Foreclosures have been around forever. Only now there just more of them. It seems to be the buzz on the street. Seasoned and novice investors want to invest in foreclosures. In 2004 the number of foreclosures was 2% of the total sales in the US. In the first quarter of 2008 the foreclosures accounted for 30% of the total sales. During the 1st quarter 2008 in Stockton California 72% of its sales were in foreclosure. In Las Vegas during the 1st quarter 2008 45% of the properties closed were in foreclosures. So you can see why there is so much interest in foreclosure. The reason they are so attractive is if you are going to be successful in real estate, you need to work with a motivated seller. There is no more motivated seller then one whose will lose their property because they are not or cannot make their payments. Typically, foreclosures up tothis point were from divorce, medical bills, or unemployment. In addition to these re-occuring
reasons, today they are the result of the ARM ( adjustable rate mortgages) being reset from a lower interest rate to a higher rate, making the payment higher and unaffordable to the home owner and their property value dropping leaving no equity. What happened to create this situation? People with poor and bad credit were given loans for properties that should not have gotten them in the first place. In CA they were approving people at 22 times their annual earnings instead of the 3 times, which is normal. They were hoping the appreciation would continue and they would get out of the property with a fistful of money and use that for a down payment in a more affordable market. However the market lost
its steam and property values dropped and these buyers were left with property that many times was worth less then what they paid for it and when the loan reset they were unable to pay for it. Investors also bought homes thinking they could ride the “gravy train” and earn a lot of money and be at the right place at the right time. Many of these people are actually walking away from their homes and have good credit and cannot afford the payment. But they figured why make a payment on a property that is not worth what I paid for it? It might take several years for the property values to comes back, so they let their property go to foreclosure. Sogreat opportunity for the investor who knows what they are doing. Every once in a while whenthe planets align and everything is in sync it’s a great time for us to take this opportunity andthat is what is going on in real estate today.
Foreclosures are divided into 3 phases:
1) Pre foreclosure- the property owner still in control. If they have equity you want to work with home owner. However, if there is no equity then you would want to do a short sale
2) Auction- reserved for experience investors because of the financing, the property inspection and the attached liens.
3) The REO (Real Estate Owned) - this is where the property has not been sold at auction
and the lender gets it back. This is the safest way to buy a home because you can
inspect the property.
Jessie Frost
www.forcloseinvesting.com
