The Risks Involved When Buying Foreclosure Properties Crystal Lake IL

Investing in foreclosure properties is much more complicated and risky than the typical real estate transaction, and not recommended for real estate beginners. It is important for investors to understand the risks associated with different types of foreclosure transactions, conduct thorough research in neighborhood property values and conditions and study local foreclosure laws before considering a foreclosure investment. See the following article from Creative Real Estate Online for more on this.


If you are new to real estate investing and considering buying foreclosure properties, you need to be realistic about what you are facing. If you feel more sober about foreclosure investing after reading what I have written below, I will have accomplished my goal.

Foreclosure investing is not a good investment approach for beginners. I recommend that you have at least a couple of years' experience with more traditional real estate investing first.

The profits from foreclosure investing can be huge. That makes foreclosures attractive. There is an awful lot to know in order to avoid the problems that can occur. If you don't know what you are doing, one disastrous foreclosure investment can wipe out your capital and your enthusiasm for all real estate investing.

Three ways to buy a foreclosure property

There are three basic approaches to buying properties in foreclosure depending on the stage of the foreclosure process: buying pre-foreclosures, buying at the foreclosure auction, and buying from lender after the foreclosure sale.

If you buy from the delinquent property owner before it goes to auction, you have bought a pre-foreclosure deal. Buying at the auction is self-explanatory. If nobody bids, the lender ends up with the property.

Buying from the lender after the auction is called buying REOs (real estate owned) or Repos, (repossessions). Sometimes you will see them referred to as "corporation owned" or, my favored term, "lender owned."

REOs are the least risky way to buy foreclosures

You may have more risk than you would in a regular real estate transaction, but REOs are less risky than in buying at the auction. Since REOs are somewhat similar to a regular sale, they can be pretty safe. You might not get a seller's disclosure.

In California, a lender who acquires a property through foreclosure does not have to offer a disclosure to you as a buyer. But, if there are problems after you buy the property, you might be able to sue the lender who sold you the property, or at least threaten to sue them, and they might make things right or pay part of the cost. There's a good chance they will still be around after the sale.

The risks of buying pre-foreclosure real estate

The next riskiest foreclosure purchase is the pre-foreclosure. If an owner of a pre-foreclosure disappears, you risk not getting anything from him after the sale. A pre-foreclosure seller might be desperate and lie to you a...

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