I live in Alabama. In Alabama we have a one year right of redemption on foreclosed properties. In case you don’t understand what that means, a person that has been foreclosed on has the right to buy their property back for what was owed on the property for the redemption period. I have been told that the reason we have such a long redemption period is because we have a lot of coal mines and therefore coal mine workers. When the foreclosure laws were formed the redemption period was made long to allow laid off coal miners to redeem their houses once they went back to work. Like so many laws now days, although things are totally different in modern times the laws remain the same. This makes buying bank owned properties a little tricky here. You see, any company or person that holds a lien on a property that gets foreclosed on also has the right to redeem the property just like the old owner does. Why does this matter? If a lien holder gets wiped out at the courthouse steps they may well redeem the property if they are in good position. What do I mean by good position? Let’s say that you buy a property at the courthouse steps that would sell for $100,000 fixed up. It needs $15,000 to $20,000 worth of work but you pick it up for $30,000. This is a good deal right? Well, maybe. What if the first mortgage holder that foreclosed on the home owner held a mortgage for $40,000 but there was a second mortgage on the property for $20,000? That second mortgage holder may well decide to exercise their redemption rights to protect their interest. If you buy the place for $30,000 and put another $20,000 into it you will have a total of $50,000 total invested. On day 364 of the first year after the foreclosure date the second mortgage holder redeems. They pick up the property for $50,000 and then they sell it for $100,000. Actually the redemption will cost the second mortgage holder about $60,000. $40,000 goes to the first mortgage holder which is what was owed them in the first place. You get your investment back (your $30,000 you purchased the property for and another $20,000 that you put into the property) but no profit. Actually you get a slight return but not much considering your trouble. The second lien holder has a good reason to redeem in this case. They can still make around $40,000 from the redemption. If you are borrowing money to make this deal happen you will need to get a bond to protect your lender. Another thing; any lien or judgment holder can also redeem the property. This includes mechanics liens. So if a contractor performed work for the original Owner and didn’t get paid and was smart enough to file a mechanics lien he can redeem also to protect his interest. If, on the other hand the original Seller owed $80,000 on a first and $20,000 on a second mortgage and you picked up the property for $30,000 you are in a much better position. No second mortgage holder in their right mind would want to redeem the property since they stand to lose even more than their original investment by the time they fix up and sell the property. Most investors never investigate the title before going to the courthouse steps. Sooner or later this could come up to bite them. You have to understand a title report and the ramifications of what’s on it. In a State like Alabama where there is a long redemption period, buying property at the courthouse steps can be dangerous if you don’t know what you are doing. I know a lot of investors that don’t know what they are doing that are out there buying this way. Maybe they’ll be lucky on all their purchases; maybe not. There is no reason to depend on luck. Knowing your foreclosure laws just takes a little time and effort to understand. Investing a little in your education on this matter is a good idea.
http://cl.gs/LntArv
"Disclosure: We are a Compensated Affiliate of HSA"
Luck is not a real good strategy in this game we call investing. A professional investor is not a gambler. They are pretty sure they are going to get a good return or they don’t invest. Only the amateur investor gambles by being ignorant. Don’t be ignorant. Learn what you are doing and only invest in sure deals. In many States there are short or no redemption periods at all. These are better States to deal in with foreclosed property. You need to know your State laws pertaining to foreclosure. In States with long redemption periods you may be a lot better off saving property from foreclosure and making money that way.
Thanks for reading.
http://cl.gs/LntArv
"Disclosure: We are a Compensated Affiliate of HSA"
Quote of the Day: “When you look at an opportunity, you shouldn’t have to ask yourself will I win or will I lose money. The only question you should have to ask yourself is how much will I win.” Martin Crawford
To your real estate and life success.
Martin Crawford
No comments:
Post a Comment