1.   Job losses.  This is THE number one reason that people lose their homes.  This is particularly true in the Rust Belt (Ohio, Indiana, Michigan) suburbs and cities.

2.   ARM’s.  An adjustable rate mortgage (ARM) fluctuates with the lending rate.  What was at first a very modest home loan made it very easy for someone to buy a home at a rate that was reflected  by the then low prime lending rate.  However, as the prime lending rate goes up or down with the economy, so does the house payment.  A homeowner with an ARM can easily see their payment go from $300 to $400 and upwards within a very short time.  Then they can’t make their payments. 

3.  Interest-only mortgages. This is a way the mortgage brokers and bankers have lured people with good credit to take a loan that they eventually can’t afford.  The lender makes the loan with the home buyer paying only the interest, or even less than interest, then resetting the loan at a higher interest rate and making full payments.  Interest-only and adjustable-rate mortgages share a 63% cut of all new mortgages.

4.   Lending to poor credit risk individuals.  Banks and mortgage brokers have been using the methods mentioned above to lend to people with a poor credit history.  These loans are, at best, risky in nature.  These home owners have low incomes and little or no health insurance.  Of those who required emergency foreclosure help, 40% stated that medical costs were the cause of their problem with being able to keep up with their house payments.   So, instead of creating wealth for these people through building up equity and stabilizing their lives, it destroys their wealth building capacity and destabilizes not only them, but the community around them.

Now how is this situation an opportunity?   Firstly, an investment in foreclosed property can be rented if you don’t sell it.  You will be doing the community a service by making sure that the house doesn’t set empty, you can make money from the rental, and when the market swings back to a more favorable position, you can sell the property for a higher value.  Secondly, you can amass property.  This might sound difficult and risky if you have the resources to buy and hold onto foreclosed property.  You can then develop it yourself, use it as a tax shelter, or live in it yourself. 

1.  Records at the local county courthouse.   In this method you can find the houses that are being foreclosed either by lending institutions or for non-payment of taxes.  This method is time consuming, but you have complete control over your search.  The thoroughness of the information you collect is totally dependent upon the work you put into it.

2.  Newspapers.  In every newspaper in the country there is a section for legal notices.  These notices hold the legal information for properties in foreclosure.  These notices will name the person(s) who has the legal proceeding against him/her, the name of the lender(s), the name of the county sheriff, if this is a tax foreclosure, or any other pertinent information.  It will give the date of the proceedings and ask for further information from anyone who wishes to put a lien against the property.

3.  The internet.   Online foreclosure listing companies will search for notifications of default.  Then they sell a subscription for this information.  Although this is a very easy way to get the information about foreclosures, this is a ‘buyer beware’ situation.  There will be others using this service that are looking for the same information that you’re looking for.  Along with that, you need to be sure that the information you get is current and not outdated.  See if they’ll give you a free trial period before purchasing. 

4.  Direct Mail.   Consider a mass mailing through the postal service for home owners going through a foreclosure.  As you receive information back from this mailing you can be assured that these are good leads.  Another advantage is that you may be able talk with to someone that is still in the pre-foreclosure period.  They are motivated to sell, or they wouldn’t have made contact with you about their property.

5.  Real estate companies.  A bank that ends up with properties that are being foreclosed will hire a real estate agent to represent them  The bank doesn’t want the property; it wants it sold.  A good real estate agent can get a list of properties that the bank has possession of.

As you can see, there are numerous ways to find information on foreclosures.  Don’t forget, one of the best ways to get information of any kind is by word-of-mouth.  You might hear that  the brother-in-law of the your sisters best friend is preparing to go through foreclosure proceedings.  Be ready with a business card, flyer or brochure to give them. 

The auction begins with the auctioneer reading a variety of legal notices and legal descriptions of the property being sold.  The opening bid is set by the foreclosing lender.   Most usually this bid is equal to the outstanding balance on the loan, the interest accrued, and attorney fees with any other fees connected with the sale.  If no bids are higher than the opening bid set by the lender, then the property will be bought by the attorney carrying out the sale for the lender. 

They will then begin taking bids on the foreclosed property as set by the opening bid from the lender.  If a bidder has not already been pre-qualified by the auctioneer before the auction began, he/she will be asked to give their deposit check to the auctioneer.   Most residential auctions require a deposit check of $5000.  The auctioneer will then ask for the bidding to continue to get a higher price.  This is usually done in increments of $100, $500, or $1000. 

