How Understanding Foreclosures will make you a Better Investor

How do you find foreclosures?

This is a common question we hear all the time.

Understanding foreclosures is much easier nowadays with the Internet; there are many sites that sell foreclosure lists for every area.

Most lists are homes that have been foreclosed on and taken back by lending institutions, government agencies like the U.S.

Department of Housing & Urban Development, or secondary market loan purchasers like Fannie Mae and Freddie Mac.

A tried and true method of obtaining a list of foreclosures requires you to contact lenders directly and ask if they have a 'Real Estate Owned' or REO department

These are homes the lender has foreclosed on and that are now listed with a real estate agent.

Any Junior liens () have been cleared up most REO lists are free and given with a hope of a deal.

You can probably quickly look over it and talk with the Bank Agent right then and there. Remember to always be ready to deal.

Five easy steps to Making a deal with Foreclosures!

1. Locate all the lists of foreclosures in your area.

You get all that priceless information just by taking an hour of your day to go to county courthouse, or you can even look it up on the Internet!

2. You target the secret opportunities in the market the deals all the other guys aren't looking at, the ones that are too expensive, or too rundown.

3. Contact the homeowner and make a deal with them.

I always allow them make you a deal.

Then there can be no problems with; I didn’t know this or I didn’t agree to that.

4. You tell the banker what you're willing to pay...not what he's asking.

If you’re honest and up front about your decision on price they will work with you.

They may try to get more out of you, but just stick to your price.

The best part is, it requires no phone skills, no negotiation skills, basically, if you can read from a 3x5 index card, you've got what it takes to create instant equity - cash in your hands anytime you want it!

5. You're the boss. If all goes well, it's will be time to sell and get paid!

With this method, you're not afraid and losing sleep because you just robbed someone of all his or her equity.

The homeowner will love you like a brother!

You're helping them putting money in there pocket pockets and yours.

How can you tell if a foreclosure is a bargain?

1. You need to do your homework and find out comparable prices of other homes in the neighborhood.

Comparable price mean, recent sales of similar properties in nearby areas.

These are used to help determine the market value of a property. Also referred to as "comps."

2. Lenders know that with some basic remodeling the foreclosed home can turn around and sell for near or at market value.

So they are willing to deal them to Investors, because generally an Investor will be above board and willing to do whatever it takes to make the building rent-able or sell-able.

Sources for Obtaining Lists!

You can obtain a list of foreclosed homes from:

1. HUD, which backs FHA loans, by calling this toll-free number: 800-767-4483 or going to www.hud.gov.

Their site also links with other government-owned foreclosures, such as from the Federal Deposit Insurance Corp.

2. A list of foreclosures from the U.S. Veterans Administration, which backs VA loans, is available by logging onto its Web site at www.vahomes.org.

3. Fannie Mae's list can be obtained by calling 800-732-6643. You can also log onto Fannie Mae's Web site at www.fanniemae.com.

4. Freddie Mac's foreclosure list, obtained through its Home steps Program, is available by calling 800-972-7555 or by logging onto its Web site at www.homesteps.com.

5. You can find foreclosure properties is by contacting local Real Estate Offices.

Lenders, government agencies and others sell many of their foreclosed homes through these agents.

What is Junior Lien?

Homeowners in financial trouble to have second mortgages, home equity lines of credit, or other loans attached to their homes that are referred to as JUNIOR LIENS, which never exceed the total market value of the property.

When a property is foreclosed, lenders are paid in order of their ranking in the loan documents.

If the first mortgagee (lender) forecloses, there may or may not be any money left over for junior lien holders, which makes them ready to deal with YOU.

Here is an Example of what I’m talking about.

If you have a $190,000 property with a first mortgage of $140,000 and junior liens of $60,000.

The first mortgagee may not be receptive to a short sale offer, but the other junior lien holders may be happy to agree to a discount in order to give them some money out of the property.

Last Thoughts on Obtaining Foreclosures!

1. When dealing with government and secondary market sources, the foreclosures usually need repairs be sure to do your homework.

2. The best bargains are to go to foreclosure auctions.

These auctions have minimum opening bids, enabling a lender to recover its outstanding loan balance and any liens.

If no one bids, the lender keeps the property and it becomes an REO.

Auction deals may be better, only go this route if you really know the foreclosure market.

You may not be able to see the inside of the home prior to the auction and then you can find yourself with a foreclosed home that needs extensive repairs or one that has tax liens on it.