Jeff Adams Real Estate: Implications of Foreclosures

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

Foreclosure:
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.

Pre-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.

REO’s:
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:

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

Non-Judiciary:
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.

Conclusion:
 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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The Process of Foreclosures: Understanding the Intricacies

Experiencing a foreclosure first hand really impacts you. However, the intensity of the impact depends on what role you play in the process of a foreclosure. Whether you are new to the term, have experienced it before, involved in the legal process or feel that you may soon face a foreclosure, you need to understand how the process takes place because, although it may sound like a heavy legal term, foreclosures are, in fact, easy to understand.

What is a Foreclosure?
A foreclosure is a legal process that is set into motion when the owner of a property cannot make payments of the principal and/or interest towards his loan. Thus, the property is then seized and sold so that the lender can recover the amount that was borrowed.

When do Foreclosures occur?
The first step leading to a foreclosure is the borrower not being able to return to the lender his loan amount. That’s when a foreclosure occurs and the process begins.

The Stages of Foreclosure
The process of a foreclosure moves in different stages, each of which is mentioned below.

1. When a borrower misses his payments for three or more months in a row, the lender sends him an NOD (Notice of Default) stating that his/her property shall face foreclosure on account of the non repayment of the loan. The lender gives the borrower a fixed brief time period allowing him to make a quick payment. If the borrower fails to do so, a foreclosure is inevitable.

2. The owner of the property, that is, the borrower, then receives a Notice of Sale stating the date of the foreclosure sale of the property. This notice is also placed on the property and in the local newspapers for a short span of time, informing people about the foreclosure.

3. Those who are made aware of the foreclosure can take part in the public auction if interested. Most people find it profitable to buy a foreclosed home because the property is priced at a much lower rate than its market value.

4. The opening bid for the auction is set by the lender. He takes into account the loan balance, interest, attorney fees and any other additional expenditure he may have incurred in the process of the foreclosure.

5. The public auction then occurs and bids are placed and the property is thus acquired by the highest bidder.

Buying a Foreclosed Property
While the process of a foreclosure does sound pretty simply, buying a foreclosed property is not a very easy task. Acquiring a real estate property for a lesser rate than the market value is quite luring to many who make use of real estate as an investment, especially the big hedge fund companies, who are on the lookout for foreclosed properties to buy them for a lesser price at public auctions and sell them off later or give them up for rent them at the market value, thus, making a profit.


The factors that work in favor for the buyer are as follows:
1. Buying property at a cheaper rate
2. Using this property as an investment to make a profit


The factors that do not work in favor for the buyer are as follows:
1. The winning bid has to be paid in cash. Also, a deposit needs to be paid up front and the remainder of the amount needs to be paid in 24 hours. Thus, the winner needs to have the money at his disposal, since he cannot make payments in installments.

2. Experiencing the emotional trauma of the owner and his family losing his property with nothing left for them.


Bank Owned Properties – REOs (Real Estate Owned)
When the property that is put up for sale at a public auction is worth much less than the amount that needs to be recovered, it is difficult to find a bidder to meet the opening bid. The property, thus, doesn’t get sold and then comes to belong to the bank, i.e. the lending source. These properties are deemed as REOs (Real Estate Owned).


How to Avoid Foreclosures?
If you are at the receiving end of the foreclosure process and are facing the loss of your property and home, there are ways in which you can avoid your property being taken away from you.

1. Make sure that you do not quit your job, or even if you want to, do so only when you find yourself a new job to make sure you have a stable income. If you are downsized, try looking out for a new job as soon as possible.

2. If you have received a Notice of Default, you can gather up all your resources to pay off your loan and can also solicit financial help from a friend or family member.

By simply understanding what the entire process of a foreclosure, it can be used to your advantage, no matter what role you play in the entire process.

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Foreclosures – An opportunity in distress

Foreclosure is a specific legal process through which a lender attempts to recover the balance amount of a defaulted loan by forcing the sale of the asset used as collateral against the loan. Large scale foreclosures signal an economy in distress and have significant implications to the real estate market.

Usually the lender is not into the real estate business and does not want to go on accumulating he foreclosed property.  The lender does not have the resources to manage real estate property. Moreover, accumulating bad debts does not reflect well on the lending institution. Therefore, the lender is eager to sell off the property at a discounted price so as to close the account by booking partial loss.

The Economic Recession
The occasional foreclosures are individual failures. These can occur because of a variety of reasons affecting a particular individual, such as divorce, relocation, arrest or plain inability of the borrower to repay the interest and the balance of the principal amount of the loan. Such incidents become the subject of common gossip.

However, when foreclosures occur on a wider scale, it signals an alarming recessionary trend in the economy.  It indicates slowing down of business and industry, a rise in unemployment and an economy in distress. During the recessionary period no one dares to borrow money and make new investments.  There are few t takers of loans and. consequently, the interest rates fall.

An Opportunity to Invest
Large scale foreclosures offer a great opportunity to buy properties at heavily discounted prices. Everyone shuns away from buying property at such times. Few have the daring to take risk. However, according to Jeff Adams, a seasoned advisor for investing in real estate, it is the right time to take a plunge.

Of course, an opportunity to make quick and huge profits attracts big sharks to the dark waters. The hedge funds, with their full access to technology and information, have already sniffed their meaty nourishment in the troubled waters and waste no time in getting there. They elbow out all small investors and, with their huge capital resources, leave no room to small players.

Hedge Funds
Hedge funds constitute a group of high net worth investors. Collectively, they have huge funds at their disposal. This gives them the great power to manipulate the markets to their advantage.  The hedge fund managers have a free hand in making investment decisions unlike other publicly accountable funds, such as mutual funds, pension funds etc.