Bidding continues until the auctioneer assesses that the bidding has stopped and the highest price has been bid.  He/she will then announce “going once, going twice, going three times, sold!”  The auction is then ended. 

Foreclosure deeds and purchase papers are drawn between the new purchaser of the property and the mortgage holder.  A grace period to allow the purchaser to line up financing will be given. Most of the time this is thirty days.

Once financial arrangements have been secured, closing will take place and the new owner will officially take title to the property.

The auction of foreclosed property will usually be in front of the home being sold.  However, this auction can be at the county clerks office as well.  Auctions for back taxes are usually held on the courthouse steps.  Check with the sheriff’s department or the auctioneer handling the auction for details on where the auction will be held.  Come early, you will have competition.

Investors of foreclosed homes can also help the economy of the community.  Let’s take the same scenario that we started above.  The home the investor purchased is now generating money for the city or county by means of property taxes.  This helps increase the tax base for road repairs, trash services, police and fire services, etc.  The repairs that were completed on the property increased business for the goods and services that were used, such as home building stores and contractors. 

Along with the repair process for the property, think about the foreclosure sale itself.  The investor is required to use the services of title companies, real estate agents, as well as the lending institution itself. 

After the sale of the foreclosed property to the investor, the lending institution will reduce their real estate owned (REO) liability.  They also have the possibility of becoming the financer of a new loan. 

Finally, in this scenario, when the investor sell that property or rents it to someone,  there’s another person(s) or family that is able to enjoy living in that property and who will increase business within that area.  They become invested in the community.  A beautiful neighborhood increases community pride and makes for a healthier community.  A good deal for everyone.

Another thing to consider, particularly if you are in a high tax bracket, is using foreclosed property as a tax shelter.  One way of doing this is the charitable donation of a conservation easement.  You give the development rights to a property conservation organization, such as the Sierra Club.  The organization has the right to develop it, but you still own the land.  However, these type of organization don’t want to develop; this is what they want to prevent.  The development rights have some value and you are entitled to a charitable contribution deduction on your taxes for the value of the donation.  Property taxes would most likely lower, as would the value of the property for estate taxes. 

The land is being used for conservation purposes, you get tax breaks and still own the land.  Good for the environment and your bottom line.

Step 1.  Delinquency of payment.
Foreclosure proceedings begin when a homeowner becomes delinquent on payments.  Typically this is usually when the borrower/owner is behind by three payments, but it can begin with one delinquent payment, depending upon the lender. 

Step 2.  Notice of Default or Lis Pendens.
This is known as the pre-foreclosure phase of the process.  The lender will have a trustee record the Notice of Default at the county recorders office.  It’s during this time the borrower still has the opportunity to reinstate the loan or pay it off.  It is also during this period that the bank accelerates the payment, requiring the borrower to pay the mortgage in full; no payments accepted.  There is a period of 3 months before final proceedings begin.

Step 3.  Notice of Sale.
The borrower will receive by registered mail or by the delivery from the Sheriff the Notice of Sale, or Notice to Foreclose.  There will be a sign posted on the property with the Notice of Sale with the time and location of the sale.  The information will be recorded at the county recorder’s office, and published in the local newspaper in the county where the property is located over a period of three weeks.

Step 4.  Foreclosure Auction.
This is called a Trustee Sale, Sale of Foreclosed Property, or, if property is being foreclosed for tax reasons, Tax Lien Sale.  This is a public auction that is historically held on the county courthouse steps, but may be held at another site.  The opening bid is set by the lender of the property.  The amount is most likely is the outstanding balance of the loan plus accrued interest, plus legal fee and any other additional fees the lender want remunerated.  The highest bidder wins and will receive the deed to the property at payment.  If there aren’t any bids higher than the opening bid, then the lender retains the property.

When a borrower becomes delinquent in payments, his best option is to work out an agreement with the lender, then make sure that he/she keeps that agreement.  The longer the delinquency, the fewer options there are for the borrower.

Tip 1.   Deal with small repairs.  If a door hinge squeaks, lubricate it.  Paint the walls and trim an attractive color.  Replace vent covers if needed.  Replace any torn screens or cracked windows.  Make sure all bulbs are replaced and working in lighting fixtures.  A bright presentation is cheerier and more inviting.      

