Most people who buy foreclosure properties do so with plans to flip them. Generically, foreclosure flips include any type of forced sale during a time of economic distress, divorce, unpaid income or real estate taxes, judgment creditor seizures, lender foreclosures, or bankruptcy.
You can successfully buy foreclosure properties at below market prices in three general circumstances.
1. The owner has 20% equity in the home but is willing to lose that equity and sell for the mortgage payoff balance, just to avoid the bad credit history and the trauma of a foreclosure.
2. The lender is about to foreclose and is willing to release its mortgage lien for less than the full payoff. Usually this works only when there is a local lender who owns the mortgage. If the mortgage has been sold on the national market, those new holders generally do not have the contractual or legal ability to work out a deal with you, even if they wanted to.
3. The lender has already foreclosed and the property has been on the market for 90 to 180 days without an acceptable bid. The time limit depends on the foreclosing owner’s internal or government-imposed regulations. But, after some time, he or she will be allowed to accept almost any bid on the property, just to get it off the books. Remember, lenders are not in the business of making profits on selling real estate. They will even sell at a loss because their business model anticipates they will take losses on a certain number of loans and they price their interest rates accordingly.
To be successful at pre-foreclosure flips, you have to be very good at researching real estate titles to make sure you do not buy something that still has other liens or mortgages on it. Sure, you can and should buy title insurance when you are ready to buy. On the other hand, you do not want the expense of a third-party title search for every single property you are considering. You will have to learn how to do some of the work yourself. No special skills, other than knowing your market and being able to negotiate, are required for a post-foreclosure flip.