Foreclosure
Making Money While Helping Others Out of Trouble
By
Nov 14, 2005, 21:07

Most foreclosure sales are actually auctions, formally called Trustee's Sales. When a property owner has not honored his or her mortgage commitment or agreement, the lender can order the trustee (a third and neutral party between the lender and borrower) to sell the property at a public auction. If you bid at the auction for more than the sum owed on the property, the lender will usually accept your bid. keep in mid that mortgage lenders are in the finance business, not the real estate business. They would sooner recover their financial losses (get the money back so that they can lend it out again) than hold out for a profit on the real estate.

Who are the winners and the losers at the foreclosure sales? Isn't the foreclosure buyer taking advantage of someone else?

If you buy from the owner before the sale or auction, the owner benefits. Although this sum will probably be less than the full market value of the property, it will be more than he or she would get at the auction because the lender will accept whatever bid will give the lender the most money. In order to get rid of the property, the lender may even accept a bid that does not cover the entire amount outstanding on the loan, having decided that he can write off at least part of it as a bad debt. However, the lender will subtract from the purchase price not only the loan, but also interest and penalties. Only then would any of the proceeds accrue to the hapless owner. Your offer benefits the owner directly. Keep in mid that you didn't create the problems of the troubled property seller. Because the seller stands to gain little or nothing from the Trustee's Sale, you are not taking advantage of him or her.

Is it possible to save money at the foreclosure sale?

Yes, foreclosure sales (Trustee's Sales) can save you money. A knowledge of property values is especially important. Properties are sold at discounts from the retail market. But the properties are also sold on an "as is" basis. Pay close attention. The 30 percent to 50 percent you may have saved could easily be spent on repairing a deteriorating roof, crumbling foundation, or termite damage before you can re-sell the property.

What price should I bid?

That is easy! Bid just enough to buy the property but no more than it is worth. Keep in mid you will have holding costs, fix-up and rehabilitation costs, and selling costs before you can recover your investment.

Should I buy from the owner before the sale or would it be less complicated to buy after the foreclosure sale?

Both methods have their advantages. The properties and the circumstances will be different for every sale. If you are buying before the Trustee's Sale, you will be able to visit, inspect, and evaluate the property first. If you are buying at the auction, you will not become involved with the emotions of the sellers, you will need few or no negotiation skills, and there will be very little legal hassle.

Don't banks and savings and loans sell properties?

Yes, these are called REO or Real Estate Owned. The banks will sell these properties to a qualified buyer; however, you should plan to pay very close attention to market price. The banks rarely feel obligated to just dump the properties at low prices.

Do the auction sales require cash?

Most trustees will require that the bidders qualify before the sale. To qualify, you must show your cash or the equivalent up the amount you intend to bid usually in the form of cashier's checks.

Will all the properties at the Trustee's Sale be sold "as is"?

Yes. Some banks and savings and loans associations will allow you to visit the properties before the sale. Take advantage of this. Ask professional structural engineers, termite contractors, and roofing experts to accompany you on such tours. It will be worth their fees, or they may be willing to do it at no fee on "spec", that is, speculating that you will hire them after you purchase the property.

What are outstanding loans and judgments?

Such debts constitute your biggest risk when buying before the Trustee's Sale. All liens, loans, and judgments against the property will be recorded at the County Recorder's Office of the county in which the property is located. You can research the county records yourself. Most title companies maintain copies of the county records. If you have a close relationship with a title company, it is possible the company will allow you to use its records to research the title and any possible liens or encumbrances.

Can you get rich buying foreclosures?

It is up to you! Like most of the other ways to make a great deal of money, it takes work and talent, lots of education (failures), and a little luck. You need knowledge , dedication, and perseverance. The disappointments will exceed the reward during the learning period. The profitability is up to you. You can control your destiny through your own efforts.

How soon can I start making money?

It depends on your own motivation and desire. Many people make money after less than one month. However, I suggest you be prepared to wait a least 90 days for your first check.

Can I begin part-time?

It is probably the best way. While you go through the learning process, you can keep your regular job and build up a reserve of funds to use as fixer-upper or purchase money.

How much money will I need?

None, if you want to borrow from partners or very little if you are willing to start out small.