This Is A Member-Only Page Some real estate investors concentrate on buying real estate foreclosures from owners in default, banks and government agencies. The up-side is that you can usually buy below market value. The down-side is that the property has often been neglected or abandoned and vacant for a substantial period. That leads to all kinds of problems, including: corroded old plumbing, cracked plaster or drywall, pervasive mildew, unwanted, unscreened tenants and a great many others. Review your state's foreclosure procedures: Here is a brief overview on buying foreclosures.
The right things wrong The real money to be made in any real estate investment is finding something with with the right things wrong: a sagging porch, pealing paint, broken windows and other things that can be repaired inexpensively but make a huge improvement in the curb appeal of a property. Understanding the foreclosure process A foreclosure is the legal process of a lender taking ownership of the collateral for a mortgage or promissory note that is in default. The process of foreclosing is a little different from state to state, but there are basically two types of foreclosure, judicial and non-judicial. In mortgage states, like Michigan, judicial foreclosure is used, whereas in deed of trust states, like California, non-judicial foreclosure is used. States may permit both types of proceedings, but it is common practice to to use one method or the other almost exclusively in a state. Judicial Foreclosure More than half the states use judicial proceedings for a foreclosure. A lawsuit is brought by the lender ("mortgagee") against the borrower ("mortgagor") to acquire possession of the property (security). Like all lawsuits, it must start with a summons and complaint served on the borrower and any other parties with rights in the property. That is because all junior liens (second mortgage), including lease-hold tenancies, are wiped out if the foreclosure is successful. Sheriff or trustee's deed The deed received when purchasing a property at a foreclosure sale is commonly called a Sheriff's Deed and does not contain the warranties embodied in a Warranty Deed that transfers real property ownership. Consequently, it is often necessary to file a legal action to quiet title and perfect the deed. Deficiency judgment If the the loan was full recourse, and the proceeds from the sale are insufficient to satisfy the amount owed to the lender, the lender may be entitled to a deficiency judgment against the borrower and any guarantor on the loan. Some states prohibit deficiency judgments. Non-Judicial Foreclosure Many states permit a lender to foreclose without a lawsuit, using what are commonly called forfeiture or a "power of sale." When the parties use a land contract or the borrower ("grantor") gives a "deed of trust" to a trustee to hold for the lender ("beneficiary"), the lender simply files a notice of default and publishes a legal notice of sale. The entire forfeiture or power of sale process usually takes less than 90 days. Redemption Some states give a borrower the right to "redeem" the amount owed and get title to the property back after the sale. The length of the redemption period varies from state to state. The first right of redemption is from the owner, borrower or guarantor on note. Then comes the junior lien holders who are in danger of being wiped out by the foreclosing senior lien holder. The best time to buy a property is usually just before foreclosure. If the property is worth at least the mortgage balance, an investor can often make the best deal with the owner. Sometimes an investor is even paid by the borrower to buy their property because it will help protect their credit. You can find those motivated sellers in the mortgage foreclosure section of your paper's legal notices. Still interested in buying foreclosures? Take our Buying Foreclosures e-course. |