With foreclosure rates rising, it may be a worthwhile investment for small business owners or entrepreneurs.   However, nowhere is the old "caveat emptor" buyer beware principle more applicable than in foreclosure investing. 

To start, make sure you know the position of the mortgage being foreclosed upon.  What does it matter if it is a first mortgage or second being foreclosed?   Potentially hundreds of thousands of dollars!   A real estate attorney can run a quick title search to check on this.  (Turn-around times vary by law firm or title company, my firm seeks to process within 24-72 hours of request in a foreclosure situation).   Make sure you know the condition of the property.   This can be a bit tricky since there is often no way to inspect or even see the interior, but you can drive by and know the neighborhood. Make sure you can cover the full price and already have financing lined up - unlike a standard real estate contract, there is no contingency for obtaining financing and if an investor can't muster the purchase price within so many days of ratification, they stand to lose their entire deposit.   

There are several approaches to foreclosure investing, and vast numbers of books and articles on how to "get rich quick" in this area.   However, most approaches boil down to one of two possibilities:  1) negotiate a deal with the property owner or 2) buy at the foreclosure auction.

Pitfalls exist with either approach - Maryland has enacted laws designed to help homeowners facing foreclosure from predatory "foreclosure consultants" and you should be scrupulous about adhering to the rules.  It is one thing to pick up a great investment by jumping on a great opportunity, quite another to amass wealth by trampling on the rights of someone who is down-and-out.  People face foreclosure for all types of reasons (and if you are merciless, you may someday find yourself in a hard place without mercy!)  It is far better to treat the property owner with respect and dignity and negotiate an agreement that follows the law. 

If you buy on the courthouse steps, you should be armed with plenty of research and know what you are getting into.  In any case, I'd suggest lining up some or all of the following profesionals:  1) an attorney to look over the title and conduct the settlement, 2) a Realtor or appraiser to give an idea of the property value, 3) a lender (or the funds) to cover the investment and 4) a contractor to take care of needed repairs!

 

(As with all posts on this blog, the foregoing is not legal advice. If you wish to contact Attorney Cedulie Laumann about a particular situation, please don't disclose private, personal details in comments. You can reach the Office of Attorney Cedulie Laumann at 410-216-7000 or through the website elawmd.com)