There are currently around 5 million homes in foreclosure in the U.S. right now. It is reasonable to expect that there will be at least 12 million more homes going into foreclosure within the next two years. Because of these astronomical numbers, many people are scared of investing in real estate. However, this market creates the ideal situation for real estate investors. Our philosophy is to respond to market trends, and pick investment strategies that work in today’s market. Because so many people are facing foreclosure, real estate investors have the power to help distressed homeowners in need, and obtain properties at deeply discounted prices. Since this is such a popular topic right now, we wanted to take some time to clarify some terms, and how they relate to you as an investor.
Pre-foreclosure refers to mortgages that are in default. This means that the homeowner has missed multiple payments on their mortgage, and the bank has filed a Notice of Default (Remember, the exact timeline for the foreclosure process differs in every state. It is crucial for you to learn the foreclosure laws and process in your local area before pursuing such properties.) However, the homeowners still have seven options to avoid actual foreclosure.
- Loan modification/refinance
- Sell the home through a short sale
- Catch up the loan
- Nothing, let it go to auction
- Rent the property to someone else (?)
- Sell the property by marketing through a realtor
Foreclosure occurs when the homeowner has failed to remedy their pre-foreclosure situation, and the bank takes back their home. After the bank takes back the home they will try to sell it at auction. It is important to remember that a foreclosure is never eliminated from someone’s credit score. Foreclosures can also lower one’s credit score by hundreds of points, making it virtually impossible to acquire another mortgage in today’s market.
After the bank has taken back the property, they will auction it off.If no one buys the property, the bank takes it back again, and it will become an REO property. There are millions of distressed homeowners in the U.S. right now. As an investor or aspiring investor, you have the chance to help them out of this difficult situation. It is important to realize that these homeowners are real people with real feelings, not dollar signs. Treat these homeowners as you would like to be treated, and listen to their wants and needs. Always operate your real estate investment business honestly, ethically, and with a desire to help others. If you do this, you will be a much more successful investor than those who only care about money.
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