 Advice for Foreclosure Investing
by Helen Townsend Spohrer, CCIM
As foreclosure rates rise nationally, there are bargains available along the Forgotten Coast. With large inventories and soft prices in our area, a savvy investor could build a solid portfolio of distressed properties. But, remember that foreclosed properties generally sell for current market value, and not below.
Working with a Realtor who is experienced in foreclosures can make a great difference in your success rate as an investor in this type of property. To invest successfully in foreclosures, you must know your market, understand the foreclosure process, rely on a trustworthy team (Realtor, inspector, closing agent, attorney) and be prepared to act quickly but never get in a hurry.
There are three stages at which bargains may be found. Each has its advantages and disadvantages.
- Pre-foreclosure.
- Court-ordered Auctions.
- Bank Owned Properties.
PRE-FORECLOSURE: This refers to the period after the lender has filed an original complaint and filed a lis pendens on the property indicating the intent to foreclose. At this time the property is still controlled by the seller, but the lender may be involved, too. Lenders do not want to foreclose on property and will often work with the seller and buyer to put together a transaction at this stage. Usually the property is still listed with a local Realtor. And, both the seller and the lender are motivated to avoid an actual foreclosure.
Advantages:
- Motivated seller
- Motivated lender
- Easy to access the property for inspections
Disadvantages:
- Seller may still hope for a higher price range buyer
COURT-ORDERED AUCTIONS: To complete the foreclosure process, the local clerk of court auctions the property to the highest bidder on the courthouse steps. In Florida, this foreclosure sale is the final step in the process. Usually, the lender ends up with the property, but others may bid on the property at this time. The highest bidder must close immediately (same day) with a cash sale with no contingencies.
Advantages:
- Buyer may get a good deal if the amount owed is much less than market value
Disadvantages:
- Difficult to gain access to the property prior to the sale
- Buyer must buy the property “as is”
- Sale does not wipe out tax liens and buyer may be responsible for past due property taxes as well as federal IRS liens
- Buyer must close immediately with cash
BANK OWNED PROPERTIES (REO): Another name for bank owned properties is REO, an acronym for “real estate owned.” This refers to property that has come into the possession of a bank or lender, usually through the foreclosure process. Most lenders and banks are not in the business of managing and holding real estate and want to move the property as quickly as possible. Many banks turn their REO properties over to large asset management companies for disposition.
Advantages:
- Easy access to the property
- Lender is motivated to sell
- The title is clear; liens have been paid
- Financing may be available from the lender
Disadvantages:
- Delayed response to offers due to corporate ownership
- Property generally sold “as is”
- Multiple offers may occur, even in a buyer’s market
- The lender sets the terms of the contract with little flexibility
- Buyer must prove he is qualified
- Contracts may have strong penalties for failure to close
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