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Foreclosures: Getting there first reaps rewards

Buying a foreclosure can be a lucrative investment. Finding a foreclosure before anyone else -- or a "pre-foreclosure" that allows you to be the only person negotiating with a motivated seller -- can give you an additional advantage.

Understanding the foreclosure process gives you some insight into locating foreclosures at their earliest stages.

The federal government forecloses on hundreds of thousands of homes each year. Banks and financial institutions take back homes that they have loaned funds against. They refer to the properties they retrieve as REOs -- for "real estate owned." Within larger banks, there are REO departments devoted to the resale of these properties.

New homes can also appear on bank REO lists. Builders who build "spec" homes, homes not presold but built "speculatively," finance the construction through banks. Sometimes when a builder has several homes that have remained unsold for an extended period of time, the bank will take back the homes. These homes will also appear within the bank's REO listings. ForeclosuresUS.com (a partner of Bankrate.com) carries REO listings.

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Extra efforts can reap rewards
In some cases and with some additional effort, you can find these homes prior to their foreclosures, or pre-foreclosures. In the case of bank REOs, become familiar with local contacts of REO departments at banks in your city. As you become acquainted with these contacts, you can tell them the type of home you are looking for and the area. If you check back regularly, you may obtain information on homes before they are added to public databases.

When you review the databases further, you will notice that many smaller banks do not include their REO listings. They may have too few foreclosures to have an REO department. Contact these institutions directly and ask for the name of the person designated to dispose of these properties. Again, your effort may reap you information about properties that are not in any public database.

Real estate agents are another source for finding properties prior to foreclosure. When you have decided on the area where you wish to purchase a home for yourself or as an investment, you should contact an agent familiar with the area. Many times real estate agents have clients who need to sell quickly.

Sleuth it yourself
As you become familiar with an area, you may notice homes that appear to be vacant without any "for sale" sign. You can obtain the phone number for the address from a reverse directory. Many times when people leave a home, they forward their calls to a cell phone or other number. You may reach an owner ready to sell quickly.

Your local newspaper can be another source of information about pre-foreclosures. Check "for sale by owner" and "homes for rent" ads. Sometimes these represent the last efforts of homeowners who are so strapped that they can't afford to lose money toward a real estate commission.

You can also use your newspaper proactively to find pre-foreclosures. When you have identified the area in which you wish to purchase, place an ad in that section. If you wish to obtain investment property, your ad can say, "Will buy your home, you stay in your home" accompanied by your phone number. In this case you purchase the home from the seller and then either lease or lease/purchase it back to them. If you wish to purchase the home without tenants, you can run a similar ad without the option of the sellers remaining in their home.

Finally, public court documents give you information about homes 30 to 180 days prior to foreclosure. In every state, a legal notice must be filed before a foreclosure can be finalized. The length of time between the initial legal action and the final resolution varies nationwide, but the procedure is the same. In most states, a "forcible detainer" is filed. It may indicate the property address, name of the homeowner and amount owed. This action is filed prior to the actual foreclosure and gives you enough information to contact the homeowner directly. In many states, forcible detainers are also used to evict apartment dwellers, so you must check the address of the property to determine if it is a home or an apartment.

Buying a foreclosure or a pre-foreclosure from a motivated seller can be a good investment for you, and in the case of pre-foreclosure, a good solution for someone else.


Elaine ZimmermanElaine Zimmermann is the author of How to Retire With a Million Dollars and the president of ForeclosuresUS.com, a partner of Bankrate.com.

-- Updated: Aug. 26, 2004
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See Also
Lead the pack in foreclosures hunt
How to ride the next real estate wave
Financing real estate investments
Track prime rate/other leading rate indexes
More real estate stories

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