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Different Kinds of Properties Related to Foreclosure


By Sadiya Anjum

Foreclosure properties are those properties which are sold because the homeowner has defaulted; hence the lender repossesses the property and sells it to cover his loan balance and other unpaid fees. There are different kinds of properties related to foreclosure: pre-foreclosure, foreclosure properties in auction and Real Estate Owned (REO) properties.

Pre-foreclosure Properties

When a homeowner has been unable to make several payments, the lender may require the homeowner to sell the property so he can cover his costs. In this case, the lender does not repossess the property but allows the homeowner to sell on his own preventing foreclosure. It is profitable to buy a property like this simply because of the lower purchase price and a possibly quick sale. But it has its own risks – the property may have hidden liens, there may be issues with title or the homeowner may have too many loans attached to the home making the paperwork tedious.

In addition, the whole process itself may be difficult. The homeowner may not respond well and you may have to coax, convince and win him over. This will require some patience on your part. It may also be difficult to do research on the property and not to forget there will be several others trying to buy it too. If you are looking to buy a pre-foreclosure property, do your research well and approach the whole matter smartly and gently.

Foreclosure Properties in Auction

When a homeowner defaults on his mortgage, the lender (may be a bank) repossesses the property and puts it up for auction. Foreclosure auctions are popular because buying and re-selling these properties is extremely profitable. The property may be marked up to 40% below the market value of the home. Such low prices are truly a bargain. But again there are risks involved with foreclosure properties.

If the property is sold ‘as is’, then there may be several defects and repairs that may be needed. This means if the condition of the property is bad, then there is a good chance that after repairs your profit from reselling may be marginal. It is also difficult to inspect the property and find out other details. A detailed and accurate independent research may clear your doubts and provide you with the tools to make a bid. Additionally, most often a check or cash is required to make the deposit; so if you are seriously looking to win the auction you have to be prepared with the money.

Real Estate Owned Properties

REO properties are foreclosure properties in the hands of the lender. So you will have to approach the lender directly to make the purchase. The advantages of buying an REO property are many. The property will be in good condition, the title will be clear, no hidden liens to deal with and taxes will be up to date. But since the lender will probably spend a fair amount to clean up the property in all these respects, the purchase price may not be very low. But it may be easier to purchase the property quickly as the lender may not want to maintain the property unnecessarily. An REO property may be a good option if you choose to use it for your own residential purpose. Investment-wise it depends on the market value of the home and what the purchase price of the property is.

If you are looking to buy any of these properties, make sure that your research is strong enough and you have the important details with you. Try and inspect the property if possible as buying sight unseen is always a risk.

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