Foreclosure listings, otherwise known as the distressed properties that are currently up for sale, have become synonymous with today’s most attractive profit margins. At their very best, foreclosure listings represent some of the greatest deals on the market. At their worst, they are slightly cheaper to acquire than a non-distressed home. There’s no doubt about it: Given the right circumstances, foreclosures award investors with ample opportunity to flip a lucrative deal. What are great investments, after all, if not for assists that can be purchased at a discount and sold for considerably more?
There are certainly fewer foreclosure listings on the market today than there were even a few short years ago. The recovery of the housing market has seen to it that fewer homes are being subjected to the foreclosure process than in years past. According to RealtyTrac, the number of properties that received a foreclosure filing in U.S. was 25% lower than this time last year.
Despite there being significantly fewer foreclosures, data presented by RealtyTrac suggests there are somewhere in the neighborhood of 574,203 foreclosures across the country, not the least of which represents a significant opportunity for savvy investors. However, these opportunities are only going to present themselves to those that know where to look.
If you want to peruse today’s foreclosure listings, it helps to know where to start.
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Again, foreclosure listings represent a great opportunity to find a deal at a discount. In fact, the average distressed property sells for about 30% less than the average non-distressed property. In the U.S., that translates to an average savings of $65,000. Who wouldn’t appreciate that?
Of course, in order to partake in the potential discounts offered by today’s foreclosures, you need to be able to find them. Fortunately, there are several outlets by which investors can find and purchase foreclosures, not the least of which include:
Pre-Foreclosures: As their names suggest, pre-foreclosures are homes that are on the brink of falling into foreclosure. More specifically, the owner has failed to keep up with their agreed upon mortgage obligations and the lender has sent an official notice of default. It is worth noting, however, that the home is not in foreclosure at this point, but rather at risk of it. Regardless, the notice of default is public record, and can therefore be found in local courthouse records.
Short Sales: Short sales occur when a lender has agreed to accept less than what is currently owed on the mortgage. What’s more, the owner doesn’t have to be facing foreclosure in order to execute a short sale; they simply need the banks approval. If the homeowner can prove the mortgage payments are, in fact, a financial hardship, they bank is more willing to let them sell the home for less than they owe on the mortgage (they would rather not risk the homeowner defaulting in the near future). More often than not, short sales are advertised as such, pending the approval of the bank, of course. Keep an eye out for them anywhere you would look for traditional sales.
Auctions: In the event a home falls into foreclosure and is actually repossessed by the lender, the loan originator will try and recoup any potential losses as fast as they can by selling the property at auction. If you are interested in buying a house at auction, check your local newspaper and online listings with a simple Google search. It shouldn’t be too hard to find a local auction in your area; just make sure you are ready for what’s in store. The auction process can be intimidating to those that don’t know what they are doing.
Bank-Owned Properties: The final stop on the foreclosure listing timeline is the bank-owned property. Homes that have fallen into foreclosure, and subsequently failed to sell at auction, are officially taken over by the bank that originated the loan. That said, banks would rather not hold on to properties. Non-performing assets are a drain on their books, and they would much rather sell the property, even if that means at a discount. If you are looking for bank-owned homes, check with the banks in your area. Each institution should have someone in charge of bank-owned homes that can point you in the right direction.
Whether you realize it or not, foreclosure listings are all around us; you just need to know where to look in order to capitalize on them.
Pre-foreclosures, short sales, auctions and bank-owned properties are all great sources for finding foreclosure listings, but there’s one more place investors should look: the U.S. Department of Housing and Urban Development’s website. Not surprisingly, the HUD website is populated with what have become known as HUD foreclosure listings. And for those of you less familiar with the idea of an HUD foreclosure, they are exactly would you’d expect: homes obtained through a government-issued loan that have been foreclosed on, and subsequently paid off by the HUD. After paying off the defaulted loan, the HUD will then proceed to place the home up for sale on their own website; hence the name HUD foreclosure listings.
Foreclosures are, in fact, public record. Throughout the entire foreclosure process, for that matter, various legal notices are required to be filed in your County Recorder’s Office. As a result, anytime said legal notices are issued, the citations are made public. To gain access to the foreclosures in your area, take a trip to your local courthouse or County Recorder’s office.
While I can at least understand the short sale vs. foreclosure debate, the reality is this: the two are drastically different. Namely, one is voluntary and one is obligatory. More specifically, short sales are the result of homeowners who are having a difficult time paying their mortgage every month; for one reason or another, they are experiencing a financial hardship that could make it difficult to continue paying their mortgage in the future. That said, a short sale will witness homeowners request to sell the house for less than they owe on the mortgage in order to rid themselves of the mortgage payments. It is worth noting, however, that the bank must agree to a short sale. Often times, lenders will agree to a short sale simply because it’s better than the potential alternative: the owner defaulting on their mortgage.
Foreclosures, on the other hand, are in no way a decision made by the homeowner; they are the consequences of failing to keep up with mortgage obligations. Homeowners unable to pay down their monthly principal and interest will be given a notice of default; if they aren’t able to come current with heir payments, the bank may initiate the foreclosure process. In the even the foreclosure process is started, homeowners may simply lose their home as collateral, which is an important distinction to make.
Foreclosure listings have become one of the best acquisition strategies for today’s investors. If for nothing else, the right foreclosures can be purchased at a significant discount, therefore padding the bottomline of savvy entrepreneurs. However, finding distressed properties that meet your criteria isn’t the same as finding a traditional home; there are subtle differences worth your consideration. You need to know to find foreclosure listings if you are to take advantage of them, and this primer should get you pointed in the right direction.