A Primer on Foreclosures

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This is an article that I wrote which will appear in the Good Times Magazine here in Santa Cruz in a few weeks…I thought I would pass it along ahead of time to you lucky readers of my blog!  So, without further ado, a Primer on Foreclosures:

There seems to be no shortage of people who are interested in foreclosure real estate.  As someone who works quite a bit with distressed, “fixer-upper” type properties, I am often asked about foreclosure properties – how to find them, how to buy them, and how to turn them over for a quick profit.  If you’re curious to learn a bit about foreclosure properties, please read on!

The best known way to buy a foreclosure property is to buy it at a public auction.  To find out when the auctions are held, look in the Santa Cruz Sentinel, in the Legal Notices section of the classified ads.  At the appointed date and time, you can go down to the Santa Cruz County courthouse and buy a foreclosed property for 100% cash (preferaly a cashier’s check!).  You’ll have to bid against at least one other party – a the bank who is the holder of the first and/or second loans on the property.  Often times, the debts on the property are close to it’s market value; were that not the case, most rational owners who find themselves unable to pay their mortgage would have sold the property and kept the equity.

Another way to buy a foreclosed property is from a bank that foreclosed on the property and ended up buying it at the auction.  Many of the “Buy Foreclosure Properties and Save Big Bucks!” books I’ve read suggest that you contact the REO (Real Estate Owned) department at local banks.  I’ve looked and looked  for REO property in Santa Cruz County – once in a while I found a trace of something, sold a few months back – but I can never seem to find something currently for sale by a bank’s REO department in (or anywhere near) Santa Cruz county.  More commonly, though, the banks will sell their REO on the open market, through local Realtors, to get the best price for the property in its present condition.  So, although it’s a foreclosure property, you won’t end up saving much money that way.

It seems that the “experts” recommend that you buy properties in pre-foreclosure.  The idea is that you find owners who have received a “notice of default” from their lender(s), which means a payment is late.  A few months of that is all it takes for the foreclosure process to begin.  If you can contact the owner privately and convince him to sell the “distressed” property to you directly, you could save some money that way, depending on your negotiating skills.

How can you find these pre-foreclosure properties?  The internet, of course!  Do a search, there are many pre-foreclosure listing services out there.  The best I’ve found is RealtyTrac.com – it has a one-month free trial, and after that it’s $39.95/month.  A very interesting tool.  Of course, you can expect that there will be lots of competition from pre-foreclosure investors for the best properties (i.e. those in the hottest neighborhoods with the most equity), but that’s the name of the game.  If it were as easy as the “get rich quick” gurus make it look on TV, then everyone would be doing it!  Even so, persistence pays; for a few die-hard buyers, obtaining property in this way can be very lucrative.  I wish you the best of luck!

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