Introduction

Nowadays foreclosure rates have been on a steady increase. It is a result of various situations including job loss, divorce, illness and numerous other reasons. Among the many reasons, a person forecloses on properties, and it is a fact that happens to thousands of people all over the U.S. Many people fail to pay the loans and lose their homes to foreclosure due to monthly loan payments, credit card debt etc. Foreclosures can be precipitated by a series of events, but the reason could be high interest loan and no-down payment loans.

When you think of investing in a foreclosed home, be sure you know what you are up against since you get the most for your money, and finally, the most is for your investment. Not all foreclosures are frauds i.e. if a financial organization prices a property based on the outstanding loans, there is a possibility that the price is close to the value of the property because 100 percent equity lending will be available. Finding a good deal lies in knowing the value of the home, subtracting necessary repairs and then comparing the asking price with the starting bid. Similarly, another key to find the best deal on a foreclosed home is, to know the stages of the foreclosure process, and to know how it will affect the selling price.

Foreclosure and the Process

Foreclosure - is a method that allows a lender to recover the amount owed on a default loan by selling or taking the ownership of the property by protecting the loan. The foreclosure process commences when a borrower or an owner fails to pay the loan payment and the lender will file a public default notice.

The process of foreclosure can end in any of the four ways:

• The borrower or an owner would pay off the amount in order to return the loan during a grace period that is determined by state laws. This grace period is known as the pre-foreclosure.

• During the pre-foreclosure, the borrower or the owner would sell the property to a third party. The sale would allow the borrower to pay off the loan to avoid of having a foreclosure on his or her credit history.

• At the end of the pre-foreclosure, a third party will purchase the property at a public auction.

• Aiming to re-sell the property, the lender would take the ownership. Further, he can take the ownership through an agreement with the borrower during the pre-foreclosure or during the public auction. These will be known as the bank-owned properties.

Stages of Foreclosures

Pre-Foreclosure

A pre-foreclosure sale will take place when the lender allows the homeowner with past due mortgage payments to sell the home on their own to pay back the lender from sale of the home. Buying a pre-foreclosure should have a direct interaction with the homeowner and the lender. During the pre-foreclosure stage, the homebuyers will be in a great position to negotiate price to get a good deal. This pre-closure point will give an opportunity for the buyer, the seller and the lender to be in high spirits. Whereas, the buyer's should decide a price that is considerably less than the original property value, and the seller's can be saved from a bad credit experience, while the lender will be prevented from losing time and money that is involved in the total process. The investor will also benefit from this type of sale as well.

Advantages and Disadvantages of Pre-Foreclosure Properties

Advantages in purchasing an investment property via a pre-foreclosure sale include discounted price, speedy purchase and a wonderful profit opportunity.

The disadvantages, is, the investor who buys a property by the way of a pre-foreclosure sale may find hard to contact the homeowner or he will be unwilling to sell. The research may be awkward and the other potential buyers will wish to purchase the property.

If a person wishes to purchase a property via a pre-foreclosure sale, he should do an independent research and approaching the homeowner in a courteous manner will not cause him to lose money at the end. Another advantage for the buyers during this stage is to give them an opportunity to evaluate the property. The downside of this process has some negotiations between the buyers and sellers and it could be a challenging one, force will be created with a time control to complete the deal before the sale.

Auction

Auction-this is a popular stage in the foreclosure process. This type of sale on foreclosed homes still give a buyer the opportunity to save a lot of money, and will give a property ownership if you win the bid. Although buying a home at an auction can be a good deal for buyers, it is important to know there are disadvantageous thing during the pre-foreclosure stage.

Auctions of this type will be usually held at the local courthouse of the county where the property is located. It is a common way for the foreclosed properties to be sold and this too has its pros and cons.

A chief advantage in purchasing a home at a foreclosure sale is the reasonable cost for which one can bid on a property. Similarly, though there will be other bidders, the resulting price will be usually the one that is quite attractive.

Regarding the disadvantage, purchasing a home at a foreclosure auction relates to the inability to inspect the property. Another disadvantage in purchasing a home via auction is, the purchase price and the deposit is payable via cash or cashier's check in many instances, which may be difficult for many investors to obtain on short notice.

Bank-owned

This is the final stage of the foreclosure process. If the home is a real estate owned one (REO), the bank will take pains toward to sell the property on its own by removing some expenses. The advantage in buying an REO is that it usually has a good title, the property taxes will be up to date, and repairs may have been made to the property by the lender in making it ready for sale. The disadvantage is that, those who purchase an REO may find that the profits may not be as great as well.

Conclusion

There are a few things to keep in mind when purchasing a property in any of the previously mentioned ways. It is an important thing to do an independent research with regard to the properties and purchase methods, so make sure the necessary funds to purchase and examine the home whenever possible. This will help to ensure the buying process to go as smooth as possible.

Related Topics

• Dallas Real Estate Agents
• Dallas Foreclosure Listings
• Real Estate Auction
• Dallas Homes For Sale