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There usually isn´t a real estate agent involved in foreclosures, IRS sales or tax sales. Buyers agents can sometimes be helpful, but they generally expect a fee. For the most part, an investor is on their own in this arena.
Foreclosures
Foreclosures are attractive because they allow an investor to pay a wholesale rather than retail price. There are three ways to benefit from a foreclosure situation:
• Buying from the owner prior to a foreclosure sale
• Buying the property at a foreclosure sale
• Buying from a lender after foreclosure
State law requires that foreclosure notices be publicized. These notices can usually be found in a legal newspaper or the legal notice section of a general circulation paper.
Buying Before a Foreclosure Sale
Buying from an owner before a foreclosure sale allows you to avoid a competitive auction situation, which could drive up the price. However, it is important to get a property profile from a title insurance company as well as check the owner´s equity in the property. If the seller owes too much on the property, it would be better to wait until at lease the foreclosure sale.
Upside-down Opportunities
When the amount owed on a property (mortgage) exceeds the value of the property, you have what´s known as an "upside-down" situation. This occurs during periods where home values increase dramatically, resulting in high loans, then drop significantly. In these cases, an owner just wants to get out of the property and pay their debt without defaulting on the loan. In addition, lenders don´t want to own the property they financed.
This provides a unique opportunity for investors because the foreclosure of a priority lien wipes out junior liens. This means that a smart investor could purchase the property at a foreclosure sale for a significant savings. In the right market, if handled properly, foreclosure sales can be very lucrative. On the downside, most foreclosure bidders have never seen the inside of the property and they could be in for a shock. Also, title insurance is not always available and a bidder must bid in cash. As you can see, foreclosure sales are a unique animal. If you are interested in obtaining foreclosure properties, it´s advisable to first attend a few sales to familiarize yourself with the local procedures.
Buying After the Foreclosure Sale
If a lender ends up successfully bidding on a property they financed, the property becomes known as a real estate owned (REO) property. The best time to buy an REO property is just before the lender purchases it. Many REO investors will make an offer to the lender before the sale. The offer is only valid for 24 hours after the sale and is accompanied by a check for at least $5000 made out to the closing agent. The lender now has an incentive to immediately flip the property to the investor and receive immediate compensation. Investors can build a relationship with a lender in order to buy properties on similar terms. In this way, both parties benefit.
Moratoriums
Lenders who are reluctant to cut the price of the property can sometimes be convinced to sell a property subject to a moratorium. A moratorium is a cessation, for a specified period of time, of loan or interest payments. The buyer can get a significant reduction in price and the lender gets around showing a book loss on the property (which would happen if they sold it for under price).
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When You Are in Foreclosure
If you are an owner having problems paying on a loan, go to the lender and explain the problem. They are often willing to work with owners who are trying to meet their obligations. Solutions may include a moratorium on payments, interest only payments, restructuring a loan or leasing back a foreclosed property. Remember, the last thing your lender wants is to own the property.
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