Three Stages of Foreclosure - During WHich Stage is it Best to Make an Offer?
Posted: Monday, October 26, 2009
by Jeff Adams
RealEstateWebProfits.com
Finding a great deal in a house that is being foreclosed upon can be very profitable. With the market as it is at the moment, there are so many of these deals available that whoever thinks that there is no money to be made in the real estate market right now needs to re-evaluate their point of view. With the market taking a plunge as it did, many people fell subject to financial difficulties. For this reason, among others, the number of foreclosures on the market skyrocketed.
Some of the questions that come to mind when reviewing a piece of real estate that is in one stage of foreclosure or another are when the process actually begins, when does it end, and during which stage can the home be purchased.
The entire process from pre-foreclosure to post-foreclosure is a relatively drawn out one that can take several months. Many buyers may think that the only time that the property is actually available for sale is when the bidding wars begin at public auction. When in actuality, the home or property can be sold at any one of the aforementioned stages. The public at large may be made more aware of its availability during an auction that is marketed to the public at large, but that does not necessarily mean that it can only be sold there.
There are three ways in which distressed properties can be purchased and sold. In the first stage, or pre-foreclosure, the homeowner has probably fallen behind on a few payments and has received a letter of default by the bank or lender who may potentially take possession of the home. The person still has possession of the home and is generally given an opportunity to make good on the loan.
Investors can usually contact the homeowners directly and make an offer to take the home off of their hands. Many times buyers can simply offer to take over the payments of the existing loan. This is a good strategy to entertain, especially if the homeowner en route to bankruptcy and wishes to avoid it. Distressed homeowners are also usually more likely to entertain offers during this stage because they do not wish to further damage their credit rating.
Even though home or property is not officially made know to the public, hungry investors use their resources to find out even before it is put on the market to the masses. These properties can be located though a variety of sources. Having a good working relationship with local real estate agents and brokers will generate a number of great leads. Other potential ways to locate these properties is through accounts, lawyers, business associates and friends.
When a homeowner does not come up with the necessary money needed to satisfy the necessary loan requirements, they enter stage two. A second notice of default is sent out stating that the bank or lender is taking possession of the home. The house is now officially in foreclosure and is made known to the public.
It is during this time that the house is usually scheduled to be sold at public auction. Buying a home at these auctions can be quite lucrative as they are generally sold far below market value.
In order to locate these properties, contacting the County Clerk 's office will probably give the most information. The notices of default that have been filed publicly are located there. Information regarding any scheduled public auctions can also be retrieved there. Banks and title insurance companies also have useful information regarding homes and properties that are currently in foreclosure.
In stage three, or the post-foreclosure stage, the trustee has a public auction and the property is sold to the highest bidder and this is called a trustee sale or a share of sale. The home has already been to public auction and did not manage to be sold to an investor and the lender has taken control of the property. It is at this time that home is technically a real estate owned property REO as it is in possession of the bank or lender's REO department. The home may also be in the possession of the buyer who purchased it at the auction.
Each stage has different advantages to offer an investor and there is profit to be made regardless of which stage of foreclosure the distressed home or property is in. The stage an investor decides to make an offer depends on a variety of factors such as timing, funds available, and availability, among others. In any case, more and more investors are seeking out foreclosures to invest in are realizing that in doing so, there is money to be made in real estate, even in a down market such as the one we are all currently experiencing.
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