Prior to the auctionThis first opportunity is called pre-foreclosure. When a property is in pre-foreclosure, the owner still has a chance to stop the foreclosure process by paying off what is owed or by selling the property. Lenders are required to advertise foreclosures in the legal newspaper for four consecutive weeks prior to selling the property at auction. During that time, the real estate investor can seek to purchase the property, either by paying cash for it, or by attempting to purchase the home contingent upon his ability to reinstate the foreclosing loan and taking title “subject-to” the existing loan.
Buying a pre-foreclosure can be a method to purchase a property with little or no money down and no credit especially if you are able to purchase the property “subject-to” the existing loan. Investors get the equity in the property in exchange for helping the property owners avoid foreclosure. The downside of purchasing a pre-foreclosure is that most homeowners are in denial, and it may be difficult to deal with them.
Purchases made during pre-foreclosure are considered “regular” sales in the sense that there will be a written purchase contract, your attorney will search title and offer you title insurance, and there will be a normal closing at your attorney’s office just as in any other home purchase.
RealQuest is one of the few sites that allow you to search for properties that are in pre-foreclosure. By you being find these opportunities faster than other real estate investors, you have the upper hand in the game. A subscription to RealQuest also delivers you the owner’s name and contact information, making it that much easier to proverbially “get your foot in the door” and make your offer to the existing owner.
At the auctionThe second opportunity is in purchasing the property at the courthouse steps during the public auction. If nothing has been done to cure the event of default which led to the original foreclosure notice, the lender will, through the foreclosing attorney, conduct an auction on the courthouse steps. The property will be sold for cash. Only bank money orders will be accepted, and you must bring the funds with you. The bidding opens with a bid on behalf of the lender in the amount of the indebtedness plus all late payments plus attorney fees. Bidding continues until the highest bidder wins. Typically, all junior liens on the property are wiped out at the auction.
Purchasing a property at the courthouse steps lets you avoid having to deal with a property owner in denial. The downside is that you are most likely purchasing a property unaware of the interior condition of the property. RealQuest allows you to search the properties that are going to auction, so hopefully you can do some investigative work prior to the actual courthouse step auction date.
Lastly, this is not considered a “regular” sale because there is no contact and typically no title search is performed.
After the auctionThis final opportunity is called REO. If, after the opening bid from the lender, there are no additional bids, then the ownership of the property is transferred to the lender, and the lender will typically try to sell the property as quickly as possible. Lenders will list these houses with real estate agents who will place them in the multiple listing services or they will hire auction houses to conduct another public auction. Lenders consider these REO properties to be “non-performing assets,” and want them off their books quickly; especially if they believe they have more coming in behind them. Often they will sell for substantially less than the loan amount, especially if the property is in poor condition or the lender has a large inventory of such property. Prior to the purchase the investor will be able to inspect the property.
This is a “regular” sale in the sense that there will be a contract, title search, and a standard closing in an attorney’s office.
There are multiple opportunities to purchase foreclosures and they can be purchased at these three distinct phases of the foreclosure process.
By | Jennifer Minge
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