Foreclosures are homes which have been repossessed, usually due to the fact that the owner has gotten into some kind of financial difficulty and is unable to cover their mortgage. As a result there are a few ways creditors can initiate the foreclosure process. Typically, after three months without payment foreclosures are started, but that varies according to state law.
The foreclosure transaction also differs depending on the banker and on the style of loan that the borrower has defaulted on. If a loan has been insured by the FHA or VA, for example, the lender can apply to these organizations in order to get the money owed. HUD or VA assumes the property and pays the creditor. The HUD or VA, then list the property for sale in order to recoup losses.
In cases where the loan is not insured by the government, the lender repossesses the property themselves. The grounds is often sold at auction, in which the lender could bid on it. After a lender re-purchases a property it can than be sold at any price. Properties that are repossessed and are being resold like this using the lender are known as real-estate-owned or REO properties.
Each property in foreclosure is considered a distressed property. At times repairs may be required hence the foreclosure may be a fixer upper. Clever investors love these properties, though. That’s because repossessed real estate can be purchased inexpensively – in some cases, 5% or 60% off the market value. Thanks to the fact that sellers are often highly motivated to sell, foreclosures can also often be bought with very flexible (and amazingly low-risk) financing options.
Foreclosed houses offer awesome benefits to the savvy investor, which are instant equity, low-cost financing, and the possibility for great earnings. However, you can’t get rich quickly this way. There are risks involved and you must select the right property to make money.