Investing in foreclosure property look very attractive because you are basically buying something that is way under its net worth. So people who are investing in foreclosure usually expect high returns (as high as 50% or more). But foreclosure investing is not for the beginners, there are many complex factors you need to know before you buy it.
Foreclosure is a legal process by which a mortgage lender reclaims a property, usually because a mortgage borrower defaults on his or her mortgage loan. In some states like Connecticut, New Hampshire and Vermont, there is a type of foreclosure known as strict foreclosure.
Under a strict foreclosure, a court orders the borrower to pay the mortgage within a specified period of time. Should the mortgagor fail to do so, the mortgage holder will gain the title to the property with no obligation to sell it. As a foreclosure investor, you want to make sure that you are not getting in the middle of a legal process.
To minimize the risks, you buy a foreclosure property from a lender after the legal proceedings is settled. Buying from the lender is also known as buying REOs (real estate owned) or Repos (repossessions). This is the least risky way to invest in foreclosure property.
Although it is true that the current housing and financial crisis are favoring buyers and investors, but this doesn't mean you can be careless especially when it comes to foreclosure investing. Although it's true that most foreclosure properties are sold at a fraction of their prices, you still need to do your due diligence and homework well to avoid ending up having to pay more money than what they initially expected.
The problems of foreclosure properties are that there might be liens on the property that the seller didn't mention. For example, if there are unpaid property taxes or utility bills that the previous owner failed to pay, they are now become your responsibility. That's what we mean by not being careless and do your homework well to check out all these problems that could be unforeseen at first.
Once the foreclosure process has been completed, you can put in your action plan to acquire the property. Look for deals in which, at minimum, a Notice of Default has been issued. Keep in mind that foreclosures are sold ‘as is’. Unlike other property sales, no warranties are provided and no title insurance granted.
Make sure you have a professional inspection carried out on the property you want to invest. Of course, you can't expect a perfect condition from a foreclosure property, but you want to make sure all the essential parts are not defective. You want to be certain that there is no leaky roof, no serious foundation cracks for instance.
Well, like I said before, there is always opportunity in a crisis but don't be careless. Do your research properly, get a thorough inspection and make sure that there are no outstanding legal problems.
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