FAQs about foreclosures:

Q. What are foreclosure properties?
A. Foreclosure is a legal process, where the secured party (mortgagee) uses the power of the courts and the Sheriff to help him/her regains possession and title of the property, which was offered as collateral in a loan.
Q. When can a buyer buy a property during the foreclosure process?
A.  Anytime during the process. Contacting directly the owner in default and making arrangements with him. This stage is called “pre-foreclosure.” The owner still owns the property and he will be able to sign the contract. Sometimes, the property is upside down, this means that the debt/debts are higher than the value. In this case, the property is potential short sales. The short sales will occur only if the lender is willing to reduce the amount of the debt and lose the forgiven difference. (The owner will remain liable for paying the amount of deficiency reduced by the lender).
Q. How convenient is for a lender to go through a short sale?
A. Generally, it is. The cost and time involved in a foreclosure makes economical reasonable to agree to a short sale.
Q. What involves the foreclosure process?
A.  When a mortgagor get in arrears in his/her mortgage payments, the loan is in default. (The exact time to initiate the foreclosure is considered in the mortgage documents). All the legal parties of the transaction are notified and this starts the foreclosure action. The lender files a “Notice of Default,” or “Sheriff Sale Notice.” All parties are notified, including the junior lien holders. If the mortgagor does not current the mortgage or make other payments arrangements with the lender, a “Notice of Sale” will be published. During this time, the mortgagor still have time to exercise his/her “Right of Redemption,” or reinstatement period. If the loan is not reinstated it will be sold in auction at the steps of the court. The auctioneer will ask for bids. The lender will bid for the value of the complete debt owed and this will initiate the bidding price. The highest bidder will get the property and will liquidate the bank’s debt. If no bidder bids for the property it will revert to the lender as a REO property.
Q. What is a REO property?
A.  REO (real estate owned) property is a property that goes back to the bank or mortgage company after an unsuccessful foreclosure auction.
Q. Why some properties get no bids?
A.  Usually no equity on the property, owes more than it’s worth.
Q.  Why will banks usually reduce the price in its REO inventory?
A.  Even they will try to sell it close to market value, as they have to demonstrate shareholders and auditors, that they attempted to get the higher price. Prices in the banks’ REO inventory can be negotiated lower than market value. Banks need to get rid of their REO fast.
Q.  Do foreclosure properties have title issues?
A. You will receive a “Special Warranty Deed,” which is a marketable title. It is always recommendable to use an attorney and buy title insurance. When you buy a property from the bank after a foreclosure all the previous junior liens have been wipe-out. Tax liens and other liens will be paid or cleared by the banks before conveying clear title. Exhausting examination must be done in any property bought in the pre-foreclosure stage or at the steps of the court, before the auction. In this case, any outstanding lien will be the responsibility of the new buyer.
Q. Where can I find a foreclosure at 50% of market value, change the locks in the property and place a Real Estate sign and make tons of money in 30 days?
A.  The reality of foreclosure investment is far different than many people have seen in books and infomercials.  First, an active investor must dedicate a lot of time looking for the right property. Second, the buyer must have his own money or approved credit to close immediately in the property. Third, houses are going to sell lower than market value but not as much as 50%. Fourth, finding a solid property to purchase is finding a property that works economically, finding out all you can about it. Usually, people treating this business seriously invest into finding the property.
Q.  So is it possible to make money in the foreclosure business?
A.  Sure, the key is to get well informed before moving into this. Use the services of a Realtor, ® attorney, loan officer and property inspector. But mostly, educate yourself as an investor.
Q. What are the usual steps to follow?
A.

1. Know the real value of the property. (Use the services of a Realtor® and the local MLS information).
2. Know the law. So you can structure a deal that is legal in your State.
3. Money, sufficient to back your purchases. Money should never stop an investor from doing a deal. If investors are not willing to invest, you don’t have a deal.
4. Knowledge. Must include legal assistance in the title. Search thoroughly information regarding the physical condition of the property.  Also your purchase offer must be creative, that way you will improve the property’s performance considerably.
5. Time. Enough time to evaluate strength and weakness of the investment.

Strategy. A good strategy never fails! Budget your amount of bidding. Budget the whole process including costs of repairs and renovation, time for the renovations and maintenance of the property during renovation’s period.