Welcome to my website! On this page, you are going to discover how to leverage a foreclosure loan to profit from a real estate investment.
But before I get into that, I need to make sure that you understand a key point. In the last few years, there's been a growing industry around providing loans to people in foreclosure that can prevent them from losing their home. There are also government bailout programs that will help people in this situation too.
This article has nothing to do with either of these situations. The kind of foreclosure loans we'll be discussing are loans that real estate investors get to purchase homes that have already been foreclosed on.
So assuming that you are a real estate investor or want to become one, let's talk about how the foreclosure process works and how you can get loans to purchase foreclosure properties.
As a real estate investor, it is important to understand that foreclosure is a process and not just a single event. First a borrower that is behind on house payments is given a demand letter, or put on notice that they are not complying with the loan agreements they signed or in other words, they have not been making their required payments.
Next a substitution of trustee is done that allows an attorney to continue the foreclosure process. This attorney completes a notice of default that is officially recorded at the county records office and put on public notice that the borrower is now in default on their loan.
That begins what is known as the redemption period, which is a certain period of time that the borrower can pay the loan off. In some cases lenders will work out modification on the loan and in others, the lender will require the loan to be paid in full.
For most homeowners payment if full is impossible. Once the redemption period is over without some type of settlement, a notice of sale is posted. This is typically printed in some type of a newspaper; it is usually not your traditional newspaper but one known for doing legal publications. This will set the date and time of the sale to take place. When the date comes for the sale, the property is sold to the highest bidder, in most cases that is the bank.
The bank will bid up to a price that they need to get out of the home. This is known as a "credit bid" meaning the bank does not need to bring their money to the sale, they already gave the money to the borrower so they bid an amount and that credits against the total amount the borrower owes the bank.
In some cases banks will bid less than what they are owed but we find in many cases banks will bid what is owed and this is typically more than what the property is really worth.
If this is the case the bank owns the property at the end of sale if there is no other higher bidder. They will then work to get anyone in the property out by doing an eviction of people or personal property as needed.
This is where the real estate investor comes into play. Savvy investors know that banks want to unload these properties to get them off of their books. The money they have tied up in these properties is money they can't lend to good borrowers. And banks make the bulk of their money on lending.
Here's some do's and don'ts on buying foreclosures:
Don't buy at the auctions. You typically can't see the inside of the home before you buy so you don't really know what you are getting into. Plus, it is almost impossible to get financing from foreclosure lenders that fast
Do follow foreclosures and contact the bank right after a sale has happened, preferably right before the property gets listed. Once the home is listed on the market, you should get an offer right away to the bank. Many times the banks won't accept the first offer, but that's okay.
Keep an eye on these homes because the longer they sit on the market, the banks will get anxious and will either lower the price significantly or accept a lower offer. That's when you'll find a huge bargain on foreclosure homes.
Here's what you need to know about a foreclosure lender:
More often than not, investors will buy properties that have been foreclosed on to do fix and flip projects. They give out foreclosure loans to fix and flip investors that are designed for the short term. They can lend money much faster than a bank or traditional lender - in as little as 5 business days.
This kind of foreclosure loan is great for the investor because he can borrow money for purchase and rehab so he has to put up little to no money of his own to get the project done.
And that's how real estate investors can leverage foreclosure loans to make money in real estate.
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