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Investing in Foreclosed Properties

Investing in Foreclosed Properties

Some investors specialize in pre-foreclosures, real estate that is on the verge of being foreclosed but where the owner still has some time to sell the property or recover from the problems. Network with friends and family to help you find these individuals.

Another option is to acquire foreclosed properties. Investors who are interested in foreclosures should have a good understanding of the steps that property owners are going through to avoid or deal with foreclosure. That knowledge helps you be more empathetic to owner problems, and it gives you clues as to owner motivation and contract timing.

Pay attention to the foreclosure notices; the first sale date you see advertised in the paper is rarely the date a foreclosure sale will actually take place. You can keep up with current sale schedules by following their progress at the courthouse.

Some states have a redemption period, where owners have up to a year after foreclosure to recover their property. To avoid surprises, you should always become familiar with your local laws before you attempt to buy foreclosed properties.

When the sale does occur, cash bidders meet to place their bids. Sometimes an individual walks away with the property, but the winner is often one of the lien holders, protecting its interests by entering a bid just over the total amount that's owed plus any expenses it has incurred.

The lender might keep the property and sell it "as is" by itself or through a real-estate agency. It's more likely that the lender will turn the property over to the secondary market agency associated with the original loan, such as Freddie Mac. That agency then sells the property.

If You Decide to Bid on a Foreclosure

There are many pitfalls to buying a foreclosure at an auction sale. However, if you're willing to spend some money and do a fair share of legwork before the auction, there's plenty of opportunity to profit from a transaction. Auctions aren't something you should jump into unprepared, so get ready to research the properties that sound most appealing to you.

Auction bids must be paid for in cash, usually within twenty-four hours or so of winning. If you don't have excess cash, consider obtaining a home equity loan or a line of credit prior to the auction - or maybe a cash advance from a credit card would be enough to pay for the property. You can seek a conventional loan afterward to replenish your funds or pay off high-interest debts.

Properties sold at auction are transferred by means of a sheriff's deed or another type of special deed that does not guarantee clear title. If you want details about the condition of the property's deed, conduct a title search yourself prior to the auction, or hire someone to do it for you.

You might or might not have a chance to inspect the property prior to the sale. If utilities are turned off, you definitely won't be able to run appliances. You will not receive a property disclosure. The less you know about the property, the more risks you take if you purchase it. You can attempt to talk to the current owner, but don't be too surprised if you are not warmly welcomed. That person is losing his home, so he might not be in the frame of mind to offer you help unless you can offer some sort of help in return.

Even worse, the owners might not have moved out of the property yet when the sale takes place. You can eventually get them out, but if they want to be difficult, there are many ways to stall a formal eviction, all costing you time and money. A distraught owner might even leave the property in disrepair.

Image by: Photo Dean