Foreclosure Basics

Why does foreclosure happen? When individuals can’t repay banks back the money they were loaned to buy a house, they have their homes taken away from them. When this happens these properties are put back up for sale. It is important to learn how these homes are taken away to best utilize the market for reselling foreclosed properties.

The best price range to look for is properties that are selling for between sixty-five and eighty percent of their value. Anything valued under is probably selling for a low price for a reason and is not something you want to get into. The lenders usually will be selling these properties for a variety of reasons, and the better you know where they are coming from, the better you will do in negotiating a lower price.

The first step that banks usually take in foreclosing a property is to contact a homeowner once he or she has missed three payments. If this happens, the person must refinance their house or sell it to pay the bank back for the loan. This period is called pre-foreclosure. The best way to find these properties is to look for signs in the county recorder and other resources. Banks cannot release pre-foreclosure information due to sensitivity and privacy issues.

The county recorder is where all information regarding real estate is kept. This means that properties that are defaulting on foreclosure are likely to be marked as such under the county recorder. Be cautioned that some files may lead you on dead ends as not all houses with legal action pending are under foreclosure threat.

The best way to get information from a county recorder is to find their website, most do have them in this day and age, and search their database for homes that fit your criteria. Many times you won’t be able to view actual documents online, only names, but you can always go to the recorder’s office and check the real files yourself.

Although the above step really doesn’t cost you any money, many seasoned veterans will eventually pay some service to tell them about properties that are being pre-foreclosed. While you may think this is due to laziness, it actually is not. In economic terms, time is equal to money and there is no reason to ever waste it. If you find your time more valuable talking to homeowners and trying to get a deal, then you should just pay some money and get into the field!

In addition to saving you time, professional lists will often give you more than just simple information on the houses that you are looking at. Background information and property ownership records will help you strike a deal cheaper than you would get using your own research.

Of course, there are differing services as some offer more complete information for a steeper price while others do the basic research and give a discount. Choose the service which best fits your needs. You can figure out what your needs are by looking at the types of housing you will be buying and how much they will be costing you. Those spending more money, usually will want to have better information and vice versa. If you find the excessive information is unnecessary, don’t pay for it!

The first thing that you need to realize is that there are different rules and regulations dictated by laws for each and every state in the United States. This means that you should always check to make sure you are legally doing business wherever you live. One of the bigger things to check on is whether your state allows foreclosures to be conducted through advertisements or whether you will have to go through the judicial system and the courts.

There are three main steps in foreclosing; the default, the auction and the REO step. For every foreclosure, it is to your advantage to know which step each house is in, as each step requires a different set of knowledge.

Before going any further, we should answer the question to why people purchase foreclosures. Foreclosures are often the target of first-time homeowners willing to put extra work into their new home to make it perfect or real estate agents looking to gain experience in the field. The extra work put into these homes that aren’t up to par is often referred to as “sweat work.”

As a rule, therefore, you need to be informed on how expensive and time-consuming repairs are going to be. Can you do them yourself? If so how long will it take and how much is that time worth to you? If not how much will it cost to get a professional to do it? More often then not the problems with foreclosed homes will be a poorly maintained exterior. Are you going to be able to fix landscaping issues?

Another common issue with bad homes is paint. If a home is missing paint and looks bad, chances are you are going to have to repaint the entire home or close to it. Don’t assume that it will be something that will be easy to do. Estimate what the paint and time will cost and decide if the house is worth it. You may find that a better kept house that costs more may in fact be less expensive in the long-run. Know what you are getting into and don’t be afraid to overestimate costs. Better then underestimating them and losing money later.

Here is a snafu with terms. If a home is under foreclosure, it usually means that a bank or some other type of lender owns the property. If the place is instead under pre-foreclosure, it just means that whoever owns the home has not been paying their house payments on time. By tracking pre-foreclosures, you can jump on properties as soon as they are taken by the lender. This is ideal as the lenders usually do the bulk of their repair work right after they seize a house. Calling the REO department in a bank’s office is a good place to get information.

