forecloseA foreclosure occurs when a borrower defaults on a mortgage loan. As the process begins, the lender often gives the borrower ample time to repay the back due portion of the loan. However, when the borrower doesn't repay, the lender takes possession of the home. The borrower must then vacate it as they have given up all their interest in the property. Since foreclosures can often be purchased by another individual at a much lower price, investing in them can be very beneficial.

How Do You Find Foreclosures?

One method of finding foreclosures is to search for the lenders that hold the defaulted mortgages or lenders that have begun foreclosure proceedings. This can be accomplished by visiting the county recorder. These documents are part of the public record and you'll find that in most states, the recorded document will be a Notice of Default or a Lis Pendens. If the state is a non-judicial state, they will record the Notice of Default. Judicial states will use the Lis Pendens. Since the Lis Pendens is a court record, you'll instead search the records of the court.

Many county records have these available online. If they're not available, you'll need to go your county's recorder's office to do your search. While this may be a time- consuming job, investigating the lenders who've recently begun foreclosure proceedings or have recorded the defaulted mortgage is often a very profitable task. It's also the least expensive way to handle your investigation.

It's Wise to Have an Inspection Done

Although the lenders who hold the defaulted property will often discourage inspections, it's highly recommended that you investigate the condition of the property before purchasing. Many lenders won't accept any contingencies on a purchase and sale agreement for a foreclosed property. If this is the case on a foreclosed property you wish to purchase, try to have them allow you to do your inspections before you place an offer on the property. While you do run the risk of losing the property to another investor by taking the time to do your inspections, it will allow you to know whether it is a sound investment or not.

Avoid Properties with Structural Issues

Once you've found potential foreclosures, you'll want to figure out how these particular properties would be a good investment. If during your inspections you find structural repairs are needed, proceed with caution. Often, the cost of a structural rehab makes the property a non-profit investment for you. On the other hand, if the property simply needs cosmetic fixes, it will most likely be a wise investment.

Investing in foreclosures does take thorough research and some knowledge of the cost of rehabilitating a property. However, with this time and effort, you'll find the results to be worthwhile and profitable.