Foreclosures Are Not For Everyone (Part 1)
May 27, 2008
3:25 pm
Jane
A couple came into my office the other day looking for information on how to buy a foreclosure property as an investment. I walked them through the process for
Montgomery County, Maryland (it can vary in each local jurisdiction and State). Nevertheless, there are lessons to be learned for anyone interested in acquiring a foreclosed property. This couple had no idea of the complexities involved.
Over the next several days, I am going to highlight the process for you.
First, you have to know which properties are going to foreclosure. The legal process requires that a local newspaper or two be used to advertise these properties a couple of times. Attorneys who are hired by lenders that actually do the foreclosure also have web sites with the date of the proposed foreclosure, the amount of certified funds you must bring to the courthouse steps (or wherever the sale will take place) to be eligible to bid on the property, the property address, and the jurisdiction where the property is located.
It is worth noting that the required certified funds usually represent 10% of the balance due to the Bank. So if you are going to bid, this is your first clue as to a potential minimum sales price for the property. Of course, it could be sold for less, and the bidding may start lower. So if you plan to bid on 5 properties, and get them all, you will need 5 certified checks made payable to yourself. If you win the bidding, you endorse over the check, and if you lose, you take the check back to your bank for deposit.
If the bid goes more than 10 times the deposit amount, you are still allowed to use the advertised deposit amount of your certified check. So you get some leverage here.
When you arrive at the courthouse steps, or wherever the bidding is to occur, you quickly learn that there are multiple potential purchasers for each property –
- first, second or third trust note holders trying to protect their investment;
- potential homeowners trying to save money on a home they plan to live in;
- speculative investors trying to buy properties below market and quickly flip the properties for a fast profit; and
- long term investors trying to buy properties below market value that will be renovated and leased for several years before they are resold.
So there is lots of competition for these properties even at the courthouse steps. Just because you are willing and able to get these properties, doesn’t always mean you will.
Check back Thursday for tips on how to decide which properties to bid on, and how to know when to stop bidding.
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