A final resource to look into is real estate agents. Well-informed but often looking out for themselves, many real-estate agents are in the know about good investments. Don’t pick someone unless you absolutely trust them to do the right thing for you. It is much less risky to look at free online listings then to allow someone else to tell you what to buy. If you can find an agent who frequently sells foreclosed property, contact them and see what happens.

An important thing to note with foreclosure purchases is you are getting what you are buying. While that may sound stupid, it is common for folk to buy something while dreaming of something perfect. Know what you are buying and don’t be disappointed later on.

Foreclosures sales are often postponed because original owners are scrambling to come up with enough money to re-buy the house and banks need more time to properly process the property. Because of this it is critical to keep up-to-date on all information regarding the property you are interested in. Those who stick with houses that are often postponed are more likely to end up with the real estate when all is said and done.

One key number is the Trustee Sale Number. This number, commonly abbreviated to just a TS#, is used to track foreclosed properties and can be used to seek information about when the sale is and possible postponements. If you have any questions about the date or postponements, therefore, it is usually a good idea to have this number handy and to call a trustee in charge of the operation.

Right before a property goes up for sale, bids will appear. These prices may sometimes be exaggerated low or high to either attract more attention or to show the true cost of the house. If a bid is up, chances are there won’t be any postponements.

The people in charge of this published information are usually posting companies. They will typically announce postponements and run auctions, so they can be another valuable tool to use when looking for houses to buy.

Once a house actually goes up for sale, the process will go as follows. First the auctioneer, the aforementioned posting company, will ask for the interested parties to qualify themselves. This means that he is checking that whoever is bidding for houses can actually pay for them. Make sure you come prepared. When writing your check, make sure to follow the instructions set by the auctioneer, may differ from auction to auction, as well as covering up your bid. There is no reason to show the competition your hand! Once he finds the interested parties, the auctioneer will then ask for bids. There must be at least three bids for a sale to be made and each bid must exceed the last by at least one cent. Make sure you don’t go over the amount you want to pay, it would be dumb to set an agenda and then abandon it because you lost out to someone else.

If you do end up winning the bid, you will have to give the check over to the auctioneer who will then give you a receipt. If there are any legal problems, you may end up not getting the house back, but your money will be returned. Otherwise expect to get the deed within a week or two. Good luck getting a house!

A question many rookies to the foreclosure investment have is how to determine fair market value. The truth is that there is never an exact number and the usual method is to look at nearby, similar houses and use their selling value as a measuring stick. Always assume that both the buying and selling parties are informed of these prices when thinking of your fair market value. You aren’t going to cheat anyone out of money.

The first step in determining this value is to look at a map or guide and decide what qualifies as part of the neighborhood this particular home is in. Be careful not to include homes that don’t belong, as subdivisions are sometimes broken into two parts with differing values.

Once you have that information, you should then seek sales information from the last half-year. This information is often readily provided by realtors. Once you have these prices, take time to get in your car and drive by all the houses you have information for. Note interesting facts about the houses exterior and try to find patterns on what caused higher or lower selling prices.

Now go take notes on the house you want to buy. How big is it? What does the outside look like? How many bedrooms/bathrooms does it have? Is the paint up to date? Ask every question you can and get answers.

After you have all this, try to find a couple houses exactly like your ideal house. They shouldn’t be too hard to find as oftentimes subdivisions use the same contractors for building houses. These will be the houses you will compare prices with.

Finally, use all the information you gathered from the previous steps and apply it to the house you are seeking to buy. You should be able to come up with a pretty good, but not perfect, estimate of the fair market value. Remember to adjust for differences between other houses and your ideal houses. It is unlikely you will find two houses with the same structure and upkeep.

Upkeep is something to remember before finalizing a price as well. If you see that work has to be done to make a house perfect again, take that cost off of the fair market value price. Don’t pay for a house that has been perfectly maintained when that is not what you are getting! If you do this, you will definitely end up overpaying and making little to no profit.

