There’s a few confusing terms in Real Estate, but since we help a lot of people find investment properties, one that we frequently run across is “Foreclosures” The term is used for a lot of different situations, but actually it’s several very specific types of deals.
Foreclosure actually refers to the process that happens when a lender decides to take a property back from a borrower. When the bank gives the owners notice and starts the foreclosure process, the owners can get the mortgage straightened out in various ways, but if they can’t, the bank schedules an auction. In the auction, cash buyers can bid against the bank for the property, and the highest bidder takes the property.
These auction properties are frequently purchased by wholesaling companies, who quickly sell them to the public at a slight markup as foreclosures, a process that gives buyers the possibility of financing. When the bank decides the property is worth more than the highest bid, the property becomes an REO, (Real Estate Owned) and is usually sold off by the bank…as a foreclosure!
Whichever approach you take, auction properties, or wholesale or REO properties, foreclosures can be a tricky process, but the rewards can be huge!