While many saw the 2009 Foreclosure Crisis as a bad thing, there were those who saw a silver lining on that large grey cloud. These were the people who saw that with so many foreclosures, there was a big opportunity for foreclosure investment. This past year has seen a boom in foreclosure investing, and many people have made a lot of money doing it.
Foreclosure investing is investing in a home that has gone into foreclosure because the borrower was no longer able to afford their home. Depending on the state and the type of foreclosure, the sale of the home may go through a trustee or through the courts. When the home is sold through foreclosure, the money from the sale is used to satisfy the rest of the mortgage. Sadly, for the lender, this usually means getting less than what the home was worth, but it is better than getting nothing at all. For an investor, foreclosure properties present a great opportunity to buy a home for next to nothing. During 2009, many homes that were once valued over $400,000, were now selling for $100,000. That meant that buy buying homes and wholesaling them, or flipping and selling them, an investor could make hundreds of thousands of dollars on the home by holding onto it until the market improved.
The Stages of Foreclosure
To be a foreclosure investor, you need to know the stages of foreclosure. It all begins when the homeowner cannot make their loan payment. Usually it will take three months of missed payments before the bank starts the process. Even at this point, the bank will try and work with the homeowner with new payment schedules and a lower interest rate. If this fails, then the homeowner gets a summons from their creditors. The papers are also filed with the county clerk and become a part of public record.
Once this happens, the homeowner has a limited period of time to pay what they owe. They have to pay the outstanding loan amount, sell the home, or make a deal with their creditors. If none of these happen, then the home is put up for foreclosure sale.
At this point, if no one buys the home that has gone into foreclosure, the home goes back to the lender and the home because a real estate owned property.
By waiting until this stage, the foreclosure investor can get the property for much less. If the real estate investor buys when the home is in a foreclosure sale, or before, they will pay less than what the home is worth but more than if they wait until the home because a real estate owned property.
Going through a foreclosure is a terrible thing for many people. It is unfortunate that it happens but it often happens because people borrow more than they can afford. Of course, the most common cause of foreclosure is divorce, followed by a failed business venture. Either way, as a foreclosure investor, you can make a lot of money in a very difficult financial time.