Complex World of Foreclosed Properties
Foreclosures can be one of the best ways to get an incredible deal on a piece
of real estate whether you plan to live in that property yourself or you plan
to use it for an
investment property. But the world of buying foreclosed properties can get a little complicated.
It's filled with legal jargons and more, we'll call them secrets. I want to
walk you through the process you need to find and purchase foreclosed
properties. I'm going to divide this article into three large
sections. First, lets talk about what a foreclosure is and isn't,
including the kind of the three different phases in which you could buy a
foreclosure. And second, I'm gonna go and talk about the four different ways
to find four different strategies for finding foreclosures. And then I'm gonna
walk you through the process of making an offer and making sure you end up
with a good deal.
A foreclosure is the process where the lien holder takes ownership of a
property due to a variety of possible reasons, but usually it's the lack of
payment, right? You don't pay your bills, you get foreclosed on. The
foreclosure process differs with every state, but it generally begins with a
bunch of notices are given to the property owner and then a
legal set of steps leading up to actual foreclosure are carried out. Now, there's generally three phases in the foreclosure
process where it's possible to buy a property. There's the pre-foreclosure,
there's at the courthouse steps at the foreclosure, and then after
foreclosure. So when learning how to buy foreclosure, it's important to know
what the three phases are. So let me define each. First, there's the
pre-foreclosure phase. Now, it is possible to buy a home before the
foreclosure actually happens and the homeowner and before they're kicked
out.
Pre-Foreclosure Tactics to Courthouse Auction Dynamics
Now, buying a property during this period is known as the pre-foreclosure, and
it's a common technique used by a lot of real estate investors, and it can be
a good way to find motivated sellers. After all, few things in life are more
motivating for a
homeowner than knowing they're soon going to be physically removed from their property.
Next, there is the actual foreclosure at the courthouse steps. You see, in
most states, once the legal process has been carried out and the property is
sent to the county for a public auction, it's done on the courthouse
steps.
Like sometimes figuratively, sometimes actually, literally on the steps, and
it's sold to the highest bidder. This process is known as the trustee sale.
The bidding generally opens with an automatic starting bid of whatever amount
is owed on the property. So no, you're not gonna show up and bid $1 on a
property and get it. So whatever they owed on it is where the bid begins at.
For example, if a homeowner owed $80,000 on a loan and the loan is secured by
the property, the bidding would start at $80,000. If no one bids any higher,
the lien holder will be awarded the property and be given the title.
Courthouse Bidding Wars to REO Investment Opportunities
So if nobody bids higher than $80, the bank's take that back at $80. A couple
of years ago, I went to a courthouse steps auction and ended up winning this
guy for just a buck over the opening bid. It was around $15,000 because
listen, no one else showed up to the auction. That was a good day. All right.
Now, if you plan to buy a foreclosure at the courthouse steps, here's a few
tips to keep in mind. When you buy on the courthouse steps, there may be liens
attached. Also, you probably won't be able to see the inside of the property
beforehand, and the court usually requires all cash on the day you buy it. So
you can kind of rule out getting a loan on it. You know, this makes buying
properties on the courthouse steps a more advanced and maybe risky strategy
that I usually don't recommend for beginners, but hey, it works. All right. So
we covered the pre-foreclosure and the actual foreclosure on the courthouse
steps.
The third and really honestly, probably the most common phase that most people
talk about when they talk about they bought a foreclosure, that is the
actual post-foreclosure phase, is the after the sale on the courthouse steps. The new owner of the
property, probably the bank who lent on it unless somebody bids higher, you
know, they're gonna have to evict the tenant, probably the former homeowner
who might still reside there. Now, if it's a bank, the bank will generally go
through the process, the victim, the tenant, get the home listed with a real
estate agent to sell it. The remainder of this article, I will focus on how to
buy foreclosure in this phase, the post-foreclosure, after it's been filtered
through the foreclosure process and is now available for sale publicly. Now,
when a bank takes back the property and begins to sell it, the property is
known as an REO or a
real estate-owned property. Now, it's this type of real estate deal, the REO properties, that I want to
spend a lot of time on because that's what most people talk about when they're
saying "foreclosure," specifically.
