Profit From Foreclosures

The country is in the worse economic crisis it has seen since the Great Depression. With banks failing, bailouts not working and unemployment at the highest it’s been in decades it’s hard to remember that all of this started with a sub-prime housing melt down, which started in 2007.

As housing bubbles started to inflate all around the country, and especially in areas like California, Florida and Michigan, lenders were frantic to finds ways to get people into houses. Banks and other financial institutions used radical and sometimes predatory methods to make the sale. Allowing buyers to get loans with no proof of income, any down payments and shady credit histories was, in effect, building a house of cards. All it took was the spark of a slowing economy and bad loans poisoning the financial system and this powder keg exploded.

• In 2008 foreclosures increased 81% over 2007
• In 2008 foreclosures increased 225% over 2006
• 8.1 million homeowners, 16%, will be in foreclosure by 2012

Kaboom!

Now that the government has stepped up and bought a $1.25 trillion chunk of Fannie Mae and Freddie Mac mortgages which were dragging down the housing market and economy as a whole there seems to be bottom in the housing market, or at least one in sight.

So what do to with all of these houses that have been foreclosed on?

Banks and government entities like Fannie Mae own these houses. Given the sheer amount of houses like these out there and the ton of regular houses for sale, a lot of these are sitting empty waiting to be sold. With mortgage rates at the lowest since 1965, many people are looking at buying these up.

Auctions
When a house forecloses an auction is held at the local courthouses or sheriff’s office depending on local law. The house is auctioned off with the minimum price being the remainder of the mortgage and any fees associated with the sale. This is great way to get a deal on a house.

Make sure you have done your homework. Know how much the house is worth on the open market and try to get a feeling for what work must be done to make it livable. The last thing you want to do is over pay for a house that needs tons of work and will cost you more.

Banks
Banks list their real estate owned (REO), or foreclosed homes, for sale with real estate agents. Depending on the volume of homes and open interest you can get a very good deal. Once again these homes are usually sold as is, so you have to do some homework to find out what you are getting into.

While you won’t get as good of a deal on one of these homes as you will with a foreclosure auction you do get a little more visibility into the condition of the house. Often foreclosures sit empty for a long time and damage can be done by neglect or vandals. When buying through an auction you do not get to do any sort of walk through, but with a bank you can do a walk through and even inspection with your appraiser like you would with any other home.

While buying foreclosures come with certain risks, they aren’t without rewards. If you’re looking for a house great deals can be found with foreclosure. Just make sure you do your homework.