A Possible Bargain: Foreclosed Properties

In the superheated San Francisco Bay Area property market, foreclosed properties are available at as much as 40% below market value, writes Srini Saripalli.The last few months of a calendar year are considered sluggish for transacting real estate, but Silicon Valley seems to be an exception to this. Properties are appreciating rapidly at this time of the year and this year has been one of the best years for selling real estate.

Understanding the marketplace and rationalizing the escalating prices has become difficult for investors and homebuyers . At a time when real estate prices are soaring there are still many opportunities to buy properties that are 30 percent to 40 percent below market value. Foreclosures are one of the best ways to find great bargains.

So what is a foreclosure?

A foreclosure is a legal process that a lender initiates after the borrower fails to repay the loan as per the terms of the contract. The lender initiates the foreclosure process to reclaim the possession and ownership of the property. For example, let's say a borrower has a mortgage of $1 million on his property that is worth $1.5 million. Let's assume monthly payments on a $1million mortgage are about $9,000. If the borrower misses three consecutive monthly payments, then at the end of the 90th day or third month the lender will file a "Notice of Default" at the county recorder's office. This is the notice that indicates pending foreclosure proceedings. It also indicates the auction date. At this time the borrower will have the following options:

Pay off all the back payments, penalties and legal fees if any and make the loan current

As the borrower in the example has equity of $500,000 he can convert a part of that to cash by re-financing the property. Re-financing a property in foreclosure is usually difficult.

Sell the property and payoff the mortgage, provided the proceeds from the sale equal or higher than the mortgage amount.

The opportunity to buy a pre-foreclosure property opens the day the "Notice of Default" is filed. The opportunity ends on the day the property is sold at the auction. The time between these two events enables a buyer to work with the homeowner and the lender to negotiate and structure a deal that could be extremely profitable. This is the only time in the entire foreclosure process where the buyer can use conventional mortgage, hard moneylenders or creative financing techniques to buy the property.

Once a "Notice of Default" is filed it becomes public information, and usually there is a lot of competition from other investors due to this filing. Hence to avoid competition experienced investors use various farming techniques to spot owners before the "Notice of Default" is filed. Properties can also be bought in auctions at bargain prices too, but one would need cash for the purchase. Bidding in an auction sale is extremely risky and one needs lot of experience and skill.

What is the motivation of the seller?

Once a borrower defaults on a loan his credit is at serious risk. A foreclosure stays on the credit report for a minimum of seven years. This is the prime reason why people who have defaulted their payments are extremely motivated to avoid a foreclosure proceeding.

Borrowers in foreclosure are sometimes difficult to deal with, as they are confused and scared. Their self-esteem is low and they are in need of support from someone who understands the process. As a buyer your motive should always be to help them in their tough times. If any time during the transaction a seller perceives that you are taking advantage of his or her situation, he/she always walk away from the deal.

Srini Saripalli is a real estate investor and business development consultant to Fortune 500 companies. He lives in San Jose, Calif. Srini can be reached at: http://www.srinisaripalli.com

Meet the real estate broker’s interns: an ambitious group willing to do anything, earn nothing and wake up early on a Sunday to fluff the couch cushions at open houses.

In Manhattan, parking lots and garages are making way for all sorts of development, especially luxury condominiums.

Gray Burton lives in a 250-square-foot space he furnished with antiques he’s been collecting for years.

MacKenzie Thompson’s plan to buy a multifamily house in foreclosure did not pan out. She decided to buy a home in Westchester County.

A photogenic Westchester suburb with high-profile residents is also known for its art museum and a performing arts center.

A Ditmas Park co-op, Upper East Side co-op and an Upper West Side condo.

A 10-year-old house with six bedrooms in Montvale, N.J., and a renovated four-bedroom in Bronxville, N.Y.

Wealthy investors are wiring millions of dollars to New York to snatch up a piece of 157 West 57th Street - what will be New York City's tallest residential building, with 90 floors overlooking Central Park.

An apartment at the Trump International Hotel and Tower, opposite Central Park, was bought anonymously through a limited liability company.

The anchor of a proposed historic district will surely be a clutch of four mansions at Riverside Drive and 72nd Street.

Success in challenging property taxes means not having to put as much money aside in the escrow account.

Taking responsibility for a roof leak; a bank loan for capital repairs; lender says no to co-op sublet; next time, don’t forget the key.

Summerview Square is a town-house-style apartment project going up in Norwalk after a previous developer walked away, leaving squalor in his wake.

A drop in prices and low interest rates means many buyers on the Island can afford to wait.

In Hudson County, developers are working on several projects that would add thousands of units in waterfront communities like Hoboken, Jersey City and Weehawken.

A development in Austin, Tex., is an ambitious attempt to upend the conventions of the American subdivision.

A town house in New Orleans, a penthouse in Baltimore and a ranch house in Washington.

Housing prices continue to fall nationwide, with Atlanta earning the distinction as the weakest performer.

The financial crunch has been felt in Aruba, but not severely enough to cause large numbers of foreclosures and short sales.

A new law that allows businesses in Philadelphia’s Market East district to draw revenue from large digital signs has drawn attention from developers.

With its concentration of pharmaceutical giants and academic powerhouses, the region could be a major center for life sciences businesses, developers say.

The president of the New York Building Congress, which represents professionals in the construction industry, has been running the nonprofit association since 1994.

A frenetic little industry has taken root in New York City based on finding and publicizing the once-and-future homes of just about anyone with name recognition.

The plan for a business improvement district in SoHo would help with the trash problem, but some residents don’t want to cede more ground to tourists and real estate titans.

A Ditmas Park co-op, Upper East Side co-op and an Upper West Side condo.

A 10-year-old house with six bedrooms in Montvale, N.J., and a renovated four-bedroom in Bronxville, N.Y.

Properties in New Orleans, Baltimore and Bellevue, Wash.

You want them, you need them, and these power tools will pay for themselves.

One man’s discovery of the vast powers of the drill.

An abandoned log house with a sinister air, the Smith Mansion in Wyoming is the stuff of legend.

Chris Hacker, the chief design officer at Johnson & Johnson, shops for hot water bottles that can come out from under the covers.

Should I remove the family photos hanging on my wall before listing my apartment?

An architect and an interior designer have created an online database of hazardous building materials.

The handmade house, doughty and particular, is being celebrated in three new books.

Beginning Friday, the NoLIta store Haus Interior will host Wood Shop, a pop-up store created by David Stark.

Compare the cost of renting and buying equivalent homes.