Contrary to what many people believe, the traditional foreclosure sale which takes place on the courthouse steps is not the only way to buy foreclosed properties. There are several other ways to find excellent foreclosure deals including pre-foreclosure sales, sales of REO properties, and auctions.
PRE-FORECLOSURES
Many times, homeowners struggling to make their mortgage payments will place their property for sale in anticipation of a foreclosure or soon after receiving a Notice of Default from their mortgage company. Because of their desire to avoid the damage a foreclosure will do to their credit, these distressed homeowners may be willing to sell the property for much less than it's worth.
In cases where the homeowner has little or no equity in the property, a short sale may be in order. A short sale involves an agreement between the homeowner and their mortgage company whereby the mortgage company agrees to accept less as a payoff of the homeowner's mortgage than is actually owed.
Although the homeowner's stress level and emotional attachment to the property may make the transaction a little difficult, the advantages of buying from a homeowner facing foreclosure make it well worth it. These deals present a buyer with a motivated seller, an opportunity to thoroughly view and inspect the property, and the chance to buy a property with built-in equity.
BANK OWNED PROPERTIES
When a mortgage company forecloses on a home, but is unsuccessful in selling the property to a third party at the foreclosure sale, it will purchase the property itself, thus, the term bank owned property. Bank owned properties, also known as real estate owned (REO) properties, are very popular with buyers, especially in a down market where the number of foreclosures continues to grow.
Mortgage companies will sometimes use property management companies immediately after the foreclosure. The property manager will over see the changing of locks, cleaning of the property, boarding up or windows, lawn maintenance, snow and ice removal, and any other necessary maintenance.
Mortgage companies usually hire real estate agents who specialize in listing and selling REO properties. Buyers should be aware that mortgage companies have some very strict rules regarding the sale of REO properties, so before making an offer, make sure to contact the listing agent to get the details of the lender's procedures for receiving offers.
AUCTION HOUSES
Real estate auction houses auction properties on behalf of mortgage companies. Many times mortgage companies will list a property with an REO agent for a few months and if the property does not sell, will place it with an auction house.
Before bidding on a property at an auction, make sure your financing is in place. Although auction houses are fairly flexible as far as accepting various forms of payment for down payments, they will charge exorbitant fees if a buyer backs out of a deal. Auction participants are required to register and must generally remit the down payment immediately upon being declared the highest bidder.
Auction participants should familiarize themselves with the rules and guidelines provided by the auction house. Additionally, they should be firm in how much they are willing to bid. Auctions are exciting and if a bidder gets caught up in that excitement, he may find himself bidding significantly more than he can afford or may want to pay for a property.
The goal in buying foreclosures is to maximize the return on investment. Ultimately, the buyer must take responsibility for educating himself about the foreclosure process and what options are available in a given area. So, due diligence is critical. By forming good due diligence practices, buyers can ensure the highest return on their investment.