Understanding and Navigating Your
Way Through the Foreclosures Process
By Rick Sharga, RealtyTrac Vice
President of Marketing
Foreclosure properties can be a
terrific investment, or give home buyers a much more affordable option
than traditional properties in this time of escalating prices. But,
before you jump in assuming this is "real-estate for dummies" or the
next get-rich-quick scheme, think again! You really need to know your
stuff when it comes to navigating your way through the process and
making sure you're getting the most bang for your buck.
"For people willing to do some
homework, the foreclosure market offers some of the best opportunities
in real estate today," explains James J. Saccacio, chief executive
officer at RealtyTrac,
the leading online foreclosure marketplace.
Web-based services like RealtyTrac
can help investors and homebuyers tap into this previously hidden
market by providing access to foreclosure and pre-foreclosure
information typically available only to professional real estate
brokers and investors. Today, homebuyers can use these services to
identify and research potential home purchases, as well as to find the
tools and professional resources they need to help them close the deal.
When offering advice to buyers
interested in taking advantage of the foreclosures market, Saccacio
stresses the importance of educating oneself about the types of
properties and the processes involved. Even seasoned real estate
investors have something to learn when it comes to approaching this
market. It's important to go in with the appropriate knowledge.
Types of Properties
Available at Various Stages of the Process
Serious buyers must first understand the difference between the varying
types of foreclosure properties. It's important to review the basic
types of properties, each representing a different stage in the
foreclosure process.
Pre-foreclosure Properties
A property enters pre-foreclosure after a default notice is filed by
the foreclosing lender against the borrower who owns the property. The
different notices that are filed during pre-foreclosure include Notice
of Default (NOD), Lis Pendens (LIS), Notice of Trustee Sale (NTS) and
Notice of Foreclosure Sale (NFS). For most consumers, buying a
pre-foreclosure property from a private homeowner is the most favorable
of options. This is a best-case scenario because the seller is able to
get out from under a mortgage without destroying his or her credit
rating, the lender is saved the time and expense of foreclosing on the
property, and the buyer gets a below-market price on a home. In
addition, buying at this stage of the process allows you, the buyer, a
chance to fully evaluate the property before making an offer.
The disadvantages associated with
purchasing a property during the pre-foreclosure stage are few, but
worth mentioning. As with any major purchase, negotiations between the
buyer and seller can be difficult, especially since the seller would
typically prefer not to have to sell the property in the first place.
Secondly, transactions are time-sensitive, since there is pressure to
complete a sale before the property goes to auction.
Auction Sales
Foreclosure auction sales are typically the domain of the professional
investor. These properties are formally in default, and sold to the
highest bidder at an auction. Buyers are required to be physically
present at the auction and must be prepared to pay 100 percent of the
sale price in cash on the spot.
Though foreclosure auctions can offer
significant savings as well as immediate property ownership, they are
not for the faint of heart or the uninformed! Unless the buyer is
already familiar with a particular property, there is usually little
time to examine it. And, the buyer will be competing against
professional investors—and sometimes even the lender—at the auction.
Real-Estate-Owned
Properties
Once the lender officially reclaims a home, it is classified as Real
Estate Owned by the lender (REO). While REO properties typically offer
more time for evaluation and a more standard bank-managed transaction,
their prices are usually very close to full retail market value.
Therefore, they offer buyers the lowest potential savings.
It's definitely possible to find great
deals in the foreclosures market. You just need to know where to look and
be able to differentiate exactly what you're looking at. With an
understanding of the pros and cons of buying at each stage of the
process, you'll be well on your way to a successful purchase you can be
proud of.
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