Opportunity Stages of Buying Foreclosures
1. Pre-Forclosure Stage - This is the earliest opportunity to locate potential foreclosure properties. Advantages to purchasing in the pre-forclosure stage are 1) the buyer has time to research the title as well as the condition of the property . 2) The borrower ( current homeowner ) can walk away with some equity in the property while keeping credit damage to a minimum. Many buying at this stage realize discounts of 20% to 40% below market value. A win-win situation for the borrower and buyer occurs many times in this scenario. Those who learn the art of the short sale will profit nicely in this market. (A short-sale foreclosure is a lender accepting a loan payoff for less than the amount owed.)
2. Public Auction Stage - If no reinstatement has occured by the end of the pre-foreclosure period, the property goes up for bid at a public auction. Try to take advantage of low turnout auctions. Low turnout at foreclosure auctions can work towards the foreclosure investors advantage - minimized competition makes it easy to obtain great deals.
The down side of this purchasing at this stage is that you cannot research the property or it's condition; and you must pay in cash or casheirs check. Another thing to consider is liens against the property - some, the new owner will be liable for, others ( junior or second liens) will be wiped out by the public auction.
3. Bank Owned - REO Stage - If the foreclosure property is not purchased at the auction the lender will usually take ownership of the property. Next, the lender will try to re-sell the property to recover the balance on the mortgage payoff. Discounts at this stage are less because typically the lenders will want to perform maintainance or repair - and recover those costs. Banks and lending institutions DO NOT like holding onto foreclosure properties - so good deals are very possible at this stage as the new title holders are looking to unload the property ASAP.