So you want to be a foreclosure real estate investor, but you just don't know how to find foreclosures?

Let's start with the basics. What constitutes a foreclosure?

When you don't pay the mortgage on a property that you own, the lending institution will, after a certain number of late payments, initiate an action whereby it is legally allowed to repossess the property from you. Just like a car or a piece of furniture can be repossessed, so can a house or a condominium. However, the process of repossessing a piece of real estate is governed by complex laws under a process known as foreclosure.

So just how do you identify that a house is in foreclosure? Let's say that the house next door to yours went into foreclosure. How would you find this out? Obviously there is no big sign posted on the front lawn that says "Foreclosure Property" in big letters.

Because foreclosure is a government-mitigated action, the bank must formally announce its intention to initiate it. Just about every county in every state in the nation will mandate that public notice of the bank's intent to foreclose on the property be given in a local newspaper, in the legal notices section. This notice is called a Notice of Default (NOD) in some states and is known as a Lis Pendens in others. Why this distinction? In some states, banks are allowed to repossess the property by communicating directly with the mortgagors. In other states, banks must initiate a lawsuit and rely on the court system to act as mediator in the foreclosure process, in which case a judge must issue a judgment of foreclosure, with a specific judgment amount.

If the foreclosure isn't remedied by the mortgagor by a specific date the house will be sold at a public auction with the opening bid being set to the minimum amount required to satisfy the bank plus the legal fees for the foreclosure proceedings.

In either case, let's say that you find these listings in your local newspaper. What kind of information would you expect to find? Most likely you will find the following pieces of information:

1. Foreclosing bank.

2. Borrower's name.

3. Property address.

4. Opening bid / judgment amount.

5. Date of the auction.

This is well and good, but is this enough information for you to get up and decide you want to invest in this house? A common misconception among new real estate investors is that they assume that every house in foreclosure is automatically a good deal that will net them big profits.
Not every house in foreclosure is a deal worth pursuing.

You must weed out the good deals from the bad deals. A deal is only worth pursuing if you are able to take ownership of the property and the total amount of money you put into the deal (to pay off the existing mortgages plus give some money to the homeowner plus pay for repairs, holding costs, and your own closing costs when you go to flip it) subtracted from your final sale price when you go to flip it, nets you a handsome profit margin. Ideally you should aim to walk away with a net profit of 10% of the fair market value of the house when you go to flip it.

For this reason, research is one of the most important but often overlooked aspects of foreclosure real estate investing. You must do your homework and research all of the available information about a potential deal before you decide whether it is worth pursuing or whether it would be just a big money pit. What kind of information would you be looking for when you conduct your research?

1. Liens or encumbrances on the property.

2. Personal judgments against the homeowners.

3. The status of the property tax payments.

4. The status of association dues payments, if any.

5. Age, configuration, size, and condition of the house.

6. Comparative market analysis of the property against nearby similar homes.

7. Any second mortgages against the property.

8. Have the homeowners filed for bankruptcy?

9. How long ago was the last payment on the house? What are the monthly payments?

10. Is the property vacant or occupied?

Conducting all of this research takes a great deal of time and meticulous research through government public records. If you live in an area that has a high number of foreclosures, or you have a full time day job and are unable to get to the county government offices where you would have to go to do this research, you can save a great deal of time and effort on your research by subscribing to a foreclosure listing service that specializes in compiling all of this information and making it available to you.

What if a house is not sold at auction? If a house goes up for auction and nobody bids on it, then the bank becomes the new owner of the property. This is your chance to contact the bank's REO (Real Estate Owned) property department to negotiate to buy the property directly from the bank. But let's say that you are unable to attend an auction to determine the outcome, because you are at work or at school during the day. How would you come to know which houses are REO'ed? You could take the time to contact each and every lending institution to get a list of their REOs and then do the research. Or, you could subscribe to a foreclosure listing service that compiles this information about REOs, complete with research on each deal, and makes it available to you.

The purpose of a foreclosure listing service is to present you with all of the information about every foreclosing property to help you make an informed decision about whether or not to invest in this house, and also to help you track the progress of each of them.

Sign up for a 7-day risk-free trial with the most popular foreclosure database network on the Internet.

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