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

Foreclosure investing 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.

PRE-FORECLOSURES

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

A pre-foreclosure involves an owner who is about to default on his 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.

FORECLOSURE PROCESS

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 auction sale commences. Foreclosure auction sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs associated with the process.

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

PROCEED WITH CAUTION

Foreclosure 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.

THE BEST APPROACH

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 "buy, rehab & rent" strategy.

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