What is it?
Every time you turn on the television or the radio, the news is full of information about the property market and foreclosures. But what exactly is a foreclosure? When a home owner defaults on a monthly mortgage payment or any loan; the mortgage lender will be allowed to recover the amount that is owed through foreclosure proceedings. A mortgage lender will want the owed money back, so a foreclosure will enable them to recover their money by repossessing the house or by selling it. If a home owner cannot pay the lender a monthly instalment of the loan, the lender can then file a Notice of Public Default which will start the foreclosure procedure.
What Happens Next?
When a lender files a notice of public default, the home owner will typically be given a grace period to pay back the money that is owed. This is known as pre-foreclosure and gives the home owner a chance to try to get some money together to pay back the lender. If the home owner is really struggling and cannot get the money together during this period, they may also opt to try to sell the property on. Selling the property during pre-foreclosure will allow the owner to pay off any outstanding debts and walk away with a clear credit history.
If the home owner has been unsuccessful in selling the property after the grace period, the property will typically go to auction. During the auction, the property may be bought by a third party or by the lender. The mortgage lender may also repossess the property directly through an agreement with the owner before the property goes to auction.
What do foreclosures mean to investors?
Foreclosures often present good opportunities for real estate investors who hope to buy a property for up to half of the market value. Investors can buy both a pre-foreclosed property and a property already at auction depending on their preferences. Pre-foreclosed properties mean that the potential buyer must approach the struggling home owner and offer to buy their home. This can work out well for both the buyer and the seller as they both come out with what they want. Buyers have the opportunity to talk to the owner directly and to visit the home and have a look around.
Buying a home on the auction block is slightly more risky, but can also prove to be a good investment. The potential buyer will not have the time to look into title searches or to look around the property. There is however great bargains to be had for the savvy investor and buyers can avoid having to deal directly with a struggling home owner.
Properties sold directly by the bank or mortgage lender may also be apparent at the auction block. These homes are typically more expensive than other homes on the auction block, but are still good opportunities. Lenders will often do all the necessary title searches and maintenance work, so investors can be happy in the knowledge that the property is safe.
Tell Others What You're Reading!
Connect with me!
