Even With Foreclosure Understanding Experience Is A Must For Investors
The recent subprime mortgage meltdown in the US has been a period of trepidation for homeowners beset with mortgage payment problems. On the other hand, it has been a period of opportunity for investors to buy cheap homes with a bit of foreclosure understanding. What is this all about?
Let's find out. Well, a foreclosure is the distress sale of a property made by a lender when the property owner consistently defaults on the monthly principal and interest installments due to that lender. The lender can put the property on the block only after a defined period has elapsed. In such a situation, the property or the home is known as a foreclosed property.
The best time during the various stages of foreclosure for investors to move in and buy the troubled properties is during the pre-closure period. When is that? Let's find out.
After approximately three to six months of mortgage repayment defaults, the lender moves for a Notice of Default. Such notice is recorded by a trustee at the local County Recorder's Office. The notice is received by the loan borrower. This initiates a defined period of reinstatement. The notice makes the borrower realize that unless he cures the entire default within three months, his home/property will be auctioned off on a certain defined date. The reinstatement period runs typically till five days before the set auction date of the property. If the entire default is not brought current by the end of the reinstatement period, the loan borrower then receives a Notice of Sale for the property. This informs the property owner that after a period of five days from the date of receipt of the said notice, his property will be auctioned off to the highest bidder. This five-day period is known as the pre-foreclosure period. This is the best period for troubled homeowners to negotiate with investors and attempt to sell their properties to the buyers. There is a chance this way that something extra may be retained by them after repayment of the entire dues to lenders from the sale proceeds. The pre-foreclosure period is when it is entirely a buyer's market. The advantage to the investors is that they can negotiate an affordable sale price for the properties directly with their owners. However, this may not be always the case. Investors should tread carefully because most foreclosed properties have market values less than the lien dues outstanding on them. Further, even various taxes and duties may still be outstanding on such properties. Moreover, the negotiation period is very short. So, here the property evaluation, inspection, and price negotiation skills of investors are most important. Given the foreclosure understanding provided above, it is clear that buying foreclosed properties needs experienced investors and is definitely not for the 'also rans'.
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