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State-by-State
US Foreclosure Laws
Steve Maletos,
Fast Cash in Real Estate Foreclosures
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Investment was once something thought of as what rich people do.
Today, investing plays a key role in the financial well-being of
millions of Americans. Yet woefully few investors really know
the ropes when it comes to making the right investment decisions.
Insufficient knowledge of your investment environment is an open
invitation to failure.
To the novice real estate investor, the word foreclosure
conjures up images of bargain-basement buys. If you are a novice, or
have heard stories of such windfalls from a friend or associate and are
looking to capitalize on this bonanza, the best thing you can do for
yourself as a real estate investor is block visions of paying ten cents on
the dollar for distressed properties out of your mind. In these times
of strong real estate markets, such deals are nearly impossible to
obtain, and will be available only to the most seasoned of real estate
professionals. However, purchasing a foreclosed property for 50 to 80
percent of its fair market value is not an unrealistic expectation.
There are two basic types of real estate foreclosures — judicial and
non-judicial. A judicial real estate foreclosure requires a lawsuit to
be filed in court, while a non-judicial foreclosure circumvents this
process. Although some states allow both procedures, one type of real
estate foreclosure usually predominates in each state.
Buying foreclosed homes can be a highly profitable investment option, but
it does require work. People who choose this investment strategy will
most often buy a foreclosed home, complete any necessary repairs, and sell
it quickly.
THREE WAYS TO PURCHASE HOME FORECLOSURES
BUYING FORECLOSED HOMES AT REAL ESTATE
AUCTION
When you hear of a house selling “on the courthouse steps”, this
is literally what happens. Lenders and buyers will congregate outside the
courthouse, bidding on properties. This bidding is very intense and the
process moves very quickly. To avoid potentially devastating results, you
must conduct as much research as possible prior to a real estate auction.
In order to participate in home foreclosure auction buying, you first need to
do the following:
- Prior to the sale, thoroughly research any properties you are
interested in purchasing;
- Keep your expectations realistic;
- Evaluate your potential profit versus loss should you win the
bid;
- Decide what your highest bid will be and stick to it.
Pros of Home Foreclosure Auction Purchase
- Savings against market value can be as high as 45 percent;
- Outstanding return on investment.
Cons of Home Foreclosure Auction Purchase
- Real estate auctions can be postponed;
- Seldom is there an opportunity to inspect a house prior to
sale;
- Title searches can be costly;
- Large cash layout is required.
PRE-FORECLOSURE
Pre-foreclosure is a deal entered into by the homeowner, buyer and, sometimes,
a lender. Pre-foreclosure can be a very successful way for both parties
to make a quick transaction. You begin the process by seeking home
loans that are in default. Under pre-foreclosure you will be able to
inspect the home and determine what the seller’s needs are. Next,
you must determine the actual value of the home, what repairs are necessary,
how much these repairs will cost, and how much profit you can reasonably
expect on resale of the property. Since real estate prices can change
rapidly, to stay ahead of the market you will need to make immediate
repairs and turn a quick sale after you purchase the home.
Pros of Pre-Foreclosure
- Discounts from market value can be as high as 40 percent;
- Very small down payments are required;
- Time is available to conduct research on specific properties;
- Sales agreements can be customized and flexible.
Cons of Pre-Foreclosure
- Homeowners can sometimes be hard to reach;
- Competition for the purchase is high;
- You may need to negotiate with other lien holders (second mortgages,
government liens, etc.).
Of the three methods of buying foreclosed homes, Real Estate Owned, or
REO, is probably the easiest. In this situation, a lender (bank
or other mortgage holder) will take back a property in order to regain
possession and will then accept a financial loss to rid themselves of the
property and clear their books. Since the lender has no desire to hold the
property, they are considered to be motivated sellers.
Pros of REO
- In the majority of cases, the lender is the senior lien holder, which
removes all other liens from contention;
- There is always a clean title;
- Ordinarily, any property tax in arrears has been paid by the lender.
Cons of REO
- Savings are generally much lower — on the order of 10 to 20
percent;
- The lender rarely wants to perform any repair, preferring to sell the
property as is.
Real estate investment courses are available that enable you to profit from
home foreclosures by combining the methods used by professional real estate
investors with key insider information, thereby revealing exactly how
to buy real estate foreclosures safely and realize substantial profits from
distressed property situations. See our
Real
Estate Investment Courses page for available courses.
Authored by Kenneth L. Anderson and
John Derevjanik. Original article published 4 August
2003, updated 15 January 2004.
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