Foreclosures
A foreclosure occurs when a lender takes possession of a property because the current owner has failed to meet some or all loan agreement conditions. Investors can sometimes buy foreclosures much cheaper than market prices, but it usually comes with more risk. Before buying foreclosed property, always investigate why the lender has taken possession—knowing the reason can help you assess your risk. Here are a few common scenarios:
- Default on loan payments: The owner fails to pay the mortgage over an extended period, forcing the lender to take over the property. These properties are usually suitable investments since the problem results entirely from the owner and not the property. These properties are often the ones previous owners try hardest to keep or take back after a new owner buys them.
- Environmental or structural problems: If owners cannot deal with environmental or structural issues, they may sometimes abandon the property. Avoid these foreclosures entirely.
- Not following loan rules: Loans usually require the property to be kept in reasonable condition. If the lender forecloses due to the owner’s neglect, you’ll likely want to avoid the property. If you proceed, have the property inspected thoroughly.
Where to Find Foreclosures
Most lenders have a real estate-owned (REO) department that handles and sells foreclosed properties. If you’re determined to buy a foreclosure:
- Work with a lender’s REO department directly: Since the lender’s only interest is to get the property off their hands with as minimal a loss as possible, finding good deals is often feasible.
- Avoid websites or real estate brokers specialising in foreclosures. These companies usually offer the riskiest properties and charge some commission.
Government Auctions
The U.S. government sometimes serves as a lender to prospective property owners, meaning it must occasionally foreclose on properties for the same reasons private lenders do. When the government forecloses on a property, it holds a government auction to sell the property to the public and try to recoup the market value.
At government auctions, properties can sometimes sell for much less than market value, depending on the bids. Just like with lender foreclosures, make sure you understand why the property was foreclosed on, as the same risks apply.
Leave a Reply