What is foreclosure?
In essence, foreclosure is when property is sold to pay the remainder of a loan or mortgage that a borrower has defaulted, or failed to pay. For those going through a foreclosure, it can be a devastating experience. For those on the outside, however, it can be an extremely profitable experience. Before you decide to buy foreclosure, you need to be sure you know just what you’re getting into.
How to buy foreclosure
There are three ways to buy foreclosure. The first is through public real estate auctions. These are often advertised in local newspapers or on foreclosure websites so search them for details of upcoming auctions. One advantage to buying from an auction is that you can often pick up a real bargain because the prices are typically based on the outstanding debt on the loan rather than on the actual value of the property. Be aware, though, that full payment in cash or certified funds is usually required at the point of sale.
The next way to buy foreclosure is from real estate owned (REO) property. Whatever property does not sell at an auction becomes the property of the lender, and in order to recover their losses, they must sell it. Private lenders, the US Department of Housing and Urban Development (HUD), and the Department of Veteran’s Affairs are all people who sell REOs. Although these properties usually sell closer to market value than auctioned properties, financing is usually available.
The final way to buy foreclosure is through pre-foreclosure sales. This is often the most profitable but also the most delicate way to invest in foreclosed property. Pre-foreclosure sales are made directly with the homeowner who is often willing to sell his or her home at a loss in order to pay off the debt so to avoid damaging his or her credit. The way to buy pre-foreclosed property is to find a home that is at risk of foreclosure and approach the homeowner directly with a cash offer.
Whatever method you choose to buy foreclosure, be sure to know the laws in your state that deal with buying foreclosure. Also know exactly what you’re investing in-make sure you review the property and all the necessary paperwork so you didn’t buy into something you didn’t realize.
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