Foreclosures From Beginning To End (The ever-changing real estate and mortgage markets are bringing some interesting trends to the table that could make things even worse for our already depressed housing markets. )
During the next few months we will see an increase in foreclosure rates in hundreds of cities across the U.S. due to adjustable-rate mortgages or ARMs being reset. This is very bad news for millions of homeowners who are already having a tough time making the minimum payments, but it can mean bargains for investors looking to make a profit.
Whenever there is an increase in the amount of foreclosed homes, there will be an increase in money savvy people looking to make a profit on discounted foreclosed homes.
A September 13, 2006 article from CNNMoney.com, “The 3 stages of foreclosure,” looks into the foreclosure process.
“Many real estate investors dream of swooping in to get a great deal. It's possible, but it helps to know the landscape. Regardless of the state of the housing market, Americans will always cling to the foreclosure dream - to buy that dream home for pennies on the dollar. Some want to flip them right away; some want to play landlord. In both cases, bargains are out there, but it's not easy.”
There are several points during the complicated foreclosure process that are prime times to make your move. The foreclosure process can be broken down into three distinct stages: default, auction and real estate owned or REOs.
Your first chance to get a deal on a property is in the default stage, when a homeowner has missed monthly payments, but has not yet gone into foreclosure. You can find out what homes are in the default stage in your area at the local court house. You have to act quickly though, and a lot of times you have to deal with the homeowner directly during this first stage.
“At this stage you have about 90 days to act after the default notice is posted and another 21 to 25 days after auction sale date is published.”
If the home does not sell during the pre-foreclosure or default stage, then the home goes up for sale at a public auction. During this stage you will find the best bargains but there are also many drawbacks.
“Many auctions are canceled at the last moment as the property has been sold or payments reworked. Court-appointed trustees only accept cash or cashiers' checks. There's little time to arrange inspections, so bidders may have no clear idea of what they're buying. Properties are sold ‘as is,’ without warranties. Sellers needn't disclose problems. Buyers may find themselves with unexpected -- and expensive -- repairs.”
The last stop in the foreclosure process occurs if the home was not sold at the auction. If this is the case, the home has no choice but to be sold back to the lender, thus becoming an REO.
“Most large lending institutions won't deal with investors directly, preferring to hand over properties to real estate agents. But smaller banks, eager to save on the commission, may want to talk. This may be the best chance for ‘mom and pop’ to buy a foreclosure. Experts suggest that when a lender buys a house you want, quickly send an overnight letter to the bank president offering to pay their bid price for the property. The bank may want a quick turnover.”
Foreclosures are much riskier than other real estate transactions because you may not always know exactly what you may be getting. Be sure to consult a professional in the industry before purchasing a repossessed home.
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