"Cashing In" in the Foreclosure Frenzy
Posted: Thursday, October 08, 2009
by Jeff Adams
RealEstateWebProfits.com
There are several causes that can ultimately lead to a home falling prey to the prey to the foreclosure process. Increased interest rates, unemployment, and an unstable economy could all be contributing factors. In addition, the reasons as to what lead to the foreclosure could also be on a more personal level, such as necessary work related relocation, death or disability, health and medical problems, divorce, or a failed business venture. There are a myriad of causes that can result in a distressed homeowner.
In regards to the process of foreclosure on a home or property, some states incorporate a judicial process whereas others take a non-judicial route. Prior to committing to a particular foreclosure, it is important to know which process the state in which the property of interest is in incorporates. This will give you information on what type of process you will be dealing with and what contracts will be needed in making the deal. For example the state of California requires a trust deed contract and the foreclosure process is a Power of Sale, whereas in the state of New York , investors need are required to utilize a mortgage contract as this state employs a judicial process.
The next step requires that the lender sends a notice of default to the trustee notifying of the borrower's default on the loan. It is at this time that the foreclosure process officially begins. In addition, the trustee also is inclined to prepare a notice of default which is filed with the county courthouse. The filing makes the foreclosed property a matter of public record. An estimated time period for sale of the property is established and if it is not sold during this time frame, a notice of sale is recorded with the county courthouse. As with the judicial process, the foreclosure is then either sold to the highest bidder at public auction or to another investor.
It is always a good idea to research laws, rules and regulations, and pre-existing conditions and terms regarding a piece of real estate. Being prepared and knowledgeable of any and all limitations in regards to the property and the state within which it is located, and also what you can expect to encounter can make the whole foreclosure process less complicated and sealing the deal will be a much smoother process.
There is time for a homeowner to redeem him/herself during the foreclosure process. There is the always a chance for a reinstatement of the loan. Reinstatement of the loan gives the homeowner the opportunity to "make good" on the loan before the sale of the hour or property is verified and finalized. A deed is put into place in lieu of foreclosure. The final decision is up to the lender. The borrower can agree to give the deed to the lender in order to bypass the foreclosure process and will lose the home or property in question.
There are so many opportunities available in real estate. Whether you wish to buy, sell, or rent, the possibilities are endless. Distressed properties, for example, can usually be purchased far below the current market value. There is generally less competition with this type of investment because more experienced investors are not typically focused on lower priced real estate.
Then there is the landlord scenario. Investors can buy now and sell later for a higher purchase price. It takes seeing the future of the neighborhood and knowing the future potential of the property. There are more motivated sellers and lenders that are willing to take a "risk" and give out a loan to an investor that plans to keep the property for a while.
Investing in real estate definitely has a range of beneficial elements, but there are also some potential disadvantages that have to be taken into consideration. For example, voluntary and involuntary liens placed on the property. A voluntary lien happens with a mortgage where the owner willingly allows the lien to be enacted. An involuntary lien, on the other hand, can take the form of a judgment, a second lien, or a mechanic's lien.
With a judgment, a creditor or other party wins a court judgment against the homeowner which places a line on the home or property in order to recoup the money that is owed on the loan. A second lien, also referred to as a junior lien, is basically a second mortgage or home equity loan taken out on the property. It is an additional lien that has been filed against the property after the initial mortgage.
Then there are mechanic's liens. These types of liens are placed when a contractor, repairman, or other professional worker does not get paid for their services and the work that they did on the home or property. They then file against the homeowner in order to redeem their payment.
Other potential disadvantages include buying a property "as is." Most foreclosures are sold in this type of condition, meaning you buy it exactly in the shape it is in currently in. When investing in this type of real estate it is a good idea to make sure that all of terms and conditions are specified and recorded in writing, especially if purchasing directly from the homeowner.
Inspection of the property is highly recommended. It is also important to know exactly what you are getting yourself into so always make sure to get all of the facts before you buy. If you are buying a real estate owned (REO) property from a bank or other lender, it would also be wise to get a physical walk through of the property, just to hinder any doubts.
There may also be other problems that occur with an investment during the process of foreclosure. Homeowners that declare bankruptcy can delay the whole process. Then you have to consider the possibility that the homeowners and/or tenants are uncooperative or even resentful and they may not be willing to comply with the eviction process. In regards to legal matters, investing in foreclosures is riskier than investing in other types of real estate. Frivolous lawsuits can jeopardize your personal assets.
One thing to remember if and when you do decide to invest is that it is important to not get overly enthusiastic or excited about an investment. Overly zealous investors that "count their chickens before they hatch," often over bid during auction process. Being overly optimistic may lead to a greater sense of disappointment if the deal goes sour. Investors should also consider doing an adequate cost analysis prior to making an investment. This will greatly affect their potential profit margin.
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