they will classify and then sell that property as ‘real estate owned’, or REO. And this brings us to the second avenue for foreclosure profit. Buy yourself an REO directly from a lender.
These lenders usually need to get the REOs off the books quickly. They may give you some very favorable terms like low closing costs, or maybe none at all. They can offer very nice lower-than-market interest, and offer down payments that are quite low. This is especially true if the property needs some repair. You can find some good discount prices here. The best way to find these is by doing some follow up behind some foreclosure sales, or you can contact one of the agents that market these REO listings.
Owners In Distress – This is the third way to profit. There are many reasons that can lead to the setbacks for owners to end up in foreclosure. It can be a failed business, divorce, illness, or job loss. If you can work something out with them, you can save their credit rating and even a bit of equity, and find a bargain for yourself at the same time.
Many of these gurus claiming you can get rich quickly with foreclosures tend to exaggerate your possibilities. The reality of the situation is that a lot of times you uncover plenty of problems associated with the properties. It is seldom just a deal that is very simple.
You should do a thorough inspection of the property before finalizing any pre-foreclosure purchases. You need to have an accurate estimate of what the repair costs will bee. You can’t make profit if you simply glance over inspections or guess at the expected costs.
Keep in mind that not many people who are going through foreclosure will be easy to deal with. Don’t go in acting like some kind of foreclosure barracuda. Just give a simple approach like “Here is what I’ll offer, you can take that or not” and be sensitive and empathetic. Be a problem solver. This can help you come away with the much sought after ‘win-win’ agreement.
