When homeowners fall behind on mortgage payments, foreclosures may occur. A foreclosure is a process in which a financial institution repossesses or sells a piece of property because of a loan default. Mortgage lenders usually consider a mortgage to be in default when payments haven't been made in three months. When mortgage loans are in default, the mortgage lenders can start the foreclosure proceedings of the properties, and so opportunities arise for investing in foreclosures.

There are three ways you can get a great deal in investing in foreclosures: at the pre-foreclosure stage, that is, before the homeowner falls so behind in his mortgage payments that the property is foreclosed; at an auction of foreclosed properties; or from a Bank owning foreclosed properties. Information is everything! You need to have up to date accurate information, an absolute essential for investing in foreclosures. You will need a source for knowing what properties are going to sale, for how much and when.

Success in buying homes in pre-foreclosure is all about timing and it is essential that you reach the homeowners early on to help them. When a homeowner is unable to pay one or two mortgage payments, you can be pretty sure that a probable foreclosure is ahead. Many of these homeowners don't know who to turn to. They are mostly scared and/or worried. Wouldn't anyone be fretful in the same situation? As an investor you have to think about the reality these people are facing and present them options in a hopeful manner, to help them move forward in their lives.

The second way you can find great deals in investing in foreclosures is at auctions. When a borrowers default on their mortgage payments, the original lender takes back the property and sells it at auction, often at a seriously discounted price. Your main advantage of investing in foreclosures at an auction is that the moment a property reaches the actual sale date, all trust deeds (loans, depts.) made after the foreclosing loan are wiped off the property. In this way you can get instant equity. If you're the winning bidder at an auction you will pay off the loan with your winning bid amount and you'll then take title.

Lastly you can also find great opportunities for investing in foreclosures with properties owned by banks or other lenders. 10-20% of all properties progressing to the trustee's sales (auctions) have no bidders show up. The instant that no bids are made at the sale, the foreclosing beneficiary (bank or lender) becomes the owner. Banks and lenders are now getting these properties back regularly. It is very expensive for them to be stuck with these properties! The costs to the lender would be enormous in the event that they chose to list the property with a broker and many months elapse during the clean up, the marketing, and the escrow period. The whole key for you to be able to invest in foreclosures at this stage is to act quickly by approaching the beneficiary (lender), the same day of the sale, before he turns the property over to a real estate agent for resale. Your quick action at this point can save you tens of thousands of dollars.

As a general rule, when a property has a lot of equity you should approach the owner during the pre-foreclosure or default stage with an offer. It's in his interest to accept an offer of a few thousand dollars to get out before losing everything at the foreclosure sale. When a property has little or no equity, you simply step back, be patient and wait for the trustee's sale at auction. The trustee's sale will wipe off all previous liens, creating equity. Ten to 20% of the time no outside bidder will show, and the property will revert to the foreclosing beneficiary. Now is your perfect time to low ball the bank or lender with an offer substantially below the minimum bid at the trustee's sale before he incurs any costs, such as commissions, clean up, repairs and holding costs.

There are three key elements to investing in foreclosures with the lowest possible amount of capital. First you must know which properties are in trouble and know exactly at what stage of the foreclosure process the property is in. Second, it is critical that you know how much time the owner has left. Third, you should always find out all the trust deeds (loans) that are against the property so that you can establish the lowest possible price to offer. You should have some way of getting these three elements researched as completely as possible on every property giving, so that you get all the most important information that any buyer can have. To do this you need a first-class reputable and reliable foreclosure information service, to enable you to successfully profit through investing in foreclosures.

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