Exploring Home Foreclosures: Crucial Facts You Should Be Aware Of

Foreclosure laws vary by state, so it's crucial to check your state's specific laws at www.realtytrac.com or through the county clerk's office. If you're considering buying a foreclosed home, it's important to understand the process and potential risks involved.

There are three main ways to buy foreclosures: pre-foreclosures, auctions, and REO (Real Estate Owned) properties. Pre-foreclosures occur when homeowners are behind on their mortgage payments but have not yet entered the foreclosure process. Auctions are public sales of foreclosed properties, while REO properties are those that have gone through the foreclosure process and are now owned by the lender.

Regions with high unemployment rates and declining industries, such as parts of the Rust Belt (e.g., Michigan, Ohio), some Southern states (e.g., Florida, Arizona), and certain urban areas affected by housing market crashes, are likely to have a high number of foreclosed homes. However, many of these foreclosures may not offer significant discounts due to little or no equity built by the previous owners.

When buying at auction, a letter from a bank or lender showing the ability to buy the property is often required. It's also important to conduct a title search to uncover any liens on the property, as liens remain intact until paid, meaning the buyer will have to pay off any existing liens on the foreclosed property.

Title insurance that provides protection against ownership challenges may not be available for foreclosed properties. Additionally, foreclosure homes are sold "as is," which may lead to unforeseen expenses for repairs. Some banks and lenders may refuse to give a mortgage on a property being sold "as is" because their appraiser cannot inspect it first.

It's essential to check the redemption rights in the state where the foreclosure is being purchased to avoid potential losses. In some states, there are redemption periods during which the original homeowner can buy back the property. For example, in Tennessee, this period is two years. If the buyer pays more than the amount owed by the original homeowner and the property is later redeemed, the buyer may lose the excess amount paid.

Buying a foreclosure is not just risky business, it's a gamble where the house doesn't always win. To succeed as a professional real estate investor, one needs to be able to do title searches, price or appraise property, fix up properties, and market them, as well as have enough cash for auctions.

To find lists of foreclosures in your area, consider contacting the local office of the Real Estate Investment Association. Over a million foreclosures are expected to be recorded this year, so the market presents opportunities for both investors and homebuyers.

However, it's more important to find an area you like than to find a good foreclosure deal if you're looking to live in a house. If there are foreclosures in an area you like, consider buying the foreclosure. Home prices are starting to come down nationwide, and many homeowners are losing their homes after being hit with a huge jump in monthly payments once initial low interest rates adjusted up, sometimes to double digits.

In conclusion, buying a foreclosure can be a viable option for both investors and homebuyers, but it's crucial to understand the process, potential risks, and local laws involved. Conduct thorough research, seek professional advice, and approach the process with caution to maximise your chances of success.