Buying Foreclosures - Boon Or Boondoggle?

A mortgage is a loan agreement that enables a person or company

, called the mortgager, to borrow money that will be used to buy a property. The property that is mortgaged will be used as a security for the loan, a form of collateral that will protect the lender.

Foreclosure happens when a lender takes over a mortgaged property and takes away the mortgager's right to redeem his property when the conditions of the mortgage are not met. Due to their below-market-value prices, investors who buy foreclosures find a good deal in fixing them up and selling them for a profit.

Brought about by the recent economic recession, more than 6,600 foreclosures are filed daily as job losses mount in America as of October 9, 2009. This is according to the Center for Responsible Lending - a nonpartisan watchdog group based in Durham, North Carolina.

With employment losses, inconsistent income growth, declining property values, and high energy costs among many other possible reasons, some homeowners are struggling to pay the bills and to put food on their table. When a property is foreclosed, the lender may sell the property, keep the amount owed, and give the rest of the money to the borrower.

The reason why it is cheap to buy foreclosures is that the lender, usually a bank, is only after the borrower's unpaid amount or remaining balance of the total amount owed. Tim McCloud, a realtor with Kelley Realty in Green City, Ohio, who specializes in selling foreclosed properties on behalf of the lenders, estimates that a buyer can save from 10% to 20% of a house's market value. But since the house has been foreclosed, the possibility of having to do some cleaning, repairs and replacements will not be put aside.

If one wants to buy foreclosures, one must remember that the first rule of real estate is location, second is location, and third is location. A foreclosed property's bargain price may also mean high cost of repair and maintenance but if situated in a good location, the high property resale value may just be well worth the money. It is always a good idea to take a look at the foreclosed properties' condition before making an offer. However, some properties are not available for inspection prior to purchase and in cases like these, one has to think through the possible drawbacks of an uninspected foreclosed property and need not rush.

To buy foreclosures means to be prepared to take the risk that comes with it. If the foreclosed property has occupants, the successful bidder will be responsible in making the tenants leave. Todd Beitler, owner of the Real Estate Library in Boca Raton, Florida advises first-time foreclosure buyers that bank-owned properties are the safest because there is "no risk, no taxes, no liens and no tenants to evict." A low price does not necessarily mean a good buy especially if it is just making up for the cost to make the property saleable or liveable again.

by: Jeff D McQueen

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