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Buying Real Estate At Foreclosure Sales
Buying properties at foreclosure sales is probably one of the more popular methods known by real estate investors. The foreclosure auction occurs after a homeowner has defaulted on their loan and the bank has taken legal action to take possession of the property. The foreclosure auction is publicly announced usually in the legal section of your newspaper. Foreclosure sales can occur in as little as 3 weeks and as long as four months. State laws vary; therefore the process will be different from state to state.
Buying at the auction is definitely not for new investors with limited funds because at foreclosure sales, you'll be expected to come up with a minimum of 20% down and the remainder due within 24 hours. Therefore, if you plan to buy at the foreclosure sales, then you need plenty of cash, a working line of credit, or access to cash from a money partner.
Before you get your hopes up, foreclosure sales rarely produce good deals. With most of these auctions, if there is any equity in the deal, then you'll have a large crowd that will bid the property up until there is no room for anyone to make money from the deal. A lot of times, those that have access to plenty of cash buy, get emotionally involved in the bidding and bid the property price up to where they pay close to top dollar for the property. So be careful not to fall into the bidding war, because once you've bid, its too late to back out.
Now, before you trot off to the foreclosure sales with the intent to buy a property, there are some basic facts, often overlooked, that you should know. First, you should have a clear value of what the property is worth in its "as is condition". You can gain this figure by comparing the property to other homes in the same area with common similarities. You should have your Real Estate agent pull a list of comparable sales, then drive by the homes to take note of the differences in the property being foreclosed and the properties that have previously sold.
If the property is vacant, then by all means, get out of the vehicle and look all around the property, and on the inside if possible. If someone is living there, then there's obviously no way to look at the property without approaching the owner. If you find the owner is still there, consider approaching the homeowner to see if they want to sell the property. This will not only let you in on the deal before it goes to the foreclosure sale, but will also give you the chance to take a peek on the inside too.
Next, you should conduct a title search to see how many liens are attached to the particular property. Also, before bidding you should know if the foreclosing bank is a first mortgage, a second mortgage, or a lien holder. Once, I attended a foreclosure sale that had people bidding and the bidders didn't know if the foreclosing bank was a first or a second. If the foreclosing bank is a junior lien (i.e. - second, third mortgages, etc) then you'll be required to pay the senior liens off before you can sell the property.
Finally, timeliness is important. If you arrive just two minutes late then the auction could be over. So be sure to arrive a little early if you're planning to bid. Be sure to call the day before and the day of the sale to make sure the attorney is still planning to auction the property. Many times, sales will be cancelled last minute due to a seller coming up with the arrearage or filing bankruptcy. Remember, very rarely will you find deals at these foreclosure auctions, but I still recommend you attend. You can go simply to meet the other bidders to find buyers to flip your houses to.
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Travel Part B