Foreclosure Homes - Result of Loan Default
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Foreclosure homes are the result of a lender foreclosing on a home after loan default. Home foreclosure itself is the
legal action whereby a lender takes back a home from a borrower who can no longer make payments, then sells the
home to pay off its loan.
Many homes end in foreclosure due to divorce, unemployment, medical problems, relocation, business failure,
death of a spouse, etc. When a typical homeowner is in default, a bank or lending institution must decide on three
important issues:
- Can the property owner make the mortgage payment?
- Will the property owner make the mortgage payment?
- Will the bank lose money?
If the answer is negative to all three questions, the bank has no choice but to pursue foreclosure on the property
as quickly and efficiently as possible. However, lenders prefer to work with delinquent borrowers. Foreclosure homes
cost them time and money. Should the lender decide to foreclose, the outcome will most likely be a loss
instead of any intended profit.
Once foreclosure is sought, the goal of a foreclosing lender is to end the possession rights of the homeowner, then
recover the homes principle loan balance, accrued interest, late fees, penalties, any taxes paid on behalf of the
homeowner, as well as court costs and attorneys' fees.
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Opportunities in foreclosure homes abound.
Actually, home mortgage foreclosure creates three different opportunity phases to purchase homes:
- Default Pre-Foreclosure
- Auction Sale
- REO
Each phase offers opportunities to acquire a foreclosure home depending upon a buyer's experience, research and
information obtained, finances, as well as determination.
Below is a summary of buying foreclosures at each phase.
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Pre-Foreclosure Homes
Pre-foreclosure is a period that lasts from when a lender begins foreclosure proceedings until a property is
auctioned off at a Trustee / Sheriffs Sale. Buying homes at this point involves working directly with homeowners and
sometimes a lender. Your goal is to create a win-win scenario for the homeowner and yourself.
If done correctly, buying pre-foreclosure homes offers a great investing opportunity. Discounts on homes can range
between 25% - 30% off market value. However, while profits can be substantial, there are challenges to be overcome,
which for the average home buyer, are discouraging at least.
Buying Homes at Trustee's / Sheriff's Sale (Auction)
Buying homes at Auction can be the most rewarding way to buy properties, and the most dangerous. Here is
where homes are sold after the defaulting homeowner can't repair his financial problems with a lender.
Purchasing a home at this phase of foreclosure can bring huge financial rewards, as well as an easy way to lose
your shirt. If there is a large difference between market value of a property and its final judgment amount at auction,
you can win really big. However, without proper research, you can end up paying more than a property is worth with
liens or title problems.
REO Homes (Bank Owned Homes)
Perhaps the easiest way to acquire foreclosure homes is buying REOs ("real estate owned"). An REO occurs when
a lender takes back a property after no bids were received at auction higher than the defaulted loan amount.
An REO is the most popular method of buying homes in foreclosure. It is the least cumbersome and safest
method. Lending institutions with a list of REOs are also motivated sellers. The lender now holds clear title to a
property and there's no need to worry about hidden surprises and problems.
Since it is the first mortgage holder that forecloses on a property, any liens or encumbrances have been wiped
out. Most likely, the lender will also have paid any property taxes in arrears. The lender may either repair a property
to acceptable standards or allow a discount to the buyer to accomplish repairs. This saves a lot of time, expense
and worry when buying foreclosure homes.
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For complete information on how to purchase homes in foreclosure, buy a copy of the # 1 eBook Guide...
"How To Buy Foreclosures"
This downloadable ebook is packed with facts on everything you need to know
for making the most profit at every stage of the foreclosure process.
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