Tip 2.  Do a thorough cleaning of the home.  Check drapes; if they need cleaned, have them cleaned.  If their condition is beyond cleaning, remove the them.  Purchase inexpensive, but attractive blinds and put them up.  Clean all carpets.  Clean and buff hardwood and tile floors.  Scrub any pet stains and use odor removers; call a professional for this task, if necessary.  Brush out any trash and crumbs left in the cabinets.  Make it shine.  Make it smell good.  A clean home will sell faster than one that isn’t clean.

Tip 3.  Make small improvements that will increase the value of your investment.  Know which ones will bring the most value for the dollar.  Kitchen improvements usually prove to be a good place to start.  As an example, a good garbage disposal costs less than $150, but could increase the sales value of the home by several hundred dollars or more.  Simple landscaping elements such as having pots of flowers decorating the front of the house or placing redwood mulch around trees or bushes make the outside look inviting and the house homier.

Tip 4.   Plan ahead for when you want to sell.  Spring and summer are usually the best time of the year for selling a home.  Buyers want to be able to move during warm weather months and be in a home before the starting of the school year.  Give them the opportunity to be settled in before summer’s over.

Tip 5.   Use incentives.  Provide a home inspection as a part of the buyers package.  Include appliances and air conditioners in the selling price.  Use the offer of paying closing costs as a nudge for the buyer. 

People still want the American dream, their own home.  They also want to be treated well when making such an important purchase.  Making your investment property look and smell like a home instead of just a house will bring you dividends when it’s time to sell.  Treating people with courtesy and respect will win you friends as well as buyers.
 

1.  A lighted ceiling fan.  A lighted ceiling fan will add charm to any room and help to help with heating and cooling costs.  Here are some important tips to remember when installing your fan.  Take down you current lighting fixture before buying a ceiling fan; measure the hole in the ceiling and make sure the new mounting hardware will cover it.  Keep yourself safe first, and foremost.  Be sure to turn off the electricity from the main switch.  You want to make sure there is NO electricity running through this area.  Follow the instructions that came with your ceiling fan to a tee.  They are included to make your installation as easy as possible.  Make sure that the wires are secured and tight in the wire nuts. 

2.  Painting bedroom and bathroom.  New paint makes the home look cleaner and more inviting.  It also is one of the most inexpensive and easiest of home improvements that you can do.  Here’s a couple of things to remember when painting.  When painting a room where there’s stains from cigarette smoke or water, cover these areas with a stain blocker.  Otherwise they will bleed through the new paint.  Use quality paint brushes and quality paint.  The quality of the brush and paint is easily seen on the dry wall.  Sand lightly between coats.  Use at least two coast of paint.

3.  Tiled counters.  When you’ve purchased a foreclosed property and the counter tops are less than desirable, this improvement will make a lot of difference.  Just remember to measure twice and cut once; make your tiles count.  Use a toothbrush on the wet grout; this smoothes it out better than your finger.  Make sure you have enough receptacles before covering the backsplash.  These are easily added and will increase the functionality of the kitchen.

4.  Kitchen lighting.  Use the same principles used for the ceiling fan.  A kitchen needs to be well lighted.  Be sure to hang them where people won’t walk into them.

5.  Kitchen island.  This may sound like a big project, but it’s one that will increase the value of the house and make the kitchen look very functional as well as much more attractive.  You can have a cook top in the island, a dishwasher, a sink, or none of the above.  It could just be for extra storage below and used as a kitchen bar and extra counter space on top.

These improvements will make your foreclosure property look and feel more like a home that wants to be lived in.  This makes for a win-win situation for both you and the buyer.

In order to gain the trust of other investors is by having a strong credit history, good character (ethical), and have good references.  They need to know that they are doing the right thing by putting their money into your hands.  This is a trust situation.  They are trusting you to be who you say you are and do what you said you would do – turn a profit.

2.   Pre-approval with an equity line of credit.  If you’re a property own now,  and have a good credit history, you may be able to get and equity line of credit for the quick purchase of your investment property.  This line of credit is drawn against the equity of your current home.  You have a check book and a line of credit that you can draw funds from with little restriction.  The interest  is charged only on the current balance from this credit line.  If you don’t use it, you don’t pay interest on it.  But, when a property comes up that meets your criteria and passes all of your tests, you will be able to purchase it immediately with this line of credit. 

