Of course, foreclosures will always be a viable acquisition strategy. The interesting thing is that the number of foreclosures have decreased substantially over the last decade. In a recent study on the foreclosure market by ATTOM data, Senior VP Daren Blomquist provide-s some great insight to the state of foreclosures, ‘Less than half of all active foreclosures are now tied to loans originated during the last housing bubble, one of several data milestones in this report showing that the U.S. housing market has mostly cleared out the backlog of bad loans that triggered the housing and financial crisis nearly a decade ago. Meanwhile we are beginning to see early signs that some post-recession loan vintages are defaulting at a slightly elevated rate, a sign that some loosening of lending standards has occurred in recent years.’
‘Nationwide, one in every 706 U.S. housing units had a foreclosure filing in the first quarter of 2018. States with the highest foreclosure rates in the first quarter were New Jersey (one in 233 housing units with a foreclosure filing); Delaware (one in 317); Maryland (one in 385); Illinois (one in 425); and South Carolina (one in 458).’
Now that we have established opportunity, let’s answer the next two questions.
How Do You Find the Right Foreclosure Opportunities?
While there are other resources available on the market, however, we are fond of our Patent Pending Deal Board. Using OTA Real Estate’s Deal Board, you can pull data from thousands of counties in the US.
How Do You Protect Yourself When Acquiring Foreclosure Properties?
The two general rules to follow to protect yourself when acquiring foreclosure properties are:
Do your homework: I could go on extensively about this topic, but here are the key things to check for (many of which are available in The Deal Board):
- Mortgage position
- Municipal liens
- Title issues/defects
- Zoning regulations
- Condition of the property
- HOA lawsuits or liens
- Environmental issues
- Local market conditions
In addition, do a property evaluation. Run comps (once again easily obtained in The Deal Board) and create a P & L (another OTA Real Estate tool, the Deal Tracker, is a great tool for this purpose). The more information and data you have about the foreclosure property, the more confident you’ll be with the deal.
Check for Postponements: It’s very common in the foreclosure process these days, that a property scheduled for sale can be postponed to a future date. Below are some of the causes:
- The bank accepts a purchase contract.
- The debtor files for bankruptcy protection. This process automatically suspends any collection efforts (including foreclosure) until relief is obtained by the lender of the automatic stay (the automatic stay directs creditors to cease their collection activities immediately).
- The debtor has made a good faith effort to cure the default and negotiated a forbearance agreement with the lender.
- Error or omission has occurred somewhere in the foreclosure process.
- Lender has sold the note and/or mortgage.
- The debtor requests a loan modification and under HAMP the participating servicer is obliged to evaluate the request.
The key is having the right tools and knowledge to give you confidence in the deal.
Diana D. Hill – Diana@OTARealEstate.com