Is Foreclosure Right For You?

Many of my clients always ask me whether buying a foreclosed property is right for them or not.  My response to them is simple, let us look at the following factors to consider whether buying a foreclosed property is right them.

As the amount of foreclosure properties keep increasing many investors have their eyes open for the right opportunity.  RealtyTrac reported a year to date 1,905,723 foreclosure filings, a statistic that is unquestionably remarkable with regards where the real estate market was a few years ago.

That said, here are few factors I would consider if I was approaching a foreclosed property:

 

• Is there any equity on the mortgage? Most of the properties listed as foreclosed is under the barometer since most people owe more on their homes than the homes are worth.  For example, a Glendale CA property home has a $800,00 mortgage but its actual worth is only $600,000 in today’s market.  The issue here is with the banks, they do not want to negotiate with you nor do they want to take the property back.  They keep it in still water while the home value keeps dropping which creates a huge burden between the bank and interested buyers.
• Competition keeps growing. If a homeowner receives a “notice of default” for its respective bank, the foreclosure becomes public.  Once public, homeowners receive several calls from investors or home buyers attempting to help them out in the foreclosure process by not taking a huge financial loss.  Some properties are left for an auction which creates more competition than ever.  However, best practices in real estate tell us buyers should skip out on auctions and look for Real-Estate-Owned (REO’s) properties in which the bank has already completed the foreclosure process and now owns the home.
• Should you attend an Auction? Most auctions can be deceiving and troublesome if you are not with an agent who knows the area and its market.  Going with your real estate agent can help dramatically.  The goal is to have the house sell for less than both the mortgage and the market price.  If this occurs, then buying your next home or investment is worth all the pennies.
• Timing. Most foreclosure auctions have a quick turnaround.  Staying connected with your real estate agent will have its advantages and it will expedite the research process.  Keep in mind, if a property is auction off to a buyer, all liens on the property are exhausted, but the buyer is liable for any property taxes left over.
• Eviction. If your property is purchased at an auction, the previous owner or tenant might still reside inside the property.  In this case, the new homeowner must send the tenant a “Pay or Quit” notice which requires an answer within three days.  If the tenant does not respond by the time the due date comes, you must file an “Unlawful Detainer.”  This typically requires a real estate agent and lawyer, however most real estate agents will take care of all your needs.
• The million dollar question. You always need to ask this question, “Why is this particular property in foreclosure?”  Working with your real estate agent to figure out this question is very crucial.  You will be surprised of the many reasons why a property goes in to foreclosure.

As the real estate market is in its infamacy state with regards to picking up momentum, most buyers should be aware of thier options.  Whether you are first time home buyer or investor looking to add a new property make sure to consult with your real estate agent before making an authoratative steps.