Foreclosure is a process in which a piece of real estate
becomes the property of a lending institution due to the
legal owner's inability to make scheduled payments on the
mortgage or deed of trust.
Typically, the lender files a notice of default after a
homeowner fails to make his or her mortgage payments for
several months. If the loan is not reinstated, the lender
moves to foreclose. As a result, the lender becomes the
new legal owner of the property and has the right to resell
the property and recover any outstanding loan balances in
addition to foreclosure expenses.
The foreclosure process consists of three stages:
pre-foreclosure, which begins the redemption period;
foreclosure, which is when the home is sold at a public
auction; and post-foreclosure, which is when the property
reverts back to the lender if it fails to sell at the
public auction. Although each stage offers bargain-buying
opportunities, the pre-foreclosure stage is considered by
many real estate investors to be the most promising time to
purchase during the foreclosure process.
Investing in pre-foreclosures means you will be acquiring
property any time before the scheduled public auction. As
the investor, you will be buying the property directly from
the owner. The earlier you contact a homeowner in
pre-foreclosure, the more time you will have to make a
connection, structure a deal and purchase the property.
There is a common misconception that real estate investors
purchasing homes from owners facing foreclosure are taking
advantage of the homeowner's misfortune. This is simply not
true. A Notice of Default is filed only when a borrower
(property owner) has broken the terms agreed upon with
lender at the inception of the loan in default. This breech
gives the lender every right to protect its financial
interests. Therefore, an experienced real estate investor
becomes the problem solver by finding a win-win solution
that will help the homeowner get out of default.
Property owners facing foreclosure are typically scared or
in denial. Many of them hope some miracle will happen that
will make their ordeal simply go away. Doing nothing will
certainly ensure a homeowner's foreclosure, loss of home,
loss of equity and credit rating damage for an entire
decade.
When dealing with an owner in pre-foreclosure, talk to them
as soon as possible. It is vital to explain the following
three benefits of avoiding foreclosure:
1. Protects their credit
By working with an investor, homeowners may be able to
avoid foreclosure and begin rebuilding credit. Even if a
homeowner endures the process of losing his or her home,
the repercussions of a foreclosure on a credit report are
far reaching. A poor credit rating affects everything from
buying a car to renting a home. With certain businesses,
credit is even a factor in employment. Investors often help
homeowners protect credit.
2. Make a profit
While it is true that real estate investors purchase at a
discount, a homeowner facing default may still be able to
recover some of their equity and walk away with profit.
3. Get a fresh start
Stopping the foreclosure allows homeowners to breathe a
sigh of relief. As the pain and pressure of the foreclosure
lifts, they find it easier to move on and begin rebuilding
their life.
Buying in the pre-foreclosure stage can be the most
lucrative slice of a real estate investor's business. Once
rapport and trust have been established, a professional
real estate investor can determine whether the sale of a
property would truly benefit everybody involved.
There are various ways to profit while helping people find
viable solutions for their defaults. The following three
are most common:
1. Purchase at a discount
Real estate investors are not likely to make a profit by
purchasing at full market value. As an investor, it is
essential to inform potential sellers that you earn your
living from your profits. Therefore, you must buy for less
than retail price while taking into account acquisition,
sales and holding costs and any necessary repairs. A
discount of twenty to thirty percent of full market value
is common practice among real estate investors.
2. Buy property "subject to" the existing loan
There are widely spread rumors that it is illegal to
purchase property that involves taking over an existing
mortgage. This is completely false. While assumable loans
are practically extinct, it is perfectly legal to purchase
property subject to an existing loan. It is important to be
aware of the "due on sale" clause stating the existing
lender can call the loan due upon the transfer of title. In
other words, the lender has the right to demand full
payment of the outstanding loan balance at the time of
transfer. In practice, lenders would rather receive their
monthly payments than call the loan. Purchasing property
subject to the existing financing means a smaller
out-of-pocket investment for the real estate investor.
3. Create instant equity utilizing a Short Sale
Structuring a Short Sale can prove profitable when dealing
with a homeowner facing foreclosure whose property is
equity deficient. In this market, troubled lenders would
rather discount their mortgages than increase their already
mounting inventory of foreclosed properties. The type of
discount you create will largely depend on the quality of
your Short Sale package combined with the quality of your
negotiating skills.
Real estate investors prevent a large number of
foreclosures every year across the country. There are many
ways for investors to make a profit while helping people
move on with their lives.
Undoubtedly, the money is there to be made.
Pre-foreclosures are a fabulous way to make it.
----------------------------------------------------
Brenda Coté is a Real Estate Investor, Real Estate
and Mortgage Broker, Mentor, and Wealth Coach. At
Transforming Lives, Creating Wealth, Brenda employs a
"whole person" approach to support female Real Estate
Investors succeed in business and life. To download
Brenda's FREE audio workshop, "The Seven Elements of a
Wealth-Creation Mindset" please go to:
http://www.TransformingLivesCreatingWealth.com
No comments:
Post a Comment