Profiting from Foreclosure Auctions

Foreclosure is a very common occurrence in the United States, and for the devastated homeowner it can be devastating. That devastation can translate to cash for someone looking to buy an auctioned home in foreclosure.

This article will discuss how one can profit from buying a home at foreclosure, as well as the potential avenues available for those who are looking to purchase homes at bank-owned auctions. If you are looking to start investing in real estate or just want more investment options, browsing foreclosures may be your ticket.

Bank-Owned Auctions: The Basics

To start, it is important to note that the foreclosure process differs depending on where you live. In many states, including California and New York, foreclosures are handled by state-run agencies while in some states they are handled by banks or mortgage lenders. The law can vary on the foreclosure process in your state. However, this article will discuss a few basic ideas that can apply to any auctioned home in foreclosure - no matter what state you reside in.

The foreclosure process can be divided into three basic parts, all of which are conducted by the bank that owns the mortgage or has taken over the loan. The steps are as follows:

1 - First steps in the foreclosure process: This phase is where most people will start to wonder what they can do to help. The bank conducts a "Default Assessment" on the homeowner after an initial notice has been sent out. If you get a notice and do not respond, then you might be subject to a "Preliminary Notice of Default". This means that you will be served with a notice giving you three days to show up at your local court and explain why you should not lose your home because of late payments or other reasons.

2 - Second steps in the foreclosure process: In most cases, the bank will continue with the foreclosure process once they have received any objections to their initial notices. The bank will then serve you with a whole new set of documents, possibly called a "Final Notice of Foreclosure". This notice will include the deadline for you to go to court and answer any outstanding issues from your previous notice.

3 - Third steps in the foreclosure process: In some states, it is possible to get a reprieve on a final notice once after filing an answer or objection. This is not generally recommended if you have missed any deadlines. It can make the whole process take longer and give the bank less motivation to follow through with the foreclosure. It is important to get a lawyer or a legal representative involved if you plan to do this.

1 - Auctions: The Investment Opportunity

Once your home is foreclosed, there are sometimes several different ways that an investor can purchase a foreclosure. Depending on where you live, there are quite a few avenues that can present themselves. Most of these are handled by either state-run agencies or regional credit union associations. For an investor looking to purchase homes at auction, they might have different criteria for what type of house they might be interested in. The formal requirements for buying foreclosures vary by state. However, some common characteristics, which many states have, are as follows:

-Lenders will usually place the highest bid on a property that is located in a desirable neighborhood. Banks and lenders want to get as much out of their investment as possible. They also want to make sure that properties are attractive to potential buyers.

-The bank will want to sell your home for the highest price possible so that they can recoup as much money as possible from you not paying your monthly mortgage payments. Typically, banks will take around 75 cents for every dollar owed on the original loan amount before selling the property at auction.

-If a bank does not want to pay full price for the property, they will often choose to hold the foreclosure auction for as long as they can. They hope that another investor will step forward and offer them an amount that matches or exceeds their original purchase price. If this does happen, the bank will end up with a lot of money and you might not be able to get your home back.

-You may have some legal leverage over your home if you are going through foreclosure. For example, California state law requires 25 percent of the amount foreclosed upon be paid to the homeowner if he or she was current on payments at the time of the foreclosure proceedings (Cal Civil Code section 2859(d)(5)). In New York, there is a similar law (N.Y. Gen. Bus. Law 285-B) that protects homeowners after foreclosure proceedings have been filed against them in court (N.Y. Gen. Bus. Law 7805(c)(7)).

-The bank will most likely be looking for ways to get the property off their books quickly, especially if it is a residential property and not an investment property or rental space. They might ask you to make repairs on the house before they turn it over to you, which can be costly if the house is in disrepair or has structural damage that requires a lot of work to fix up.

-It can be better to buy a foreclosure property if you are looking for a way to grow your investment portfolio. You can generally collect a return of around 5%-10% in most states, depending on the area and the type of property that you are buying. This is considered one of the best ways to deploy money that does not offer any great tax benefits like interest income or dividend payments.

-The larger risk with investing in foreclosures is that banks and mortgage lenders might not be able to make good on their original loans. If they sell your loan at auction and do not get enough money from the amount owed, they might end up being stuck with an extra amount of debt still owed on your original loan. In some cases, the bank might even keep your home and rent it out until they recoup the money that is owed to them.

2 - The Downside of Foreclosures

While investing in foreclosures can be a great way to get a property at a very good price, there are also times when an investment can turn out to be quite costly. Without the legal knowledge or experience necessary to handle these types of deals, it is highly recommended that you find someone who has been involved in foreclosure proceedings before; someone like me. You should take some time to research the area where you want to buy a foreclosure property. You should also perform some simple research on the type of properties that are typically purchased at auction, as well as the types of fees you might encounter in dealing with an individual agent or attorney. These are common signs of a dishonest real estate agent or attorney; something that you definitely do not want to get involved with.

If you plan on using an agent or attorney handling your foreclosure purchase, it is always best to have them sit down with several other investors and get their feedback before proceeding with the transaction.

Conclusion

The reality is that the foreclosure market has been moving in the right direction for quite some time now. Investors and foreclosures have moved away from banks, big investors, and the Wall Street toward the Main Street of America. A lot of people are starting to look into getting involved in foreclosures in some capacity. This might be a great way to get involved with real estate and live with a much greater level of financial freedom over other investments like stocks or bonds. Follow these guidelines and you may be able to find some great deals on foreclosed properties as an investor.

Just remember that foreclosure deal making is not an exact science and there are a lot of factors that come into play during it all.