Resources for Bank Foreclosures

Business Guide to Bank Foreclosures

If you are a real estate investor and want to find a good deal, there are several factors you need to consider before making a purchase. It is possible for you to buy bank foreclosures even before the conclusion of the foreclosure proceedings. Different states may have varying foreclosure proceedings. Many states allow home owners to stay in their property for about one year. Nearly all states grant some period of recovery. This means the home owner has an incontestable right to reclaim the property by paying the principal amount and the interest. Depending on the state you operate, you may be required to provide the home owner with specific disclosures concerning equity purchases.

Benefits

Bank foreclosures occur when borrowers cannot pay their loans on time. According to RisMedia, 831,574 properties in the United States that were in a particular stage of foreclosure were sold in 2010. Dealing with foreclosure is very stressful, particularly for those who have worked hard for their home and invested a lot of money in it. While the drawbacks of foreclosure are much greater than the benefits, there are a few things that individuals facing foreclosure can look forward to.

Less Stress

Struggling to pay for a home you can’t afford is extremely stressful. Once you move from your home and the foreclosure process is complete, you’ll feel as if a huge weight is lifted from you. Sure you will miss your home, but you no longer have to worry about moving, finding a place to live, and dealing with the foreclosure process. This is a very liberating time for many people.

Save Cash

Once you know that the bank is going to take possession of your home, you can start the process of saving money. Because you will no longer be paying your mortgage, you’ll have the opportunity to save quite a bit of cash. Some banks allow home owners to stay in their homes for a few months before they have to move out. Within this time frame, you can start the process of rebuilding your finances.

Starting Over

You will have the opportunity to make a fresh start. If you are running a business, continue to pursue your business goals. During this time, however, it is a good idea to financially empower yourself to avoid making this mistake again. Not only do you have to manage money well to have a good life, you also need good money management skills if you want to run a successful business. Take a class about managing finances, or read books by financial experts, such as Suze Orman, Robert Kiyosaki, and Liz Weston.

Living Within Your Means

You’ll have no choice but to live within your means, because you will have a difficult time getting credit cards, bank loans, and car loans for at least five years. When you are forced to live within your means, you budget better and spend less. During this time, you’ll learn budgeting habits that you can use throughout the rest of your life.

Pitfalls

Poor Condition

When you purchase a foreclosed home, you typically have no option other than to take the property in its current condition. Many bank foreclosures sit empty and neglected for several months before being sold. They are often in disrepair by this time. You won’t be able to resell a property until it has been fixed up enough to be eligible for a home loan. If a house is in a really bad shape, it may cut into your eventual profits because your initial investment will have to be larger.

Chance to Overspend

Expect to pay for major repairs on any foreclosed house that you buy. You may have to fix large systems, like the heating, air conditioning, or plumbing. There could be damage from mold or pests. Make sure that you will still be able to turn a profit after you’ve paid for repairs. If you don’t stick to your budget for renovations, it will cut into your bottom line.

The Need to Secure Financing

Don’t make the mistake of expecting to receive financing from the bank that is selling the property. The bank is probably only interested in shedding a bad asset. If the foreclosure is a particularly good deal, you might not be the only one vying for it. This means that you might not have time to secure financing after making the deal. If you haven’t been preapproved for a loan from a separate institution, your purchase could fall through.

Less Flexible Pricing

Because bank foreclosures are almost always sold as is, the list price is closer to the price you will pay than it would be in a normal sale. Don’t expect to negotiate discounts for needed repairs, and don’t bid too low. If you don’t make your highest offer, you risk losing the property.

Pricing

Bank foreclosures are seldom a good deal for investors. The price of each property varies according to the amount owed against the property. According to BuyingHome.org, in 2008, 46 percent of bank-foreclosed properties remained in the real estate-owned (REO) portfolio of the bank.

Some of these REO properties end up going up on the auction block; however, if you make the bank an offer based on the fair market value and current condition of the home, you may be able to walk away with a home at a good price.

When you are figuring out the cost of the foreclosure, be sure to figure out the total amount of work needed and the closing costs of the deal. These will likely add a significant amount to the price you actually pay for the home.

Conclusion

While many foreclosed homes are often left neglected and in poor condition prior to your acquisition, doing repairs can actually provide you with a great opportunity to make good money. After the repairs are carried out, expect to have the property’s after repair value (ARV) rise way above the original purchasing price. If you think that a certain property is a good deal, make sure you have the money on hand as needed to avoid the risk of losing the property to another financially equipped buyer. To stay competitive, don’t try to negotiate discounts for repairs, and don’t bid too low.