How To Cash in on the Foreclosure Crisis

Many bargain hunters are being lured by the promise of dirt cheap homes and the prospect of selling them for big profits. Interest rates are low and real estate, even in its current state of disarray, seems much safer to small investors than the volatile stock market. rnThe bargain real estate that is cropping up in almost every neighborhood in the United States can be a great place to find a bargain, and the market conditions are perfect for finding homes in all price ranges and areas in the mix of properties available, including luxury and beachfront homes, even brand-new houses that have never been lived in. rnDo your HomeworkrnNavigating the foreclosure process can be complex, but can result in purchasing a property for up to 40% off market value. Spending the time to research the process in your state and the market can translate into those types of savings. The process is scary for those who aren’t prepared for it, but knowing what to expect puts you ahead of the game. rnA foreclosure is typically initiated when the owner gets a few months behind in payments. Often, there is some deferred maintenance needed since these owners might have been struggling for quite some time. Things like leaking roofs, broken windows, and dirty carpets and walls can be found in foreclosed properties, even in the priciest areas. rnCertainly, houses that need work will be purchased for a bargain price, but the cost of making the needed repairs can offset some of the savings. Be sure to always keep the first rule of real estate, “location, location, location,” in mind when buying a house, even a foreclosure. The house might be filled with trash and smell like the previous owner’s cats, but if it’s in an area of high values with great schools, some elbow grease and a little money might turn it into the perfect family home. rnFinding Properties rnThe initial foreclosure complaint is filed by the lender, and is public record. Your county clerk of courts will have lists of the notices of default in your area, so you can see which local properties are in foreclosure. There are also magazines, newsletters, and websites that have lists of properties in jeopardy. rnAfter you’ve located a potential property, search public records for any liens on the property which will also need to be satisfied when the property changes hands. Liens can be filed for unpaid property taxes or work that is done on the home that hasn’t been paid for. At this point, you’ll want to check the market value of neighboring homes, and property tax rates. rnCheck out state foreclosure laws so that you know what to expect. States like New York, Florida, Pennsylvania, and Ohio must sue the borrower and have a judge order the foreclosure. Other states do not require a lawsuit. rnNegotiating rnMost foreclosures are purchased back by the bank during the county auction, and usually the banks hire an agent to sell these REO (real estate owned) properties for them. Often, these can be the safest bets: there are liens or back taxes to worry about, and no tenants to evict. Lenders with an unusually large glut of homes will often be flexible and willing to negotiate. rnLenders who hold a lot of REO properties might offer attractive terms such as lowered rates and smaller down payments. Additionally, the appraisal and title insurance have already been handled. Ask for a waiver of some of the closing costs, too. rnEven if the current lender is handling most of the paperwork, have a competent real estate attorney look over the paperwork before signing anything.