How to Invest in Foreclosures Safely and Effectively Waterville ME

When investing in foreclosures, understanding the lifecycles and different types of foreclosures—as well as knowing which type is hot at the moment and why—is crucial to choosing the right time to buy to maximize the potential of your investment and reduce risk. Within the circle of foreclosures there are three basic categories to recognize: buying before the foreclosure auction, buying homes directly at the auction and buying from the bank or auction after the auction is over. These bank-owned properties are referred to as real estate owned (REOs). Let us take a look at each of these types of foreclosure so that you can focus on the best segment of the foreclosure market.

Buying before the auction

When home owners are having trouble but are not yet foreclosed on, the property can be sold before auction. Such distressed properties include those from the multiple listing service (MLS), short sales, notice of defaults (NODs) and notice of trustee’s sales (NOTS). Because of the excess inventory of existing foreclosures on the market, the restriction of lending and the anxiety of home owners and investors willing to sit on the sidelines till something breaks, this could be one of the worst times ever to sell a house retail. Many sellers cannot compete against foreclosures, so unless they too enter foreclosure they have no viable way to sell their home for a fair price. This means that investors have no way to buy a home with equity in it at this stage of the foreclosure process. However, short sales are worth discussing.

In a short sale, the prospective buyer negotiates with the bank to let the home go for a value less than the amount owed on the home. This is but one solution for the home owner and a method for an investor to get a home at below market value. Note that home sellers may suffer tax consequences by selling their home in a short sale. In general, short sales take far too long to complete (4-6 months on average), the banks are too understaffed to handle the huge volume of short sales at this time (with many more coming in the future) and investors impatient for a good deal are dropping out of deals before they close. Some figures show that only 20% of short sales actually reach the closing stage. Though there are many companies, realtors and investors who are quite successful in short sales, it is a specialized niche in which most do not find the returns that they expect.

Buying at auction

The second category of buying a foreclosure involves buying directly at the auction. Note that some states have judicial proceedings while others like California and Nevada have trustee’s sales that are held on the courthouse steps. Though there is little competition at these sales,  the trust deed requires that the buyer have cash or the equivalent at the time of the auction to be the winning bidder. This eliminates a huge majority of potential buyers as most people do not have $100,000 or more in liq...

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