Real estate foreclosures are properties that have been foreclosed on by lenders because the owners, who have taken out loans to buy the properties or have borrowed against the property, have defaulted on the loan payments. Owners can default on loan payments for a variety of reasons including divorce, illness, death of a spouse, and unemployment. Lenders try to work out some kind of resolution with defaulted owners, but will generally initiate foreclosure procedures after three months of default.
Foreclosure properties represent an exciting way to buy real estate because they can be purchased at discount prices, typically between 10% – 50% below market. These discount prices are possible because the property owners, which can be either the borrower, lender, or government agency (HUD, VA, and Fannie Mae properties) are motivated to sell them very quickly, often at below market prices. As a home buyer, you can buy a foreclosure as a home with instant equity. As an investor, you can buy foreclosures as investment properties with built-in profit margins.
What types of foreclosure properties are there?
A foreclosure property exists in three primary stages: pre-foreclosure, auction property, real estate owned (REO). A pre-foreclosure occurs when the lender initiates foreclosure proceedings as the result of a default. If the borrower cannot cure the default by paying off the back payments (arrears) and does not sell the property, it is sold at a public auction. If no one buys the property at the auction, it reverts back to the lender and becomes a Real Estate Owned (REO) property.
There is also a fourth stage, which can occur on properties with loans insured by a federal agency such as HUD or Fannie Mae, or guaranteed by the Department of Veterans Affairs (VA). When such properties revert back to the lenders, the agencies reimburse the lenders and take ownership of the properties. The agencies then make arrangements to sell the properties to the public.
How do lenders foreclose on property owners?
Lenders foreclose on property owners using primarily the judicial or non-judicial foreclosure procedure. States that use mortgages to document property ownership, such as Florida, follow the judicial procedure. The judicial procedure requires lenders to file a court case to prove default before they can foreclose on the owners. States that use deeds of trust follow the non-judicial procedure, which does not require a court case. Non-judicial foreclosures can take up to about 30 days. Non-judicial foreclosures can take up to an additional 30 days because of the court action. In some states, the process can take up to a year depending on the circumstances.
Can people make money investing in foreclosures?
People can make money in foreclosures because frequently they can buy the properties at below market value prices. Buying properties at discount prices is the surest and quickest way to make money in real estate. Individuals who are looking for homes can get a significant amount of equity up front with foreclosures. Of course, there are no guarantees, but investors looking for short-term income maybe able to flip foreclosure properties for big profits. And landlords maybe able to buy and rent foreclosures, with positive cash flow, for long term wealth accumulation.
Do I need a realtor to buy foreclosure properties?
You can buy pre-foreclosures directly from the property owners before the auction. You can buy auction properties from the foreclosure attorneys or auctioneers at the public auction. You can also buy REOs from lenders after they have taken the properties back at the auction. In all three cases, you can buy the properties without a realtor.
You do need a realtor to buy government properties. HUD, VA, Fannie Mae, and other federal agencies offer their properties for sale to the public via realtors. The agencies will publish their property lists either on the Internet, in local newspapers, or with local management companies. The properties are usually also published in the Multiple Listing Service, which makes them accessible to realtors. There are many realtors who specialize in government properties and can work with you to submit contracts for purchase.
How do I find the cash to buy foreclosures?
You might be surprised to know that there are several sources of investment capital available for funding foreclosure deals. These sources fall into four main categories: conventional financing, partners, lines of credit, and hard money lenders. You can obtain conventional financing from any number of commercial banks and mortgage companies. This type of source can be very cost effective, providing you have good credit. Partners are individuals, including friends, relatives, and other investors, who would be interesting in providing some or all of the money for a percentage of the profits. You can advertise by word of mouth, via the Internet, or in local newspapers.
You can use existing lines of credit (or credit cards) to fund your deals. You can also use hard money lenders who are in the business of providing loans for real estate deals. Both of these sources require you to make monthly payments on the loan until you sell the property and pay off the balance. Check local sources, including the newspapers, for ads from hard money lenders.
Many buyers of foreclosed properties also use conventional financing to fund their purchase. Conventional financing sources would be the same sources you would use if you were buying a non-foreclosure property; try your local bank or mortgage broker, both of these sources should have competitive rates and terms.
What do I need to know in buying foreclosures?
You should be aware that ALL foreclosure properties are sold in “as is” condition. That means neither the owner, foreclosure attorney, lender, government agency nor their agents are required to do any property repairs. You should therefore expect and be prepared to fix up the property, either by yourself or by hiring a contractor.
In addition, it is important to arrange your financing in advance of your foreclosure purchase. Contact your lenders or partners to negotiate the terms and conditions of your financing so that you will be prepared to complete the purchase once you negotiate a good deal.
What happens in Florida?
Florida carries out foreclosures through court proceedings. The foreclosure process in Florida takes about five months. A foreclosure in Florida begins when a lender files court action and records a notice of a pending lawsuit (Lis Pendens) against the borrower. The lender notifies the borrower and any other affected parties in person or in some cases by mail or publication. If the borrower does not respond to the court action within a specified amount of time, the county clerk can find the borrower in default and the lender can ask the court to make a final ruling. If the court rules against the borrower, the ruling will include the total amount owed to the lender and the foreclosure sale date.
The lender is not required by state law to notify the borrower before initiating the foreclosure process, but individual mortgages or deeds of trust might call for this. The borrower can stop the foreclosure up until the date of the sale by paying the total amount owed to the lender.
The sale date is typically 20-35 days after the court ruling, but this may vary depending on the individual court. The clerk of court issues a notice of sale containing the location, date, and time of the sale. The notice is published once a week for two weeks, with the second notice appearing at least five days before the sale.
The clerk usually oversees the sale, which ordinarily occurs at the county courthouse at 11:00 a.m. on the sale date. The winning bidder must provide a 5 percent deposit and pay the remaining balance by the end of the day or a new sale is scheduled a minimum of 20 days later. After a successful sale, the clerk gives a certificate of sale to the winning bidder.
Within 10 days of the sale, the clerk transfers ownership to the winning bidder if no one disputes the sale. In most instances, a borrower has no right of redemption after the certificate of sale is issued.
Contact Courtney Silverman for more information 954-389-3459 at The Keyes Company / Realtors