Is the Pre-Foreclosure Market Poised to be the Next Big Thing in RE Investment?April 4th, 2007 by PropertyAuction
The spiraling foreclosure rate has been the focus of a great deal of media attention in recent weeks. The controversy has even caught the attention of Congress, prompting the first of a series of investigations that may ultimately result in changes in the federal mortgage regulations.
But industry insiders say that the question of possible federal reforms is only one small facet of a wide array of repercussions that may come to pass if the current spike in foreclosures continues. By most accounts, the trend has already sparked shifts and developments in the real estate investment market that will continue to reverberate throughout the industry for years to come.
It’s no secret that foreclosures offer real estate investors a unique opportunity to obtain properties at prices that are usually well below market value. But in today’s market environment, savvy investors and sellers alike have driven up demand for foreclosure properties, and as a result, true bargains are often harder to come by than they once were.
So where are the hottest deals to be found these days? Well, some enterprising investors are turning to the rapidly growing market segment known as pre-foreclosures. The owners of these properties have typically defaulted on payments, but continue to occupy the property.
In some cases, formal foreclosure proceedings have been initiated, although seizure and forcible eviction have not yet occurred. Some of the more aggressive investors in the pre-foreclosure market try to connect with owners in default before the actual foreclosure process has even been started.
Sometimes, this is accomplished through advertising campaigns — you typically can’t drive a block in most major cities without passing one of the “We Buy Houses!” billboards that are the stock in trade of pre-foreclosure investors. Other investors take a more direct approach, canvassing targeted neighborhoods on foot and asking to be introduced to homeowners who need help.
Some institutions, such as HUD and a number of the nation’s top mortgage lenders, are taking the lead by offering guidelines for pre-foreclosure sales. Growing numbers of property auction houses are devising service offerings directed specifically toward the pre-foreclosure market. These services offer huge benefits for the defaulting debtor as well as the lender. The lender does not have to go through the expense of a costly foreclosure proceeding, eviction, and eventual sale via traditional negotiated transaction through a broker and the defaulting debtor can get out of situation quickly as well as save any further damage to their credit. Also, if any equity does exist, the pre-foreclosure auction can let the debtor walk away with something before foreclosure fees slowly eat it all away.
In many cases, a pre-foreclosure sale represents the best possible outcome for all involved. Borrowers are freed from overwhelming financial obligations and avoid the credit damage associated with a fully-executed foreclosure. Lenders save the costs associated with a lengthy foreclosure battle and regain much-needed liquidity. And investors — if they’re lucky — walk away with a valuable property for far less than prevailing market prices.
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