Profiting From Foreclosures

Many home buyers in search of a foreclosure property do so because in their minds it represents a great opportunity. Often it does; however, there are a number of things to consider before approaching a seller in distress.

Why Is The Property In Foreclosure?

First, there are different reasons for a seller to stop making mortgage payments. You probably won't find many who make a conscious decision to go into foreclosure. Most often it is the result of loss of income due to a lay-off or leaving a job. Mounting debt and financial obligations make it difficult to maintain the home. Sometimes a medical condition, divorce, or change in family conditions (such as death) forces a sale. Admittedly, there is the odd individual who decides they are going to have it out with the bank. In cases like this, the bank usually wins.

Seek Professionals To Work For You

There are investors who specialize in purchasing foreclosures, and these individuals usually try to consummate the deal before the foreclosure is finalized. If you are considering buying a foreclosure, be sure you are working with a real estate agent who has experience in this field. Also, you will want to have a real estate lawyer available to consult with since there can often be areas that need expert advice.

Know The Seller's Rights

Before you talk with a distressed owner, become familiar with how your state handles foreclosures. If you are purchasing in a state where mortgages are used to finance homes, then the owners of the home can stay there for up to a year. If, in your state, trust deeds are used, then the trustee's sale can occur within four months of foreclosure.

There is an opportunity for the seller to redeem the property over a specified period of time. During this time, they can bring the payments up-to-date, pay all foreclosure costs, and regain control of the property. This is something you will discuss with a real estate lawyer. Also, in most cases, the buyer is required by law to give the seller disclosures about equity purchases. If the proper forms and notices are not used, the penalties may include fines, lawsuits or the loss of the sale.

The Emotional Implication

Probably the most difficult part of purchasing a foreclosure is the emotional implication. While some will argue that "business is business", or that "I'm helping them out", the reality is that you are taking advantage of someone's misfortune. Before approaching a distressed seller, determine for sure if you are the type of person who can see this through.

Trustee's Sale

In a trustee's sale, it's good practice to find out how they are handled in your area. There are some things that are consistent in most places and they require that the purchaser provides a sealed bid, proof of financial qualifications, large earnest money deposit, and the fact that the property is purchased "as is". In some cases, the buyer is not allowed to inspect the property before the sale, which means that there is no real concept of what kind of damage, if any, has occurred, and as a result, there is no estimate of the cost of repairs. Another thing to consider is that it is possible the occupant of the house is still there and you'll have the rather unpleasant job of handling the eviction process.