Some Foreclosure Investment Myths

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Real Estate

The word Foreclosure often strikes fear in the hearts of many homeowners. That may not be your case, however, if you’re thinking of taking advantage of a foreclosed home from a buyer’s perspective. Then it may be music to your ears. However, you should know all the facts before you jump in the mix. There are a number of myths regarding foreclosures, and you need as much information as you can get before you make a move.

Contrary to some exaggerated reports that say “foreclosures are at an all-time high!”, foreclosure rates have stayed pretty constant since the Great Depression at less than 2 percent of all loans. However, because of the recent, past trend toward risky loans, some forecasters predicted a huge upswing in still more foreclosures.

How Does Foreclosure Work?

The foreclosure process is costly and time consuming. It is a last resort for lenders to recover their investment. When a homeowner defaults on their mortgage, the lender must first file a public default notice after which the homeowner is given a grace period known as a pre-foreclosure period. During this time, the homeowner can pay off the debt or choose to sell the property. The minimum timeframe for a pre-foreclosure period varies by state. Only at the end of the pre-foreclosure period can the lender auction the property off to a third-party buyer or repossess the property and sell it on the real estate market.

Another foreclosure myth is that foreclosures sell extremely far below the market value. According to First American Real Estate Solutions, foreclosed properties sell for just 15 percent less than comparable, non-distressed homes nationwide.

A most relentless myth is that anyone can make big money in buying foreclosures. There are always seminars, infomercials and books about the subject, and they’ve resurfaced in recent years. These people make the public believe as if buying and selling real estate—especially foreclosures—is a piece of cake. But there are so many rules, regulations and intricacies, it takes study, persistence, patience and the right information to prosper—more than any book, seminar or infomercial can impart.

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Three Ways to Buy Foreclosures

1) Directly from a homeowner in trouble per-foreclosure.

2) From a bank that has repossessed the home (real estate owned, also known as REO).

3) At public auction. All of these opportunities present different problems, and you and your Realtor should be familiar with each of them. The most common problem is overpaying for the property. Since so few foreclosures are actually on the market, they’re harder to find and get, plus-  there are ten times more interested parties!

Public Auction is Definitely the Riskiest

Public auctions are notoriously emotional. The reason the property is put up for auction in the first place is that the seller is hoping that buyers will get carried away in the bidding process & drive up the price, even above the market value.

The best option is to look for pre-foreclosures. For a monthly subscription fee, there are web sites that send you listings based on local court filings. If you don’t mind contacting these people, this may be the way to go. You can contact them before the foreclosure goes through and try to get a deal. Unfortunately, many of these websites have information that is out of date—and hundreds of people like you are receiving the same leads. 

If you are really serious about foreclosure investing, you should contact your Realtor, she can give you the most up to date info regarding foreclosures—and its best to be aggressive.

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