Unfortunately another person’s misfortune is someone else fortune. A car accident produces horrific scenes, but it keeps the injury lawyers and car repair places in business. In real estate, buying foreclosures the right way with cash or financing, can lead one to wealth.

Like every investment that involves money, you have to know what you’re doing or you’ll lose your “shirt” in the foreclosure process.

Having the cash to buy foreclosed homes is probably the most ideal way to get started in this business.

What is Foreclosed Homes?

These are homes that have been repossessed by the mortgage banks for non-payment of the monthly charges as per the mortgage note signed during closing.

Most times, the foreclosed homes are in need of minor or major repairs. Depending on how you buy the foreclosed home, the issues of clear title might become your responsibility.

Banks hate owning foreclosed homes, and most would rather sell it at a loss, than hold it for housing prices to rise again.

If you’re buying a foreclosed home with cash you stand a very good chance of getting an excellent deal, provided you’ve done your due diligence.

Below are the four possibilities of how the foreclosure process can end:

Borrower/Owner Pays Up – Sometimes the borrower and current owner of the real estate comes up with the funds to reinstate the loan terms.

This can occur during the lengthy grace period known as pre-foreclosure.

Current Owner Can Sell the Property – In a hot real estate market, a buyer can emerge to buy the home while still in the pre-foreclosure process.

For this to work, the selling price must be enough to cover the multitude of expenses added to the remaining principal of the home loan.

The Property is Sold at Auction – The day the bank acquires the right to the real estate property, it’s immediately put through the auction process in the same municipal court house.

Bank Takes Possession of the Home – If no buyer for the foreclosed home can be found during the foreclosure process, the property is added to the real estate owned by the bank.

I found that the best foreclosure deals can be found when the bank fully owns it.

How to Find Foreclosed Homes

Buying Directly From The Owner

If you look in your daily newspapers, you’ll be able to find many homes for sale that are under the threat of foreclosure.

Most of the listing would not tell you about the foreclosure issue, but you can easily find out that information through your municipal court house.

Most big cities have computerized listing of pre-foreclosure fillings, and can be assessed through your computer.

Many internet firms have emerged to take advantage of human laziness to do basic research on the property.

The foreclosure information they’re selling you might not be up to date, and full of inaccuracies.

Most real estate brokers would let you know if the listing is under foreclosure.

Advantages of buying directly from the current real estate owner

Humans can be spiteful and mean, and the foreclosure process brings out the worst behavior in certain people.

At least if you buy from the owner, most of the equipment’s at the home would be functional.

The joy in the seller’s face of having been rescued from the financial abyss is certainly priceless.

The owner would be happy to tell you some facts about the home, which would make it livable immediately.

In a down real estate market, you might be able to get further reduction in the principal balance from the lending institution.

Some Disadvantages of buying from the current owner

Most likely, the cost for the house would not be considered a bargain as compared to buying it through the foreclosure process.

The owner might not be forth-coming as to the exact amount owed to the bank, so you’re responsible for digging that info out.

The bank might not be interested in negotiating any reduction in the principal balance, especially in a hot real estate market.

From my experience, banks would rather foreclose on a home with equity, rather than try to negotiate on the remaining principal balance.

If what’s owed is more than the potential appraisal of the home, you stand a better chance of getting a good deal.

You Can Buy From the Auction Process

Believe it or not, lenders do bid during the auction process, either to drive the price higher or they just want to own the property.

As a novice real estate investor I would urge you not to try the real estate auction process, unless you’re been guided by a knowledgeable hand.

The tricks that can be played to make you pay more can fill up several pages.

Unless you have a well-trained team, you have limited time to research the property.

Most times the bank is just selling the title to the property, but it’s up to you to clear up some of the liens owed to the municipality where the real estate is located.

Taxes owed including sewer and water charges, might become your responsibility.

People that make a living buying through the foreclosure auction process are pros, and most would “eat amateurs for lunch”

As a rule of thumb, visit several foreclosure auctions and learn the process, before you attempt to bid on a property you like.

Buying From The List of Real Estate Owned by The Bank

Most times, banks dislike having real estate properties on their balance sheet. It’s a non-performing asset that’s draining funds, instead of bringing in funds.

Most REOs by banks can be acquired for much less than they’re worth, but you have to cultivate a relationship with the lending institution before they will even entertain your offers.

Bank owned real estate would go through a process of finding out what the current value is.

They then pass it on to their preferred foreclosure buyers list for a private bid.

So if you’re new to buying foreclosed property from a bank, try to get on the preferred buyers list.

At this stage, we are talking about buying a foreclosed home with cash.

Financing can be arranged, but most of the homes would need some repairs, including some lien removal action on your part.

The best prices can be found, if you can get on the list of approved buyers for REOs owned by the lending institution.

Buying From a List of Government Owned Real Estate Properties

Many government agencies acquire properties through the power of seizures and tax liens.

Unless you’re good at dealing with government bureaucracy, the lengthy process might create multiple headaches for novice real estate investors.

The Government is truly inefficient at handling money, and it shows during the buying process.

Even if you found a foreclosed home controlled by the government, getting the required final approval is far difficult than most people realize.

While you can get a great deal on a govt owned real estate property you like, the process will give you nightmares, so be mindful of that fact before you start bidding.

If you want to know how to buy a foreclosed home with cash, you’ll have to learn about the pre-foreclosure and real estate auctioning process.

You must do your due diligence on the property you like, before even attempting to bid on it.

As a beginner real estate investor, you should try finding sellers going through pre-foreclosure for a good livable house and deal.

Most homes you purchase through bank foreclosure would require some type of repairs, and that can be costly.

Forget just analyzing the foreclosed home from the outside, you need a way to get inside to ascertain the extent of the needed repairs.

The pros that make a living buying real estate foreclosure know there will be some winners and losers from the properties they acquire.

If you have the right funds and personnel working with you buying real estate foreclosures can make you wealthy, provided you know what you’re doing.

If this is your first attempt at buying a foreclosed home proceed cautiously, and double verify all information you get before committing yourself to owning the foreclosed property.