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"Considering Foreclosure Property? Watch Out for Land Mines!"

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Investing in foreclosure property can be viable if done properly, and now is a good time to learn about it because real estate foreclosure filings are on the rise.


Foreclosure investing can technically be broken down into "pre-foreclosure" and "foreclosure" property investing.

A pre-foreclosure involves an owner who is about to default on his property mortgage but who has not yet been foreclosed upon by the lending bank.

Buying a pre-foreclosure involves researching what properties are available, how much the loan amounts are, and what timeframes you are dealing with. This info can be garnered via local newspapers, the county recorder's office, or a fee-based subscription service.

Once you know which properties are in default, you can approach the owners directly to sell, or perhaps arrange financing to save the property.


Once the borrower defaults, he/she will be served with a summons from the lender. Papers will eventually be filed with the county clerk's office and will be made a matter of public record.

Once public, the real estate foreclosure process can proceed, during which the current owners will typically have a limited opportunity to save their home by paying up, selling, or making other deals with creditors.

If nothing happens, a foreclosure real estate auction sale commences. Foreclosure auction sales begin with a minimum bid that includes the loan balance, any accrued interest, plus the fees for the property attorney and any costs associated with the process.

If no one bids the amount owed, the property reverts to the lender and becomes an REO property ("real estate owned") held in inventory by the lender.


Foreclosure property investing via auctions is an "advanced" strategy, and is generally not appropriate for a new investor because it requires more upfront cash and a greater time commitment compared to other methods.

It can also be very competitive, and the market has its own learning curve (for example, if you do not understand the nuts and bolts of tax liens, partial interests, leased land or unpaid property taxes, stay away).

Click on the auction link above for more detail on these challenges.


Foreclosure investing with a focus on bank-owned real estate avoids many of the land mines inherent in the market. It is much less risky, and is an excellent way to execute a fixer upper strategy.

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4 Responses to Considering Foreclosure Property? Watch Out for Land Mines!

  1. mirium says:

    My husband bought a foreclosure property in 2007 and basically took a bath on the deal. The insides of most of the walls were literally rotting before our eyes, but we did not realize this was a problem until it was too late. He never had any prior experience so that is what hurt him. Take my advice; if you want to invest in foreclosure property, either spend a good amount of time first learning the ropes, or find an experienced foreclosure investor who can help you out.

  2. jip says:

    Hey mirium sorry to hear that. A friend of mine had a similar experience with a foreclosure. I agree – get expert help, it’s a minefield!

  3. Frank says:

    Yeah, you definitely have to be careful with these foreclosures. I’ve found a lot of times they are unoccupied for long periods of time – sometimes more than a year. Vagrants, rodents and anything else can squat there in the meantime. Gives me the heebie-jeebies!!

  4. Dylan says:

    Does anyone know if REO = bank owned properties = short sales = foreclosures? I can’t get my head around the differences.

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