The 411 on Foreclosures
Foreclosures is one of the hottest areas of real estate investing.
Foreclosures offer an opportunity for real estate Investors to help a
homeowner out of a terrible predicament.
Why are There So
Many Foreclosures?
The U.S. is at an all time high in the number of foreclosures filed.
The main underling reason is the economy.
We are also at an all time high for mass layoffs, "off
shoring" and major corporate bankruptcies due to scandals. Plain
and simple, people who are out of work, don't have the money to pay
their mortgages.
Mortgages had become increasingly easy to get, and the interest
rates were down, as a result more people had mortgages than in the
past. This meant that there were just simply more loans to be foreclosed.
Mortgage Meltdown
There were a vast number of loan programs available that
virtually anyone could qualify for. Many of these loans were variable
rate, which allowed home owners to get into the loan with very low
payments, that would increase at a later date based on the prevailing
rates.
Other programs allowed people to qualify for very large
loans with little documentation and no proof of income.
Many other people with fixed rate loans refinanced to
these 'modern' loans to get lower payments and/or cash out from the
loan. The end result was a lot of happy people in expensive homes that
they could not really afford.
Of course the perfect storm then hit, the economy and
the stock market went South quickly. Many people lost their jobs, and
the much higher variable rates were hitting, which doubled many people's
mortgage payment.
Property values plummeted, so people could not afford
their mortgage payments and they could not sell, because with the lower
property values they owed more than their home was worth. End result;
the worst foreclosure crises since that our country has seen in decades.
What Exactly is a Foreclosure?
A foreclosure is basically a defaulted loan, where a property is the collateral.
When the borrower fails to make the loan payments, the property is
foreclosed by the lender. The lender now owns the property.
The foreclosure process varies by state. In some states it takes as
little as 4 weeks to foreclose a property, while other states can take
six months or longer.
Once the property is foreclosed it is usually sold at a
"Sheriff's Sale", or something similar. The bank will not get
the full value of the property. The bank will also have a defaulted loan
on it's books, which is a major blemish. So, it's understandable why
banks don't want to own real estate.
Foreclosures happen to properties that range from condemned junkers to
multi-million dollar upscale homes.
Won't Bankruptcy Stop Foreclosure?
No, it may delay the foreclosure process, but it won't stop it. Once
the bankruptcy is final and the debts discharged, the foreclosure
process will begin again, if the back payments and fees have not been
paid.
A bankruptcy is a major blemish on a person's credit report, but in
all likelihood the person will be able to get another mortgage in a
couple of years. The situation causing the financial problem is usually temporary,
and most people bounce back.
A foreclosure however, will prevent another home loan for several
years. It's a much more serious problem than bankruptcy. Most people
don't realize this until educated by a real estate investor.
Aren't Real Estate Investors Predators
Preying on People's Problems?
No, not at all. In fact it's usually the exact opposite. Real estate
investor's are the last hope for many people. Real estate investors are
going to pay less than the fair market value, but what's the
alternative.
The homeowner will get nothing for their property, and have a major
incident on their credit report for several years. The bank will have to
take back a property that it really doesn't want. No one wins in this situation.
The real estate investor offers a service and a solution. The
Investor buys the property, makes up the back payments and fees, and the
homeowner's credit does not show a foreclosure. The bank does not have
to take the property back, and the Investor can sell the property to new
buyers for a profit. It's a win all the way around!
Aren't Foreclosure Laws
Complicated?
Yes, that's where real estate jobbing can be a great benefit. You
will learn first hand from experienced Investors.
