Buying a house below market value is a good way to get more profits as a real estate investor. One way you can find property at below market value is a foreclosure auction. Real estate goes into foreclosure when an owner of that real estate does not pay their mortgage on time. When real estate payments are not up to date it is a distress property. Nothing physically can be wrong with the house and it can be classified as a distress property. If the payments are not up to date that is enough to make a house a distress property. When a house is in distress status the owner is given a certain amount of time to bring the payments up to date. If the property owner does not bring the house up to date the bank that holds the mortgage can foreclose on the property. Now before we go any further, it would be helpful if we know the basic definition of foreclosure and auction.
Foreclosure – The legal proceedings initiated by a lender in the case of mortgage default. When a borrower fails to make mortgage payments or otherwise fails to fulfill any of the obligations set forth in the mortgage agreement, the lender can enforce its rights through a foreclosure. Foreclosure is the process of selling the mortgaged property and using the proceeds of the sale to repay debt; Foreclosure action is the actual filing of and carrying through of the foreclosure process. – Investopedia
Auction – A property auction can occur for a number of different reasons. Foreclosure is one of those reasons. Others include homes taken by the government when the owner fails to pay his taxes, when the owner dies and the estate is sold, or when the owner decided to willingly place the property in a public auction in the hopes of quickly finding a buyer who will pay a good price for the property. – eHow
In short, foreclosure is when the property owner fails to pay the home mortgage and the banks is selling the property to recover any potential loss. While auction is the process of placing the property to the public by means of bidding to get a good price. If you are interested to learn more about foreclosure auction, join a free seminar here.
So for foreclosure auction, is when the bank takes control of a house that is when a distress property is classified as a foreclosed property. When the bank forecloses on a house, the bank will try to sell the house in a foreclosure auction. In a foreclosure auction the person with the highest bid will take control of the house from the bank. If the price is too low the bank will not sell the house. Some foreclosure auctions start at the price the bank is willing to sell the house for. We normally refer that as ‘bank reserve price’. As explained by Andrew Wong post at Malaysiabar.org.my “The reserve price, conditions of sale, mode of payment, service on owner and public advertisement of the sale, must be complied with by the bank, before and after an order for sale is made. The NLC (National Land Code) regulates the application of the purchase money arising from any sale in a judicial auction, in particular, requiring that the quit rent payable to the State and outgoings payable to the local authority, be paid from the purchase money. An owner of the property or the purchaser in a judicial auction, who suffers any loss or damage by reason of any act, omission, neglect, error or default arising from these statutory requirements, is entitled to compensation.”
Finding these auctions can take some work. Some places you can find foreclosure auctions are the newspaper and online. It is important to do research on the properties to see which ones you will be interested in. It is important to research the property so you won’t over bid. One way of doing this is going and physically taking a look at the properties you think you will be interested in and do an assessment of the value.
Most likely you will not get to see the inside of the house, but you can make an assessment of the house from the outside. You should stay off the physical property if you can. You will not want to get charge for trespassing. It is recommended that you take pictures and write notes about the property; this is a good way to help you to make the decision of what properties you will want. It can also help you to make an assessment on the highest you will pay. When it is time for the foreclosure auction, stick to your assessments and do not over bid.
You may not get your first choice but it is better to get your second or last choice at below market value than to over pay for your first choice. Buying foreclosure properties does take some work, but the money you will save is worth it.
If you bought a foreclosure auction property and thinking to flip it, you might be interest to read our previous blog – 5 Things You Should Know Before Flipping A Property