MLS and Direct Bank Channels
Let's talk about how to actually find these as well. The most common source of
finding foreclosures is through the
Multiple Listing Service,
the MLS. Now, the MLS is a collection of lists put together by local real
estate agents of all the properties for sale in their office. Now, in the old
days, these lists were actually kept in file cabinets and each office faxed
them to each other and made a big list, right? But today, we've got all the
internet. They got the internet, so it's all kept there. The MLS is fully
accessible for any real estate agent. So if you're not an agent, you should
need to either get an agent or you should become an agent, right? So the good
thing is the real estate agent is typically paid for by the seller, so it's
free for you, right? Because if you're buying it, it doesn't cost any
money.
However, you don't have to just rely on real estate agents to tell you what
properties are listed. You can actually get a lot of information online
through a lot of different real estate portals like realtor.com, redfin.com,
Zillow.com, or Trulia.com. These sites will help you sift through nearly all
the listings and give you at least some of the information about the property.
Keep in mind, however, these lists can also be slightly delayed or outdated,
so in a hot market, you could miss out on some deals if you're only relying on
these real estate portals. All right, second, you can buy REOs directly from a
bank's REO department.
Diverse Channels for Foreclosure Opportunities
Banks typically have an REO department, somebody that is in charge of working
through those properties. Now, I said earlier most REOs actually end up on the
MLS, but it is possible to make connections with an REO department at a bank
and have access to properties before they're put on the MLS. This is
especially true with smaller community banks and larger commercial properties.
All right, third, the HUD store. You know, some properties have been
foreclosed on by the US Department of Housing and Urban Development, which is
HUD. If you get a HUD
loan and
you get foreclosed on, a lot of times they're put on the MLS, but a lot of
times they're just privately listed on the HUD website at HUDhomestore.com. So
be sure to check that out as well. Now, the fourth way to find foreclosures,
Foreclosure.com. So, Foreclosure.com is a website that you can find
low-priced, distressed foreclosures, like bank-owned homes, government
foreclosures like Fannie Mae, Freddie Mac, HUD. There's pre-foreclosures on
there.
There's REO properties and foreclosure auctions, among other things. So
Foreclosure.com curates them all through a membership on their site. All
right, so now you have some tangible steps on where to find foreclosures. The
rest of this article is more detail on how to actually buy one of these
properties and make sure you get a great deal. So let's talk about putting in
your offer. Once you find a property you want to buy, it's time to submit your
offer. Again, this is where a good real estate agent comes in really handy.
Typically, you're going to meet with your agent, let them know the terms you
want to offer, how much, how you will finance it.
Your agent will submit an
offer to the seller, and they'll look it over, and then they got a few
possibilities. First, they can accept it. They could deny it. ! They can
ignore you if it's too low. In other words, deny. Or, most common, they could
counter you. They tell you, "No, not that, but how about this?" And many
times, if there's a lot of offers on a property, the seller's will ask you to
submit your highest and best offer. In other words, they're saying, "All
right, you know, there's a lot of bidding here. Let's see what you got.
Ensuring Success in Foreclosure Investment: The Post-Offer Process
Give us the most you can do." Now, it's easy to fall into action mode and
overpay when that happens because you allow the emotion to catch up with you.
But stick to the numbers, keep the emotion out of it. You know, that really
brings up a really, really important point here. Just because something is a
foreclosure does not mean it's a good deal. In fact, most of them are not. So,
it's vital you learn how to analyze a
real estate deal
and know exactly how much you should pay for a property. So let's say your
offer gets accepted. Well, now it's time to do your due diligence and make
sure all your ducks are in a row. This is a time where you hire an inspector
to check out the property, use your financing, fully in place. And in most
states, the closing process is handled by a title company who's gonna prepare
all the documents, make sure the title is correct, and arrange for the signing
of all the parties. However, in some states, an attorney is responsible for
that. Your agent is going to know whether you're an attorney or a title
company state. All right, after both parties have signed the document and the
new deed has been recorded with the local county, the property is now
officially yours. It's no longer foreclosure, it's your property.
Tags:
Blog