Everyone thinks an auction is about getting a deal. What they may forget is that with auctions you compete against savvy investors who know current property values and are monitoring the marketplace constantly. How could you compete against someone who day trades property?

Or, think about the problems with the banks foreclosing on property. They, the banks, are now upside down on their loans as property values have plummeted. So what is a wise woman investor to do? Go back to the basics of foreclosures! That’s right—the old days when investors got good deals without internet auctions, eBay and more.

There are 3 ways to buy foreclosed property:
1. Pre-foreclosure – this sale is directly from the homeowner who knows they are about to lose their property.

2. Foreclosure – at the court house steps. You buy the property there “as is”.

3. REO property – Foreclosed property that the banks took back and are now forced to sell.

With the percentage of mortgage loans entering foreclosure at an all time high, the third option might make the most sense. Why?

The number of foreclosed homes is expected to quadruple this year adding more than one million properties to the market in 2008, and again in 2009, according to Leahman Brothers.

The banks will be forced to take back property and resell it for deep discounts just to get it off their books. Plus, if you have good credit and are in need of a loan, the bank that owns the property may be willing to make you the loan just to get rid of it.

Foreclosure laws vary from state to state and sometimes county to county so it’s important to know how the process works in your local area.

Here are a few basic foreclosure dos and don’ts to keep in mind.

DO
Do your research. The courthouse is your friend. Foreclosures are public record. Look for multiple mortgages and tax or utility liens against the property.

Do realize if you buy at the foreclosure stage, you better have the cash. These are generally quick closings, all cash in 30 days or less.

Do consider waiting for the property to become an REO. This way you get into the property, conduct an inspection and know what you are getting into before you bid.

DON’T
Don’t expect to get a deal at auctions or even in a pre-foreclosure. People have a hard time coming down off of a price until they are forced to or, in some cases, never do.

Don’t harass homeowners in foreclosure. Do this the right way; send a letter, followed up by a phone call, followed up by a face to face visit. Remember to put yourself in their shoes.

Don’t think of foreclosures as an easy way to buy property cheap. This takes work. Doing the research to find a bargain takes time and effort. Dealing with the hardship factor of the homeowner losing their property can be difficult and negotiating with banks that have distressed property could be time consuming.

Potential buyers should consider working with a realtor experienced in the foreclosure market. Foreclosures can be a good opportunity for the investor looking to pick up additional property; just don’t be sold by the ads that make it look easy!

This entry was posted on Wednesday, May 7th, 2008 at 8:00 am and is filed under Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.