Bank Foreclosure Properties

This is a general description of the foreclosure process. I am not an attorney or an expert in this field by any means and you should always consult an attorney for your state to determine if this process is the same for you. Bankruptcies and other factors can delay this process for long periods of time in some states.

 

Day 1 1st missed monthly payment
Day 30 2nd missed monthly payment
Day 60 3rd missed monthly payment
Day 70 Notice of Default: The notice of default alerts the homeowner that they are about to go into foreclosure. They need to come up with the back payments within 30 days or foreclosure proceedings will begin. If they don’t make the payments the process below begins.
Day 100 Notice of Foreclosure and Notice of Trustee’s Sale: These documents are filed as a result of the payer not making up the back payments. These notices have a dual purpose. First, the Notice of Foreclosure alerts the payer that they are now in foreclosure. An itemized list of all the missing payments, attorney’s fees, and other charges that are due are listed on this. Second, the Notice of Trustees Sale is a recorded notice that states where and when the house will be sold. Before it is sold it must be advertised.
Day 160 The Notice of Trustees Sale is published once in a legal newspaper.
Day 180 Loan Accelerates: On the 11th day before the auction, the homeowner can still make up the back payments and other fees that are involved thus effectively saving their house from foreclosure auction. This is referred to as reinstatement of the loan.
Day 181 Loan Acceleration: On the 10th day before the auction, the homeowner may have to pay all the back payments and fees, plus the entire amount still owed on the loan. This is called Loan Acceleration. If this is not paid before the auction the home would be sold to the highest bidder.
Day 183 Second Ad is published: The Notice of Trustee’s Sale has to be published in a legal newspaper between the 7th and 14th day before the auction.
Day 190 Trustee’s sale: The bidding for the property, at the foreclosure auction, will normally start for the amount of the principal remaining balance on the loan plus all back payments and fees and any other liens on the property. If the bidding does not meet your minimum bid you set then you get the property and can do with it as you wish.

 

3 Ways you could make money when buying a bank pre-foreclosure:

  • Work with payer to restructure the contract, thus making it perform. This will give you a good return for your money. You could keep this monthly cash flow or sell it to an investor after it has been performing for a year or so. You should receive a better price than when you bought it since a performing mortgage note is less risky to the investor. Plus you received a years worth of payments.
  • Finish the foreclosure and let the home sell for the principal amount, arrearages, and fees involved to you. You make the difference between the price you paid plus expenses and the amount of the sale. This is assuming you can get the full amount. You may still be able to sell for less and make a good yield. Let’s say you bought the $100,000 mortgage note for $70,000 and for the sake of argument you have another $5k in fees, that’s $75k total. You decide to let the home sell for $90k at the foreclosure auction rather than take the home to resell on the open market, although it is valued at $100k. You make $15k for 6 months, that’s a yield of 37.02%! (rate of return)
  • Take the home in foreclosure by bidding higher than anyone else, or if the bidding does not reach the minimum bid set. You most likely will have to figure putting out some money in rehab construction costs. If done right, the work would increase the value of the home and help to recoup your expenses. Using the above numbers, you take the home in foreclosure and with $10k in upgrades the home is now worth a conservative $115,000.

 

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  • Costs
  • Note: 75,000
  • Foreclosure costs: 5,000
  • Construction upgrades: 10,000
  • Realtor: 6,500
  • Total: 96,500

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  • Time
  • N/A
  • 6 months +/-
  • 1 month +/-
  • 3 months +/-
  • 10 months

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If the home sells for 110,000 your yield would be 27.538%. Obviously in this situation you would want the home to sell at foreclosure, but this is not always possible and must be considered.
 
These are examples only and there are risks when buying foreclosures and every deal must be investigated on an individual basis. As with all investments there are always risks involved. This is why using an attorney and doing extensive due diligence in the investigative process is so important.