The Three Faces of Foreclosures

Authors of Buy Low, Rent Smart, Sell High

Part Three

The third face of the foreclosure process is the "post-foreclosure". If the property is not sold in pre-foreclosure and not purchased by an investor at the foreclosure sale, then it goes back to the bank or other lien holder who secured the loan.

With interest only, 100% financing, and other loans offered today requiring little down payment, record numbers of properties are going through the foreclosure process without attracting investor interest in the pre-foreclosure or foreclosure stage. These properties eventually land on the desk of someone within a financial institution (bank, mortgage company, etc) that has the responsibility of disposing of these properties. Many institutional lenders carry dispose of so many properties that they have entire departments dedicated to this task. Oftentimes, these departments are referred to as REO (real estate owned) or Post-Foreclosure Departments.

When contacted by investors, institutional sellers will generally fall into one of three categories There are many ways to find these institutional sellers. We offer teleseminars specifically designed to deal with the "how to" find and approach institutional and other sellers. (For more information please go to www.buylowrentsmart.com).

The first category is those institutional sellers that will be happy to work with an investor directly, bypassing listing the property with a real estate agent. The second category is institutional sellers that will at first indicate plans to list their REO property, but can be persuaded by the skillful investor to delay the listing until the investor has a chance to see property and make an offer. The third category is those institutional sellers that will not consider working with an investor directly, but will instead list their properties with selected real estate agents.

One of the key benefits of purchasing post-foreclosures is that the sellers have no emotional tie to the property. For financial institutions, this is a simple business transaction.

Further, investors seeking post-foreclosures should remind themselves that institutional sellers are in the business of lending money, not managing real estate. At some point, if a bank or lender has too many properties on their books, the number of REO properties will need to be reduced, sometimes quickly, and oftentimes at a discount to investors. It is not as common to acquire post-foreclosures at 30%+ investor discounts as is possible with some pre-foreclosures (and even some foreclosures), but the available pool of properties at investor discounts of 10-20% is plentiful.

If the investor's sale or rental model minimizes the marketing time and holding costs associated with each purchase, the investor will find post-foreclosures to be a good source of discount real estate. Many predict this source will increase significantly in the coming years due to record numbers of new loans today offered with little or no down payment required. Our model allows us to minimize holding costs and marketing time, so we have elected to focus on post-foreclosures as our primary source of finding discount real estate.

"Foreclosures" is a buzz word that attracts the interest of many new real estate investors. It is helpful to understand from the start that there are actually three very different and unique "faces" to the foreclosure process. Most established investors that buy foreclosures are actually focusing primarily on one of these three "faces". Therefore, for new investors who are just getting started, take a look at the characteristics (time, money, risk, emotion element, potential profits) of each of these "faces" of the foreclosure process and select the one that is the best fit for you. Whichever one you select, the three faces of the foreclosure process all have the potential of putting a big smile on the face of the investor.

Andy Heller and Scott Frank are co-authors of the Fortune Magazine recommended book "Buy Low, Rent Smart, Sell High". Together they have purchased and sold approximately 100 residential properties (many of them foreclosed properties) on a part -time basis. Visit them at www.buylowrentsmart.com.