There are currently more than a million homes across the U.S. in some form of foreclosure. This doesn’t mean they’re a better or worse deal for investors than other homes for sale, but knowing how they work could provide some profitable opportunities, according to an article on DailyFinance.com
First, be aware of the various stages of foreclosure, as detailed in the article:
“The pre-foreclosure stage usually begins when the first payment is missed from the borrower to the lender. That official clock starts with the notice of default. During this stage, you would buy from the owner and not the bank.
The foreclosure auction stage is also called the sheriff sale or trustee sale, depending on if you live in a mortgage state or a trust deed state. The process is usually four to six months along, and the property goes to the highest bidder at a public auction, usually for all cash.
Many states have a redemption stage, where the borrower can pay off the balance on the mortgage (or an amount agreed to by the lender) and get the property back out of foreclosure. This stage requires you to buy from the owner and not the lender.
The bank-owned stage is also known as real estate owned. Nobody has won the bid at the auction (usually nobody bid), so the property reverts back to the lender, which can sell it to a private owner, either as an owner occupant or an investor.”
The article then explains several factors to be aware of when purchasing a property. First, as with any investments there are still risks involved. As always, education and due diligence are encouraged.
In addition, the article reminds investors to keep in mind all costs that could be involved when purchasing the property, including closing costs, repair costs, utilities, and leasing or selling costs. There’s usually more to the investment than just the low selling price that appears on a foreclosure listing.