Buying Foreclosed Properties?
Recently, RealtyTrac, a leading online market for foreclosure properties, reported that over 3.16 million foreclosure
filings were made in 2008, up 81 percent from 2007 and up 225 percent from 2006. There was one more stunning
fact – that one in 54 U.S. housing units received at least one of the following -- a default notice, auction sale notice
and/or full-scale bank repossession – during 2009.
For those with money to invest in real estate, this is an exciting but extremely risky time. Those who consider
investing in foreclosure properties should not only understand foreclosure and the importance of cash in the process,
but the emotional element unique to this kind of investment. After all, each foreclosure represents someone who has
lost a home.
You’ll hear many advertisements telling you how easy it is to invest in foreclosures and make a fast profit. But those
who deal regularly in foreclosures know that making a profit can be tough, and that’s true even for individuals with
lots of cash, close ties to lenders and public officials and plenty of experience. Here’s a look at the foreclosure
process and how it works.
What is foreclosure? A foreclosure happens when a buyer defaults on their payments and the lender takes formal
legal action to seize the property. Foreclosures have accelerated not only due to a downturn in the economy that’s
affected home sales, but because many homeowners were tripped up by adjustable-rate mortgages that moved to
higher payment levels that they could not afford. State rules govern this process, but generally, when a lender decides
to foreclose on a property it files a notice of default or a lis pendens (Latin for "lawsuit pending"). This document is a
public record, and for buyers – including other lenders -- it's the first step in locating a property in foreclosure. A
buyer looking for foreclosures can look online for lists of properties in default, but it’s particularly important to
double-check these listings.
Do all troubled properties have to be in foreclosure to be sold? Actually, no. You will hear about “pre-
foreclosure” or “short sale” properties put up for sale by lenders who have entered into agreements with troubled
homeowners who elect to give up the property to avoid a foreclosure on their credit report. You will also hear about
such sales being done by intermediaries who claim to deal in these transactions. Some are legitimate, some are not.
Check them out.
How do people invest in foreclosure properties? There are three primary ways this happens. First, you will see
buyers coming in at the “pre-foreclosure” stage. Second, you will see buyers going after “REO” (real estate owned)
properties – literally foreclosed real estate still on the books of a lender. Third, you’ll see foreclosures auctioned off
at a local government building or in private auctions, depending on how the lender wants to market such properties to
get them off their hands. Each process has its own conventions for inspecting the properties – sometimes prospective
buyers get time to inspect what they might buy, other times little or none. That’s where the risk comes in – it’s not
uncommon for owners losing their property to neglect it or damage it on purpose on the way out. Repairs can be
costly.
©2006-2010 Yardley Wealth Management, LLC. All rights reserved.
Recently, RealtyTrac, a leading online market for foreclosure properties, reported that over 3.16 million foreclosure
filings were made in 2008, up 81 percent from 2007 and up 225 percent from 2006. There was one more stunning
fact – that one in 54 U.S. housing units received at least one of the following -- a default notice, auction sale notice
and/or full-scale bank repossession – during 2009.
For those with money to invest in real estate, this is an exciting but extremely risky time. Those who consider
investing in foreclosure properties should not only understand foreclosure and the importance of cash in the process,
but the emotional element unique to this kind of investment. After all, each foreclosure represents someone who has
lost a home.
You’ll hear many advertisements telling you how easy it is to invest in foreclosures and make a fast profit. But those
who deal regularly in foreclosures know that making a profit can be tough, and that’s true even for individuals with
lots of cash, close ties to lenders and public officials and plenty of experience. Here’s a look at the foreclosure
process and how it works.
What is foreclosure? A foreclosure happens when a buyer defaults on their payments and the lender takes formal
legal action to seize the property. Foreclosures have accelerated not only due to a downturn in the economy that’s
affected home sales, but because many homeowners were tripped up by adjustable-rate mortgages that moved to
higher payment levels that they could not afford. State rules govern this process, but generally, when a lender decides
to foreclose on a property it files a notice of default or a lis pendens (Latin for "lawsuit pending"). This document is a
public record, and for buyers – including other lenders -- it's the first step in locating a property in foreclosure. A
buyer looking for foreclosures can look online for lists of properties in default, but it’s particularly important to
double-check these listings.
Do all troubled properties have to be in foreclosure to be sold? Actually, no. You will hear about “pre-
foreclosure” or “short sale” properties put up for sale by lenders who have entered into agreements with troubled
homeowners who elect to give up the property to avoid a foreclosure on their credit report. You will also hear about
such sales being done by intermediaries who claim to deal in these transactions. Some are legitimate, some are not.
Check them out.
How do people invest in foreclosure properties? There are three primary ways this happens. First, you will see
buyers coming in at the “pre-foreclosure” stage. Second, you will see buyers going after “REO” (real estate owned)
properties – literally foreclosed real estate still on the books of a lender. Third, you’ll see foreclosures auctioned off
at a local government building or in private auctions, depending on how the lender wants to market such properties to
get them off their hands. Each process has its own conventions for inspecting the properties – sometimes prospective
buyers get time to inspect what they might buy, other times little or none. That’s where the risk comes in – it’s not
uncommon for owners losing their property to neglect it or damage it on purpose on the way out. Repairs can be
costly.
©2006-2010 Yardley Wealth Management, LLC. All rights reserved.
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Michael J. Garry, CFP®, JD/MBA, owner of Yardley Wealth Management, LLC,
is an independent Financial Advisor who provides Fee-Only financial planning
services and investment management in Newtown, PA.
is an independent Financial Advisor who provides Fee-Only financial planning
services and investment management in Newtown, PA.
| Address: 41 University Drive Suite 400, Newtown, PA 18940 Phone: 267-573-1019 Toll free: 877-251-4393 Fax: 267-604-9164 mgarry@yardleywealth.net |