Foreclosures continue to be one of the hottest items in the world of real estate. How do they work. What is the appeal for investors? What ways are there to participate?
A foreclosure is a legal proceeding which seizes real estate from an owner and liquidates it through a sale to compensate creditors.
The most common reason for foreclosure is when a homeowner fails to pay their mortgage payments. Once a loan payment becomes 30 days late, it goes into default. Depending on where the property is, it may move into the legal foreclosure process once that payment is 90 days late. Although some lenders have dragged their feet on foreclosing when there are a lot of them, in order to preserve their own balance sheets.
There are other reasons for foreclosure too. This includes past due property taxes, HOA liens, federal tax liens, and condemnation due to property condition or eminent domain, or other breaches of contract with a mortgage lender. Sometimes the owner is genuinely at fault for failing to keep their end of the deal. In many other cases lenders have fraudulently foreclosed to seize assets, or it is the result of paperwork glitches.
Once a foreclosure is granted, properties are generally offered at auctions. If no winning bids are received, the creditor gains control of the property.
What Foreclosures Mean for Real Estate Investors
In one word – it means ‘opportunity’.
Foreclosed properties need to be sold, and are typically offered by motivated sellers who are in need of selling that asset fast. This normally means they can be purchased at a discount. As of August 2017, Realtytrac reports there were 626,631 properties in the US in some stage of foreclosure.
Discounts mean that real estate investors can buy these properties, and acquire them in a good equity position. They can sometimes be immediately resold for a profit. Though many may require significant repairs and updating before they are fit for renting or resale.
How to Buy Foreclosure Homes
There are a variety of ways to acquire foreclosure properties.
- In pre-foreclosure directly from the owner
- Via the MLS
- At foreclosure auctions
- Buying non-performing loan notes and foreclosing
- Via real estate wholesalers
- Participating in a fund or partnership which buys, rehabs, and rents them
Foreclosures continue to be a popular topic in real estate investing. They can still offer value to investors. There are many reasons homes get foreclosed on. There are several ways to participate in these opportunities for all levels of investors from brand new to highly experienced.