To profitably buy and sell foreclosure properties there are three (3) main things you MUST know. Frankly, you simply won't succeed in this business without knowing them!

1. The relevant law

The foreclosure laws vary from state to state. Not only do these laws govern what mortgagees (lenders) and defaulting mortgagors (the home owners who have defaulted on their loan repayments) may and may not do, but they also limit what you, as a potential foreclosure investor, may and may not do. Therefore, it's essential that you become familiar with the laws in the state in which you are planning to invest.

For example, depending on the state in which a given foreclosure property is located, there may be two ways in which the property may be sold by way of foreclosure.

The first is where the property is sold under the supervision of a court. The sale proceeds will go towards paying the mortgage first, and then to satisfy any other lien holders, and finally to the mortgagor(s).

The second type of foreclosure is a "foreclosure by power of sale." In this case the mortgagee or mortgage holder (i.e. the lender) sells the property without a court's supervision. This approach is legal in most U.S. states, and, because it doesn't require court supervision, is much more expedient. As with a foreclosure under court supervision, the sale proceeds go to the mortgagee first, then any lien holders, and lastly to the mortgagor.

2. The foreclosure process

Based on the laws of the relevant state, you need to understand the foreclosure process. What are the stages of foreclosure? When, and under what conditions, can you buy a foreclosed property? What are your rights, responsibilities and risks in relation to liens, property taxes, repairs and other relevant issues?

3. Market value

Your entire ability to profit on a foreclosed home relies on understanding its market value. Either become an expert at valuing properties in the area you're interested in (the preferred strategy) or hire one (less desirable, but possible if can hire someone who is trustworthy and truly an expert).

Although these three things may seem obvious, it's very easy to make assumptions - for example, that the foreclosure laws in one state are the same as those in another state - that are false and could get you into trouble. Having a thorough command of these three basics, on the other hand, will go a long way to setting you apart from the other property investors you'll be competing with, and place you in good stead to find and invest in promising foreclosure properties.

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