If you are lucky enough to have a house that is worth remodeling, now is the time to decide what to do with it. The first basic rule is to never go overboard. Just because you don’t like the roof style doesn’t mean it needs to be changed. If it looks fine, fits into the neighborhood fine and works fine, chances are it is not in need of repair. Usually the basic repairs include new carpeting, more landscaping and a new paint job. These should be cheap and easy tasks.

One thing that no foreclosure investor should be a part of is a building with actual structural damage. That means paying big money, whether it is a floor that won’t stop sagging or damage from the elements. If you bought a house that needs these big-time repairs, chances are you got swindled and are going to lose a lot of money. All the more reason to ensure you know what you are buying beforehand.

The first step to changing the landscape is to make sure that everything the house currently has, trees, bushes, grass, looks alive and healthy. This may mean removing dead plants or watering and fertilizing those close to it. Don’t try to add new, beautiful things into a deadly environment all at once. You should start the landscaping immediately as plants take time to grow back. Once that is done, focus on giving the house a fresh painting job, most of them will need it. Don’t paint the house orange or purple though! Stick with basic colors that conform to the neighborhood and you will be fine.

After you are done outside, you can now proceed into the home. The least expensive area to fix-up is the living room. The first thing you should do in these rooms is, if there is any, remove the carpet and get ready to repaint the walls. Make sure before you start painting that you completely gut the room of any furniture or objects and cover up other things, such as windows, that do not need to be painted over. A spray painter works the best because of its quickness. After painting all the living rooms, and double checking to make sure they look perfect, you can move everything back.

Now you should go around the house and replace every light switch and cover plate and outlet plates. Also go ahead and install new fixtures and light bulbs while you’re at it. Little things like this will make the house look all the more better to a potential customer. These changes will not cost much but will make a big impression to people who have to live at this house.

Once you are done with the last step, you can move on to painting window sills and doors. You should do this on the floor or outside so as to not get paint in the wrong spots. Make sure you do a good solid job and that the color of the paint fits into where the object will be going to.

Now the more expensive rooms. Bathrooms need to be done individually and will differ in costs. Some bathrooms may need new plumbing, or toilet seats or even a new bathtub or shower. Make sure bathrooms look new and professional as they are often deal breakers. And don’t forget to give these rooms the same paint job given around the rest of the house as well!

After the bathrooms is the kitchen. Make sure that all the cabinets are in working order and that the walls are painted like the rest of the house. Also make sure that the tiling or floors has no damage and that the sink works properly and is not rusted or stained. If there is a dishwasher it should work and look new. Same goes for any other machinery in the kitchen including ovens and stovetops.

It is a good idea to save the kitchen for last and bring in carpenters while you are working on the kitchen. They can do work without bothering you while saving you time on the project overall. It is also a good idea to get the word out on the home while you are finishing up the kitchen as it is the last step. It takes some time for people to come into the know-how about new houses and it is better to start early than late. Worse come to worse they will see you working on remodeling the kitchen!

After all the above changes have been made, go through the home and outside and add some lively decorations to make the home seem…well seem more homely. Flowers and good lighting are a good touch, as is a nice walkway and a greeting mat. Look at your house from a distance next to the neighbors and see how it compares. If it looks good, get ready to sell! Don’t forget you will need to install some minor things, like smoke detectors, and have the home inspected before officially selling it, however.

This entire process should take between one and two months. It could take less time if you simply hire professionals, if you are not one yourself, to do the interior repairs for you. It could take more if you make mistakes along the way. There are no guarantees on length of the project, so keep that in mind.

The cost of the project will depend on how much repairs you will have to make. If you were smart, this was something you should have figured out beforehand when you were deciding whether or not to buy the place. Hopefully the final cost is somewhere near your estimate and you end up selling the place for a profit. Once again, the best of luck!