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FORECLOSURES The most common question that I am asked is "How do I invest in foreclosures?". To answer that question, let me first educate you on the process and then discuss the different types of foreclosed properties. The Process: Lenders do not want to foreclose. They don't want to have property in their REO (Real Estate Owned) departments. They will typically let a homeowner go a long time before starting the foreclosure process. The process usually starts after 3 months of payments having been missed. The lender must notify the owner in writing that the process is to begin. They must advertise in the legal newspaper for the county where the property is located for 4 consecutive weeks before the foreclosure. That way all junior lienholders and anyone who has an interest in the property has notice about the pending foreclosure. The owner can catch up the payments and late fees or pay off the loan up to 5 days before the actual foreclosure. The foreclosure takes place on the courthouse steps of the county where the property is located on the 1st Tuesday of every month. The lender hires an attorney to auction off the property to anyone who is interested and has CASH to pay on the spot (no loans, no financing contingencies). Most of the homes you see in the newspaper don't make it all the way to foreclosure. The home is either sold, paid off, or the payments are caught up. You can purchase a subscription to a report that has all the pertinent information for all the metro-Atlanta properties that are being advertised prior to foreclosure. The Atlanta Foreclosure Report can be obtained from www.equitydepot.org. There will still be a lot of legwork involved in finding the owner (they may or may not still live there), visiting the property to determine it's condition, and determining it's fair market value. Types of Foreclosed Properties: There are many different types of foreclosures. I classify them by the type of mortgage that was on the property and who foreclosed on them: VA, FHA, Conventional (aka bank foreclosure), etc. The VA foreclosures, which are foreclosed properties owned by the Veterans Administration, can be found at va.reotrans.com. The FHA foreclosures, which are foreclosed properties owned by HUD (Housing and Urban Development), can be found at www.bidselect.com. Bank foreclosures (conventional loans) are usually listed with a Realtor through the local multiple listing services. Now, you may also have heard of "pre-foreclosures" which are homes that are placed on the market by the owner prior to foreclosure, but the bank must approve the contract and it must be closed no later than 5 days prior to the foreclosure auction. In recent times, you may have heard of "short sales". These are homes that are on the market that are in danger of foreclosure because the owner typically owes more than the property is worth. The owner or their agent has negotiated with the bank to consider offers that may net less than what is owed on the property. The bank may be willing to accept such an offer instead of the more expensive process of foreclosure. Short sales require a lot of patience on the part of the buyer while the bank is considering their offer. Once a home has gone into foreclosure, it is NOT typically put on the market very quickly. Sometimes it takes months and even years before the legal work can be completed particularly if a bankruptcy was involved. Sometimes banks, HUD or the VA will hire contractors to fix up the properties before they put them on the market for sale. Other times, they will just put them on the market "as-is" hoping to find a potential handyman or investor like you. If you see a home that you know has gone into foreclosure, it may not yet be "for sale". In no case will HUD or the VA accept a bid on a property until it is officially "for sale". With banks, you will find it very difficult to get through to the REO department to make an offer until the property is officially "for sale" as well. My advice is to avoid the FHA and VA foreclosures. In years past, you could secure a good deal on those types of foreclosures, but now HUD and the VA have changed their strategies. They typically will hire the lowest bidding contractor to fix up the property before they market it. The properties are typically marketed at fair market value and the system used is a bidding process. In many cases, the winning bid is more than the asking price! Inspection is difficult because the investor/purchaser must turn on the utilities in their name. In addition, Owner Occupants are given priority over Investors. Bank foreclosures tend to be the best avenue for investors, in my opinion. The truly experienced and savvy investor will hunt down properties before foreclosure based on the foreclosure listings in the newspaper or in the Atlanta foreclosure report. Lots of legwork and time is required in this category of foreclosure investing. You must be able to make an offer to an owner on the spot without inspection in most cases. You really need to know what you are doing at this level. All information herein is believed accurate, but must be verified. Consult a real estate attorney to verify all information concerning the law and foreclosure investing. For more information contact: Joli Tripp |