FORECLOSURE » Prevent Foreclosures

With so many foreclosures, now may be the perfect time to try to score a deal on a bank-owned property.

The prices may be lower then the average home value in the neighborhood and mortgage rates are at historic lows. The only silver lining to the economic downturn and the real estate bubble busting is that more people then ever may be in a position to buy their first home.

If you plan on going down the path of purchasing a foreclosure, remember the motto "safety first" to ensure that all goes well during the purchasing process.

What are foreclosed homes?

Foreclosed homes are properties have been seized by the mortgage lender for default of payment. Banks and financial institutions are in the money business, not the real estate industry.

They want to sell off foreclosed properties as quickly as possible to get back as much of their investment dollar as possible. Foreclosed homes can sell for less then current market value, in the 5%-40% discount range, with the smaller discount being the norm.

Do your homework before buying

Before entering the realm of the foreclosure purchase, consumers need to do their homework and thoroughly research the property they are interested in, the comparable values of neighboring similar homes and make sure to educate themselves on the entire foreclosure process.

Knowledge is the key element in making a safe foreclosure purchase.

The safest type of foreclosed home to buy

The safest type of foreclosed home to buy is a bank owned home also known as an REO (real estate owned). These types of foreclosures come with clean tax records and vacant.

Since banks want cash, not the home, they are flexible to offer terms especially if more cash is involved ad the transaction can happen very quickly. Buyers should be aware that REO's are typically sold "as is" and any tweaks or repairs a buyer would want done will become their financial responsibility.

By doing your homework and becoming and educated consumer, you can safely purchase a foreclosed home. The keys to foreclosure purchase safety are research, patience, diligence and dedication to the cause.

Some people buy foreclosed homes for long term strategies and others purchase foreclosed homes as short term investments.

Consider David and the purchase of his new home in Los Angeles. Last year, he purchased a condo with his wife at what they believed to be the biggest bargain of the century. Their goal is to live in their home for at least ten years and David has always fancied himself a long term strategist.

Even after David scored his foreclosed home, over the next few months he noticed that some property values in his building were declining even further. As of this month, it appears that the sales prices are stabilizing and that his home is safe from any further decline. Either he knows he would have been fine as since he considered his foreclosure purchase a long term investment he will be able to wait out the storm until the market starts creeping back up.

Other times, foreclosed properties are purchased as short term investments. In David's building there is a second condo that has been bank owned since his purchase.

Recently, the vacant apartment was sold at auction at a substantial discount that made David's bargain pale in comparison. However, only two months later that property is listed and trying to be sold again. In this case, the purchaser considered the apartment a short-term investment.

Whether you are looking for a home for a long term living situation, or you are an investor interested in flipping properties a foreclosed home can be an excellent investment. Purchasing a foreclosed home can be either a long or a short term investment depending on your preference.

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