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Its good to keep things like this in mind if your considering investing in another source of income *Diversify your portfolio* Real estate is the only investment that doesn’t depreciate #OverStanding
What is Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice. The foreclosure process can end one of four ways:
The borrower/owner pays off the default amount to reinstate the loan during a grace period determined by state laws. This grace period is also known as pre-foreclosure.
The borrower/owner sells the property to a third party during pre-foreclosure. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
A third party buys the property at a public auction at the end of pre-foreclosure.
The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are also known as bank-owned properties.
The foreclosure process presents three bargain-buying opportunities.
Pre-Foreclosure (Notice of Default, Lis Pendens):
Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property. The borrower/owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can realize discounts of 20-40 percent below market value.
More about pre-foreclosures
Auction (Notice of Trustee Sale, Notice of Foreclosure Sale):
If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a public auction often offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.
More about auctions
Bank-owned (Real Estate Owned):
If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender will usually want to re-sell the property to recover the unpaid loan amount. The lender will probably make sure the title is clear for any buyer, but the potential bargain is typically less than a pre-foreclosure or auction property.
More about REOs