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Foreclosure Investment
From
Wikipedia, the free encyclopedia
Foreclosure
investment refers to the process of investing capital in
the public sale of a mortgaged property following
foreclosure of the loan secured by that property.
In real
estate, foreclosure is the termination of the equity of
redemption of a mortgagor or the grantee in the property
covered by the mortgage. Depending on the type of
foreclosure proceeding, the sale may be administered by
the courts (Judicial Foreclosure) or by an appointed
trustee (Statutory Foreclosure). Proceeds from the sale
are used to satisfy the claims of the mortgagee
primarily, with any excess going to the mortgagor.
Anyone may bid on properties sold at a foreclosure sale.
As a practical matter, however, most properties are
acquired by the lender, often for the amount owed on the
foreclosed loan.
When
interest rates rise, home owners with variable interest
rates often become over extended, providing
opportunities for foreclosure investment professionals
to obtain investment properties at depressed prices. The
most common reason for foreclosure is dissolution of a
marriage. The next most common reason for is a failed
business venture. Foreclosure investing can provide
favorable returns.
Stages of Foreclosure
The
foreclosure process begins when a financial distressed
homeowner fails to make a loan payment and is served
with a summons from his or her creditors. After service,
papers will be filed with the county clerk's office and
be made a matter of public record (in some areas the
place where deeds and mortgages are registered may go by
a different name, such as the office of the land
registrar). This notice is usually known as Lis Pendens,
which is Latin for "pending legal action." At this
point, any attempts by the homeowner to borrow from
public credit sources will be met with a negative
response. On completion of the publication process, the
foreclosure action will be permitted to proceed and the
owners have a limited amount of time to pay up, sell, or
make other deals with creditors. If none of these
actions are taken, a foreclosure sale will take place.
If no one bids the amount owed, the property reverts to
the lender and becomes an REO (real estate owned)
property held in inventory by the lender. Experienced
foreclosure investors may work in all of these various
stages, but the possibility of making a transaction with
the homeowner is no longer possible after the property
is an REO.
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