Sunday, 24 January 2016

Jeff Adams Real Estate: Implications of Foreclosures

Jeff Adams Real Estate
Foreclosures have significant implications to the real estate market in 2016.

Foreclosure is confiscation of mortgaged property by the lender for default on loan.  The default can be the result of various causes, such as: divorce, relocation, unemployment etc. Due to these reasons the borrower is unable or plainly unwilling to pay up the mortgages.  In such cases the lender exercises his right to acquire the properties of loans in default. Usually the lender is not into real estate business.

The lender is, therefore, eager to dispose off such property through auctions or by offering to sell at a discounted price in order to recover a part of the dues.  This way the lender can square up the books by booking partial losses.  Accumulation of bad debts is not good for lending business.

The stray occurrence of foreclosures is a spicy bit of news. We learn about it befalling to someone in our friends or relatives circle through mouth-to-mouth gossip. But, when it happens on a wider scale, it signals an alarming recessionary trend in the economy.
It signifies slowing down of business and industry, a rise in unemployment and, overall, the economy in distress. During such times there is less investment and few takers of loans.  Consequently, the interest rates fall.

While it is a misfortune for some, it offers a golden opportunity for shrewd ones sitting on pots of money to buy properties at discounted prices. The picture, however, is not all that cozy for the small investor.  The quick and ready hedge funds somehow get the news well in advance and stand lined up like war ships, all ready to jump into the fray.

In the face of the huge financial power of the hedge funds, the small investors nowhere stand a chance to profit out of mass distress sales.

Hedge Funds
Hedge funds represent a group of high net worth investors. Collectively they possess a huge pool of resources, by which the can easily manipulate the markets to their advantage.  Their primary aim is to make quick profits.  They have a free hand in making real estate investment decisions unlike the case of mutual funds, pension funds or other funds holding public money at stake.

Hedge funds, however, are answerable to their high net worth investors and cannot afford to keep the investments idle for too long.  Their strategy is to make quick bucks and to move out well before the scenario changes.

Small Real Estate Investors
The strategy for small investors in such cases is: “If you cannot fight them, join them”. They have to move in quick and buy whatever good property that is available at a slightly premium price.  After buying, they can hold the property until the economy makes an upturn when the demand and prices both go up. The real estate, thus, depends a lot on economic scenario.

Interest Rates
The interest rates play a pivotal role in property investment decisions.  Apart from the ability to borrow money, they also indicate the demand for property.  The financial architects of a nation are well aware of the leverage that interest rates hold in nursing the sick economy back to health. They use this leverage to make the gross savings flow into developmental investments and also into real estate.

Foreclosure Terms and Explanations

The buyers against mortgaged property make fixed payments to the lender every year towards eventual ownership of the property. In the event of defaults, the lenders exercise their right to take possession of the property, which is technically called foreclosure.

Before foreclosure the lending bank sends a notice to the owner giving a stipulated time to pay up the dues in default.  The failure to comply will necessitate foreclosure.
Within the notice period the owner has a right to sell the real estate property and pay the dues preventing foreclosure and forestalling a blemish on loan records.

In case there are no suitable bidders for a foreclosed property put up on auction, the lending institution repossesses the property which is known as REO or the Real Estate Owned.

The foreclosures are of following two types:

These are legal property transfer records which allow owner to reclaim the property after paying the required amount within the stipulated period of time.

This happens in the case of a property title or deed, where the auction process is handled by an independent third party. There are no redemption periods in such cases unless agreed upon by the owner and/or buyer.

 It is a very profitable option for an investor with sufficient investable funds to get into foreclosures, which happen in huge numbers during recessionary times making those properties pretty cheap to buy.

Low interest rates have been prevailing in the real estate market for quite some time. It is advisable for those investors, who want to raise loans, to go for fixed rates of interest which are unlikely to slide further down.


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