The only concern of the hedge funds is not to keep the funds locked in idle investments for too long. Therefore, they have to reap quick profits and to move out well before the scenario changes.

The small investors, however, can exercise speed and daring to buy good properties in the adjoining area.  They can hold the property a little longer till the demand picks up.

Interest Rates
The interest rates play an important role in property investment decisions.  Apart from the ability to borrow money, they also indicate the demand for property.  The central monetary agency uses the leverage of interest rates to nurse the sick economy back to health. They use this leverage to regulate the flow of gross savings into developmental investments and also into real estate or the housing sector.

Foreclosure Terms and Explanations

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

·         Pre-Foreclosure:  This stage precedes foreclosure, where the lending bank sends a notice to the owner giving a stipulated time to pay up the amount in default.  The failure to comply will follow foreclosure. The owner, however, has the right to sell the property during the notice period and pay the dues preventing foreclosure.

·         REO’s: Here the lending institution repossesses the foreclosed property put up for auction in case there are no bidders. Hence it is known as REO or the Real Estate Owned .

The foreclosures are of following two types:

·         Judiciary:  These are legal property transfer records which permit the owner to reclaim the property after paying the amount due within the stipulated period of time.

·          Non-Judiciary:  Here 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.

Conclusion:

 It is highly profitable to buy foreclosed property at auctions. Large scale foreclosures often throw up a gem of opportunities to buy properties at highly discounted prices.

A low interest rates regime has been prevailing in the market for quite some time. Borrowing money now at fixed rates of interest is very much advisable, as the current rates are unlikely to go further down.

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Didn’t Someone Tell You We Are in a Recession?

We are all aware that the economy has taken a nosedive over the past couple of years. Businesses are closing their doors, employees are being downsized, and the current market value of houses has been consistently dropping. Although, the recession is damaging the current market, it does offer a plus side to the real estate investor.

Buying real estate during a recession allows buyers to thrive during a recession. They have the opportunity to make substantial financial growth. Falling prices and less activity in the current market can benefit the buyer in many ways. A recession typically lasts for about two years so investors should think about not just how low the prices will go, but also how much they can invest until it is over.

Upon deciding to invest, you should consider a variety of factors. Realize if each house in question is functional to your particular needs. Buying because you fear the recession will end is not wise. The current market should not sway your judgment in this way. But since prices are typically down by three to five percent, buying does offer many advantages.

Buyers stand to pay less for homes, usually five percent of more, during time of distress. In addition, sellers are often more anxious and motivated to sell just for the shear fact that they do not want their houses on the market for too long.

Before investing in a down market, it is critical that you research the comparable housing prices in the area, remodeling records for the home, and any financial situations attached to the home. Websites such as zillow.com or trulia.com are excellent resources for gather such information. The general location and overall condition of the house should also be taken into account.

Timing is everything if you plan to capitalize on the falling prices of houses and property. If you are a seller and you wish to move to a more expensive home, now is the time to buy. The longer you wait, the lower the value of your currently owned home will go. Savings to you on a new house are also available as it is being sold for less. Interest rates are also much lower and are gradually increasing, which is another reason to buy now.

Borrowing cheap is another benefit. Interest rates are very low, and even though banks may not be lending to risky buyers, investors with good credit are welcomed. Foreclosures, Short Sales, and Real Estate Owned (REOs) properties are an excellent way to potentially profit from an investment during a distressed economy.

When a notice of default has been filed in public records because the owner has stopped making payments on the mortgage, and a lender has given notice that the house will be sold at public auction if the payments are not made current, the house becomes foreclosed upon. If payments are not made and the house goes to public auction, a buyer can usually purchase the house for the amount of money remaining on the loan.

There is substantial profit to be made by only paying the amount owed on the mortgage and the owner’s equity can be picked up for free. One thing to consider though, when going the foreclosure route is that a house being sold at auction is not just a steal. Due diligence and thorough inspection of the house should be done prior to any bidding on any home.

Short Sales or Pre-foreclosures are also an option. These are homes that are in foreclosure but before the property goes to public auction. The lender must agree to accept an offer less than the amount owed on the property. Since the lender agrees to take less money in order to avoid foreclosure, the transaction is better for the investor. REOs are similar to Short Sales, but the lender already owns the house due to foreclosure proceedings. The house has been auctioned publically and did not receive a bid. This offers a benefit to the investor because the lender will usually sell for less than what is owed on the mortgage.

This is the best way to buy because the seller is no longer involved in the transaction. The deal is made between the lender, the seller, and the agents that represent them. At times the agents are not even necessary.

Overpriced homes are another investment opportunity to consider. An inflated price is the number one reason a house does not sell. A home that has been previously overlooked because is has been overpriced, has been on the market for a long period of time, and has not sold because of its price, should be revisited. A motivated seller could lower the price in a hot seller’s market where there are many buyers and less inventory.

Offering the seller a sizable earnest money deposit or “Good Faith Deposit,” which is a portion of the down payment attached to the purchase agreement, and a list of prices for other homes is the area could also encourage a price reduction. Offering a “Good Faith Deposit” can also offer less risk to the seller because most contain provisions that give this initial deposit to the seller if the buyer backs out of the deal without cause. The money is usually held in a trust until of the necessary negotiations have been made and contracts have been signed.

Finding real estate to invest in can be easier said than done. Don’t wait for these homes to show up in traditional real estate listing services. Look for information on bank websites and county loan offices that know of foreclosures. You can also ask local real estate agents that are familiar with the area. Realtors can also offer insight on overpriced homes.

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