The United States has never had to absorb so many foreclosure properties as it does now.  The rising number of distressed property assets is at historical rates nationally – and while this has deeply cut into the wealth of the average homeowner, it creates an enormous amount of opportunity for the savvy real estate investor.

©Stuart Miles - freedigitalphotos

©Stuart Miles – freedigitalphotos

The foreclosure process is initiated when a property owner fails to fulfill his or her contractual obligation to a bank/lender/lien-holder.   When property owners default, they have failed to make their scheduled mortgage payments.  Typically homeowners fail to make their payments due to job loss, divorce or medical issues.  Defaults may also occur when owners do not pay their property taxes, homeowner association fees, special assessments or transfer property without lender approval.

In most cases the primary lien holder or lender will make an effort to work with the borrower in hopes of bringing the loan up to date.  This may involve workout programs, loan restructuring or loan modification.   In contrast to the late 1980’s and early 1990’s, most lenders today give borrowers generous opportunity to reinstate or even refinance their delinquent mortgages.  That’s why even though the number of foreclosures has reached historic levels, the number of properties sold at foreclosure auctions has not risen as fast.  Less properties go through a foreclosure sale because lenders are offering more workout programs to struggling homeowners.  Mortgage lenders, however, will take over hundreds of thousands of properties each year, from those borrowers who have fallen behind on their payments without hope of repayment.  Because of these massive amounts of REO’s (Real Estate Owned by banks) the smartest real estate investors are capable of identifying great bargains.

LENDERS DO NOT WANT TO OWN REAL ESTATE.  All lenders would prefer to receive payments plus interest than have to control and manage an actual property.  Banks and lenders are nothing more than investors, lending money for profit.  No matter how much potential the property offers, owners of REO’s typically prefer to sell quickly.  To the smart real estate investor, the motivation to unload an unwanted property could lead to a very good bargain, and a maximized short-term return on equity.

Here are some reason why buying a property in foreclosure could be more beneficial than a market value sale:

-Forced Sale

-Scarce Information

-No title guarantees

-Sheriff’s (or trustee deed)

-No seller disclosures

-No physical inspection

-Legal notice listing

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