Understanding foreclosures today can provide savvy investors with the ability to take advantage of one of the greatest wealth building opportunities that we will likely experience in our lifetime: REO property investment.
“REO” is an acronym for “Real Estate Owned” (by the bank) i.e. REOs are homes that have been foreclosed and repossessed by the bank (or other lender).
The key to understanding foreclosures & REO property investment is to have the desire to build wealth. This may sound silly, but if you’re totally satisfied with your financial situation you’re not going to invest your time in learning a new investment strategy.
Next, you need to gain an understanding of WHY investing in foreclosures/REOs is an extraordinary opportunity to build wealth. This supplies the motivation required to invest your time in learning how to take advantage of the opportunity and start taking action.
Now, assuming that you’ve got the desire and the motivation to build wealth, we’ll get into the meat of understanding foreclosures & REO property investment:
We’ve already explained the term “REO Property Investment” above. Now, let’s take a close look at foreclosures:
UNDERSTANDING FORECLOSURES:
“A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank (or other lender) can seize and sell the property as stipulated in the terms of the mortgage contract.” (Answers.com)
Foreclosure is a legal process. The foreclosure process varies from state to state, so we need to generalize here – but it always starts when a borrower (homeowner) defaults on their mortgage payments.
After several missed payments, the bank will file a “Notice of Default” (NOD) which is followed immediately by a “Reinstatement Waiting Period” (usually 120 days).
During the Reinstatement Waiting Period, the borrower (homeowner) has the opportunity to catch up on missed payments and bring their home loan current, thereby avoiding foreclosure. If this doesn’t happen, a “Notice of Sale” (NOS) will be filed with a date and time posted for sale of the property.
This is followed by another “Waiting Period” (usually 90 days) during which the borrower can still catch up on missed payments and avoid foreclosure. If this doesn’t happen, the property will go to a “Trustee’s Sale” (also can be called a “Sheriff’s Sale”) which is an auction.
If no one purchases the property at the Trustee’s Sale auction, title to the property reverts to the bank and it becomes an REO property – recall this means “Real Estate Owned” (by the bank).
QUESTION: What is the difference between a foreclosure property and an REO property?
ANSWER: A property in foreclosure is a home that is in one of the stages of the foreclosure process (NOD, Reinstatement Waiting Period, NOS, or Trustee’s Sale). An REO property is a home that has completed the foreclosure process, didn’t sell at auction and therefore reverted to the property of the bank.
INVESTING IN FORECLOSURES & REO PROPERTIES:
There several opportunities to invest in foreclosure and REO properties:
1. During the Reinstatement Waiting Period directly from the homeowner – helping them to avoid foreclosure.
2. During the Waiting Period following the Notice of Sale directly from the homeowner.
3. At the Trustee’s Sale (auction).
4. From the bank as an REO property.
For more information, I recommend “The LazyMan’s Guide to Understanding Foreclosures & REO Property Investment” as an excellent resource for understanding foreclosures and REO property investment in easy to understand terms.
CONTACT:
www.JohnHanlin.com
Tags: Foreclosures, Investments, property, Understanding