3.  Pledged Account Programs.  This is a very short term line of credit, used to get the purchase of your investment property finished.  It is a no down payment loan.  This is also an adjustable rate mortgage plan, so selling quickly is extremely important.  If you can’t sell quickly, then refinance at a fixed rate to keep payments under control.  Then you can use the property for rental purposes, with the tenant making the mortgage payment, until you can sell. 

In a pledged account, the borrower or his/her relatives pledge certificates of deposit to a lender for security on the no down payment program.  The principal and interest earned continue to belong to the borrower or their relatives.  But, the CD secures the no down payment loan and lowers the lender risk.

There are other creative ways to finance the purchase of foreclosure property.  Check with your local banks, credit union, or savings and loans.   Don’t forget to check out this site for a short sale package.

1.  When you find a property in a listing that you think you’d be interested in, go and take a look at the neighborhood before going any further.  The real estate slogan ‘location, location, location’ holds just as true for foreclosure property as it does for conventional house sales.  The house may be beautiful, may be grand, but be sure to look at the other houses in the neighborhood.  If they are in decline or are in poor condition your house will be more difficult to sell.  That doesn’t mean that it won’t sell; it simply means that it may take more time to sell and you may have to decrease your selling price and take a lower profit.  If this your first property it will be easier for you to start with a house in a better neighborhood.  

2.  Check to see how close schools are to the neighborhood you’re house is in.  Does the school have a good reputation? Other amenities to consider are shopping, parks, and possible neighborhood upgrades.  Is shopping close by?  Is there a neighborhood park for the kids?  Is the city going to revitalize this area of the city?  All of these issues will have an impact on how quickly you can sell the house.  They also make great selling points to prospective buyers.

3.  The condition of the house is a key issue.  If a house needs major repairs this is a house to be avoided.  Paint, paper, small repairs are all you want to take on, otherwise you will be losing a large portion of your potential profit, if not all of it.  You’re looking for a shabby house that’s structurally sound.  No major plumbing, structural or electrical problems.  Remember that the amount of money you spend on repairs comes out of your pocket right up front. 

4.  When buying a foreclosure property you need to do a title search to make sure you are paying for only one mortgage.  If there is a second mortgage attached to the house that you didn’t know about before purchasing, you will have to resolve this second mortgage before taking possession.  There may be other liens on the property, as well, and a title search will reveal this.  This is an important step in how to short sale and should not be missed.

5.  Take good look at yourself.  Do you have the ability to finance a project of this size quickly?  Do you have the ability to pay cash for a property, such as in a tax sale?  Would having a second investor with you be a good idea?  When you are buying foreclosure property it is essential that financing is available and ready.  Banks do not like holding a property; they want to move it as quickly as possible.  Timing is key at this point.

Buying foreclosure property as an investment can be a good way to make money.  But, be sure to do your homework.  It will pay off in spades.

1.   The market for buying foreclosed property is red hot right now. This is a great opportunity to get your feet wet if you want to get into foreclosure investment.  But remember to do your homework.  Know your market and know the property.  There are a lot of people out there that have the same idea that you have. 

Make sure you know all the information you can possibly find out about the property.  Is it occupied?  What’s the condition of the house.  Find out as much as you can.

2.  Having said all that, you can get great properties for jaw dropping prices. All foreclosure homes are sold at a discounted price and can vary from 5% to 15% discount and even more.  This is a great time for investors.  With the right house you can turn a pretty good profit!  Especially if you are doing a real estate short sale.

3.  You can help your community.  When a foreclosed home sets empty for months on end, it can be difficult for the community.  An empty house is an easy target for vagrants to break into, for vandals to destroy, and for vermin to infest.  This brings down property values all over the neighborhood.  When a foreclosed house is purchased and given updates, the neighborhood looks better.  Then when you sell it to a new family, it gives them something to be proud of. 

These are all great reasons why investing in foreclosure property may be a good way for you to invest your money.  It’s not something that you take lightly – there will be costs involved in getting the house ready for selling again.  The possibility of not being able to sell it as quickly as you like is always there.  You may even need to rent it out for a while.  But when you are able to sell it, you’ll see that profit come right back to you.