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The Drawbacks....foreclosures
usually require a lot of work and are almost always sold "as
is." Therefore, you should [1] carefully inspect the home in
advance, [2] thoroughly learn the market including investigating sales
on the same street and then, [3] figure out what repairs will cost by
obtaining a bid from a contractor then adding these costs to your
potential purchase price.
Tips For Locating Foreclosed
Properties
- Start with a reliable
information source - Legal newspapers, privately-published
newsletters, local real estate attorneys, title insurance offices,
and the county recorder of deeds are potential sources. But be
aware, most distressed properties are not listed for sale so don't
expect much help from a real estate agent.
- Keep records of the properties you
discover - It could take several months from the actual
recording of the "notice of default" until the owner
decides to sell. This usually occurs just before losing the
property by foreclosure or other legal process.
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Discuss your interest in the
property with the owner - He/she may not be cooperative.
Many owners live in denial and refuse to take action until it is too
late. Inquire about the property to see if it makes sense to pursue.
Most foreclosures come about due to divorce, death, unemployment, or
illness. Don't feel bad about acquiring the property at a wholesale
price. If foreclosure is inevitable, someone will benefit and it
might as well be you.
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Before the foreclosure
auction, offer the owner "walking money." - Ask
the owner how much he/she wants for their equity. Many homeowners
will sell before the foreclosure sale but be sure to have the title
searched beforehand to be certain you know what encumbrances exist.
These could include tax liens, unpaid assessments, judgments,
mechanics liens, etc. and must be paid before receiving clear title.
Factor these costs into the purchase price in addition to any repair
costs. Be aware, the property may have been mortgaged to the hilt
and no equity may exist.
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At the foreclosure auction - If
the owner will simply not cooperate in a pre-foreclosure sale, your
next option is to "bid" the property at the foreclosure
auction. At the auction, most junior liens (such as junior mortgages
and judgment liens) will be wiped out depending upon the amount owed
and whether or not the creditor is willing to "buy out"
the first lien position. Don't get too excited if you placed
the winning bid. In many states, the owner retains a right of
redemption and if there is an IRS tax lien on the property, the IRS
also has a 120-day redemption period (albeit few redemptions
actually occur.)
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Follow up with the
foreclosing lender - If no bidders showed up at the auction
and the lender acquired title, quickly contact the lender and offer
to buy the property at a price close to the amount of the foreclosed
mortgage. If you wait, many foreclosing lenders will list the
property at full retail value with a local realty agent. Since foreclosures comprise the
majority of wholesale real estate buying opportunities, it pays to
understand how foreclosures work. Exact procedures vary by state and
locality, so don't hesitate to buy an hour of a local real estate
attorney's time to ask your detailed questions.
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