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Navigating New Opportunities In Foreclosures

Despite reports of distressed sales waning, foreclosures aren’t over. In fact, court filings in certain areas spiked significantly in the first quarter of 2014. So what’s driving the new shifts? Will there be a new set of foreclosure opportunities for investors to take advantage of?

New regulations and past scandals are reportedly driving more mortgage lenders to foreclose through the court system, even when they don’t have to. According to RealtyTrac’s data, there were just seven foreclosure court notices in the first quarter of 2013 versus 2,348 in the first quarter of 2014. Former chief economist for Fannie Mae says going through the courts now protects the lenders.

On April 19th, 2014, RealtyTrac’s VP said banks were holding about 500k homes in foreclosure, of which only 10% were being marketed for sale. More than 50% of these properties are believed to still be inhabited by former owners. Many may not be aware that they no longer even own their homes. Others would certainly predict these figures are very low, especially when taking into account all of the non-performing home loans out there which haven’t yet moved into the foreclosure process.

A new foreclosure report released on April 10th revealed that 341,670 repossession, auction and default notices were filed in the first three months of 2014.

California led the nation’s recent spike in court filings. Other States with gains include Hawaii, Oregon, Texas, Nevada, Wyoming and Washington. Data shows La Jolla and several other SoCal neighborhoods were among the top five zip codes for new foreclosure filings in 2014. Over 25% of these are estimated to have values of at least $750k.

Ultimately, there are still a ton of foreclosures in the works. With big funds moving to fund instead of compete with the average investor, even more of these deals should be up for grabs. However, the ‘opportunity’ in foreclosure in 2014 for real estate investors perhaps shouldn’t just be about their own bank accounts. In addition to the masses of bank initiated foreclosures and mortgage delinquencies, many others are still in bad shape due to slim equity positions, extreme code enforcement liens and past due taxes. Some have or stand to lose million dollar plus homes for as little as $6,000 purchased in tax liens.

There is huge money to be made by savvy real estate investors whether they intend to wholesale, fix and flip or buy and hold as rentals. However, this doesn’t have to mean taking a predatory approach or dismissing the poor borrowers and homeowners losing their homes.

In the case of the 73 year old NY widow that lost her $1.2M home that had been in the family for generations over $6,000 in taxes, it’s clear that there could be more considerate and superior win-wins even when not obligated.

There are major issues and risks with taking on foreclosure properties with former owners still in them. It doesn’t mean these deals are inferior, but it does highlight the fact there are many people needing help to move. At the same time, every home turned and renovated helps neighborhoods, the economy and local property owners. The more people you help and serve as a real estate investor, the more good you can do. F

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