Foreclosure investment
Encyclopedia
Foreclosure investment refers to the process of investing capital
in the public sale of a mortgaged property following foreclosure
of the loan
secured by that property.
In real estate
, foreclosure is the termination of the [equity] of redemption of a mortgagor or the grantee in the property covered by the mortgage. Depending on the type of foreclosure proceeding, the sale may be administered by the courts (Judicial Foreclosure) or by an appointed trustee (Statutory Foreclosure). Proceeds from the sale are used to satisfy the claims of the mortgagee primarily, with any excess going to the mortgagor. Anyone may bid on properties sold at a foreclosure sale. As a practical matter, however, most properties are acquired by the lender, often for the amount owed on the foreclosed loan.
When interest rates rise, home owners with variable interest rates often become over extended, providing opportunities for foreclosure investment professionals to obtain investment properties at depressed prices. The most common reason for foreclosure is dissolution of a marriage. The next most common reason for is a failed business venture. Foreclosure investing can provide favorable returns.
from his or her creditors. After service, papers will be filed with the county clerk's office and be made a matter of public record (in some areas the place where deeds and mortgages are registered may go by a different name, such as the office of the land registrar). This notice is usually known as Lis Pendens, which is Latin
for "pending legal action". At this point, any attempts by the homeowner to borrow from public credit sources will be met with a negative response. On completion of the publication process, the foreclosure action will be permitted to proceed and the owners have a limited amount of time to pay up, sell, or make other deals with creditors. If none of these actions are taken, a foreclosure sale will take place. If no one bids the amount owed, the property reverts to the lender and becomes an REO (real estate owned
) property held in inventory by the lender. Experienced foreclosure investors may work in all of these various stages, but the possibility of making a transaction with the homeowner is no longer possible after the property is an REO.
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
in the public sale of a mortgaged property following foreclosure
Foreclosure
Foreclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
of the loan
Loan
A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower....
secured by that property.
In real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, foreclosure is the termination of the [equity] of redemption of a mortgagor or the grantee in the property covered by the mortgage. Depending on the type of foreclosure proceeding, the sale may be administered by the courts (Judicial Foreclosure) or by an appointed trustee (Statutory Foreclosure). Proceeds from the sale are used to satisfy the claims of the mortgagee primarily, with any excess going to the mortgagor. Anyone may bid on properties sold at a foreclosure sale. As a practical matter, however, most properties are acquired by the lender, often for the amount owed on the foreclosed loan.
When interest rates rise, home owners with variable interest rates often become over extended, providing opportunities for foreclosure investment professionals to obtain investment properties at depressed prices. The most common reason for foreclosure is dissolution of a marriage. The next most common reason for is a failed business venture. Foreclosure investing can provide favorable returns.
Stages of foreclosure
The foreclosure process begins when a financially distressed homeowner fails to make a loan payment and is served with a summonsSummons
Legally, a summons is a legal document issued by a court or by an administrative agency of government for various purposes.-Judicial summons:...
from his or her creditors. After service, papers will be filed with the county clerk's office and be made a matter of public record (in some areas the place where deeds and mortgages are registered may go by a different name, such as the office of the land registrar). This notice is usually known as Lis Pendens, which is Latin
Latin
Latin is an Italic language originally spoken in Latium and Ancient Rome. It, along with most European languages, is a descendant of the ancient Proto-Indo-European language. Although it is considered a dead language, a number of scholars and members of the Christian clergy speak it fluently, and...
for "pending legal action". At this point, any attempts by the homeowner to borrow from public credit sources will be met with a negative response. On completion of the publication process, the foreclosure action will be permitted to proceed and the owners have a limited amount of time to pay up, sell, or make other deals with creditors. If none of these actions are taken, a foreclosure sale will take place. If no one bids the amount owed, the property reverts to the lender and becomes an REO (real estate owned
Real estate owned
Real estate owned or REO is a class of property owned by a lender typically a bank, government agency, or government loan insurer, after an unsuccessful sale at a foreclosure auction. A foreclosing beneficiary will typically set the opening bid at a foreclosure auction for at least the outstanding...
) property held in inventory by the lender. Experienced foreclosure investors may work in all of these various stages, but the possibility of making a transaction with the homeowner is no longer possible after the property is an REO.
See also
- ForeclosureForeclosureForeclosure is the legal process by which a mortgage lender , or other lien holder, obtains a termination of a mortgage borrower 's equitable right of redemption, either by court order or by operation of law...
- Housing bubble
- List of real estate topics
- Real estate pricingReal estate pricingReal estate pricing deals with the valuation of real estate and all the standard methods of determining the price of fixed assets apply....
- Real estate appraisalReal estate appraisalReal estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property's Market Value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently...
- Real estate economicsReal estate economicsReal estate economics is the application of economic techniques to real estate markets. It tries to describe, explain, and predict patterns of prices, supply, and demand...
- Deed in lieu of foreclosureDeed in lieu of foreclosureA Deed in lieu of foreclosure is a deed instrument in which a mortgagor conveys all interest in a real property to the mortgagee to satisfy a loan that is in default and avoid foreclosure proceedings....
- Foreclosure consultantForeclosure consultantForeclosure consultant means any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following:#Stop or postpone the foreclosure...
- Investment Rating for Real EstateInvestment Rating for Real EstateAn investment rating of a real estate property measures the property’s risk-adjusted returns, relative to a completely risk-free asset. Mathematically, a property’s investment rating is the return a risk-free asset would have to yield to be termed as good an investment as the property whose rating...