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Posted by Jim V on April 23, 2002 at 00:44:03:
In Reply to: buying forclosures posted by johnboy473 on April 21, 2002 at 21:32:48:
There are three main stages to the foreclosure process. Pre-foreclosure, where the loan is in default. The auction, when the property is sold at public auction to the highest bidder. Post foreclosure, where properties are commonly called REO.
In the preforeclosure stage, the homeowner has all rights to sell or encumber the property, if you purchase from the owner and want to make sure you are doing the "right" thing, just make sure it is fair to everyone. Investors take advantage of distressed homeowners all the time, it doesn't mean you have to do it. It is possible to come to an agreement that helps the homeowner and allows for an investor to make a profit. Ward (who posts here) has stated he thinks a 50/50 split of the net equity with the homeowner is a fair agreement. I would tend to agree. It resolves the homeowners problem and allows you to stay in business.
At the auction, there are only two results, either the lender will own the property or a third party bidder will. Not much question of doing the right thing there. Just follow the legal procedures and there is no ethical dilemma.
Post foreclosure the bank is normally who investors would deal with. Again, no ethical question, any price you can get them to agree to is fine.
With that said, yes, you sometimes will own a property that the previous owner is still living in. If you've followed the rules, you haven't done anything to harm them, it's often just that they have made bad choices. Your investment decisions shouldn't be affected by their bad choices.
