What is a Foreclosure?
Why Do Sellers Go Into Foreclosure?
Sellers stop making payments for a variety of reasons. Very few people choose to go into foreclosure voluntarily. More often than not, it’s an unpredictable result from one of the following:
- Laid-off, fired from, or quit job
- Inability to continue working due to medical conditions
- Excessive debt and bill obligations
- Divorce, or dispute with co-owner
- Job transfer to a further location
Negotiating Directly with Sellers in Foreclosure
Investors who specialize in purchasing foreclosures often prefer to purchase these homes before the foreclosure proceedings are final. Before approaching a seller in distress, consider:
- Foreclosure proceedings vary from state to state. In states where mortgages are used, home owners can end up staying in the property for almost a year; whereas, in states where trust deeds are used, a seller has less than four months before the trustee’s sale.
- Almost every state provides for some period of redemption. This means the seller has an irrevocable right during a certain length of time to cure the default, including paying all foreclosure costs, back interest and missed principal payments, to regain control of the property. For more information, consult a real estate lawyer.
- Many states also require that buyers give to sellers certain disclosures regarding equity purchases. Failure to provide those notices and to prepare offers on the required paperwork can result in fines, lawsuits or even revocation of sale.
- Determine whether you’re the type of person who can easily take advantage of a seller’s misfortune under these circumstances and / or put a family out on the street. Oh, critics will argue it’s just business and sellers deserve what they get, even if it’s five cents on the dollar. Others will feign compassion and trick themselves into believing they are “helping” the home owners avoid further embarrassment, but deep inside yourself, you know that’s not true.
Buying a Foreclosure From the Bank
Often, banks do not sell homes directly to investors or home purchasers. If a bank is willing to sell homes individually and not in bulk sales, the bank will generally list the home through a real estate agent. There are REO agents who specialize in foreclosure listings.
It is more common to buy a foreclosure directly from the bank in a bulk sale purchase. In bulk sales, the banks will package a bunch of properties into one transaction and sell them all at once to one entity. That is the best way to buy a foreclosure, if you can afford it, because the discounts are typically the steepest.