Foreclosure is the legal process by which an owner's right to a property is terminated, usually due to the default of a loan. The legal process can take a very long time as there are many factors. The mortgagor usually allows several late payments then tries to resolve the delinquent account with the property owner. If no solution is available, then legal filings are put in place, which take anywhere from 60-180 days on average. The property owner may choose to sue the mortgagor if the owner feels their rights were not addressed and/or the owner can file for bankruptcy, delaying the foreclosure for months. Typically the property will be sold at a public auction, with the proceeds and any profit going to the mortgage holder. These sales sometimes take place at the county courthouse. Wondering where there might be a sale in your local area? Call the county and ask.
If you wish to bid on this type of property, consider the following steps:
- When you obtain the foreclosure notice, it will list the lender whom you may contact regarding property information and the amount owed. The bank/lender should send an information packet with details about the property. Oftentimes the mortgage holder will bid for the property to recover their loss (mortgage balance + late payments + accrued interest + legal fees + foreclosure costs), so locate these numbers too.
- Drive by the property to make sure the house and land are suitable (or close to) for resale. It's common for the owner to post a for sale sign to avoid foreclosure. See Pre-Foreclosure for more information.
- Acquire information regarding comparable sales in the area, possibly from a broker. Based on this information, you can make a reasonable assessment of the profit your IRA stands to make.
- If you're looking for rental property, then you'll want to look through local listings of similar houses to calculate the yearly income.
You may choose to navigate this process on your own or seek a real estate agent with proven experience in this field.
Another option is to purchase the home from the lender after foreclosure. The lender DOES NOT want to hold onto the property, although they do want a profit. Even though the company desires a profit so the property will not be sold at pennies on the dollar, negotiations are typically welcome. Most lending institutions, such as the Federal Housing Administration, Department of Veteran's Affairs, Fannie Mae and Freddie Mac, sell their REOs (Real Estate Owned) through real estate agents, so finding one of these agents could work in your favor. A great online resource is the Department of Housing and Urban Development Homes for Sale page.
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