What Is A Foreclosure?

The process that takes place once a borrower fails to meet their mortgage obligations. A foreclosure happens when a lender attempts to recoup some of the balance of a loan by forcing the sale of the asset used as the collateral for the loan.
Foreclosures are also referred to as Bank-Owned and Real Estate Owned (REO) properties. Lienholders are mainly looking to break even on their investment, so foreclosed properties are generally priced based on the amount owed on the property. Owners are not required to reveal home flaws, meaning that buyers may encounter extensive, unexpected repairs.

Liens and other fees will likely stick with the property and do not have to be revealed during a sale, meaning the new owner will be responsible when they purchase the property. There are three steps a property goes through when in the foreclosure process. An investor can attempt to acquire the property at any of the stages:

Learn More About Foreclosure Investing

3-stages-of-foreclosure-investingTHE 3 PROPERTY FORECLOSURE STAGES

STAGE ONE: PRE-FORECLOSURE

WHAT: The period of time between when a homeowner has been issued a Notice of default and when the property owner is legally transferred to the lender.
HOW TO FIND THESE DEALS:

  • Search online or public records.
  • Generate a list of contact information for motivated sellers whose property you’re interested in.
  • Conduct a direct mail campaign that addresses homeowners who are about to go into foreclosure. Include your business’s contact information so potential deals can quickly get in touch.
  • STAGE TWO: FORECLOSURE AUCTION

WHAT: A public auction that allows anyone to bid on the property with the understanding that the buyer gets the property as is, including any liens, structural damage or code violations.
HOW TO FIND THESE DEALS:

  • Check your local courthouse to see when they have foreclosure auctions.
  • Take note of the property locations and prices you’re interested in.
  • Check to see if you’re required to register for the auction before it starts.
  • Be prepared to pay cash for the full asking price within no more than 24 hours after the auction has ended. Work with us and we can help you be prepared!
  • STAGE THREE: REAL ESTATE OWNED (REO)

WHAT: Properties that have been repossessed by the lender and have not been sold in a foreclosure auction. The loan originator is currently holding them.

HOW TO FIND THESE DEALS:
Research the following to find available deals:

  1. County Recorder’s Office
  2. MLS
  3. Local newspapers
  4. Asset manager companies
  5. Bank REO departments

Get in contact with owners of any properties for which you have an interest. If possible, physically visit the property to assess its potential value.

risk-and-reward5 WAYS TO AVOID INVESTING IN A BAD DEAL

  1. Hire a professional to carry out a title search and look for any liens that will stick with the property.
  2. Take note of any significant weather events that may have affected the property’s construction.
  3. Research to see how long the property was vacant for; the longer it’s been empty, the more likely it will need significant repairs.
  4. Know your walk-away number and be prepared to leave a deal if the asking price goes above it.
  5. Contingencies are not the norm for foreclosures, but if possible, add financing and inspection contingencies to your Real Estate Purchase Agreement.

4 STEPS TO FINALIZING THE DEAL

  1. Hire a professional inspector to do a thorough examination of the property.
  2. Line up your financing. Call Abbey Mortgage if you struggle with this and your deal is in Colorado.
  3. Sign all paperwork.
  4. Make sure the new deed is recorded with the local county recorder.

 

Foreclosure investing is a preferred investing strategy for new and seasoned investors. Buying foreclosed properties can offer the opportunity that very few other types of investing can. The sheer nature of properties in distress can tip the scales of profit. But you have to do it right, foreclosure investing requires research and hard work, and you need to do it correctly.

If you are intrigued by foreclosure investment, and you are investing in Colorado, give me, Robert Kearney a call. Let’s discuss your goals and we can tell you how Abbey Mortgage can help you meet those goals. We help hundreds of investors reach their dream of building their portfolio. We know that investing in foreclosed properties is a great way to venture into building your your real estate portfolio or flipping business, see our house flipping guide. We have the cash and private lending expertise to make your goals a reality. We loan our own money, we make our own decisions, and we want to invest in your profitable deals.