What Is a Foreclosure?

About a decade ago, foreclosures were common in the world of real estate. Now, foreclosures are much less common, but as a real estate investor, you should be informed about foreclosures and how they work.

A foreclosure occurs when the borrower fails to make regular payments on their mortgage. When a mortgage is constructed, the bank places a lien on the property. This means the loan is secured, and in the event that the loan is unpaid, the bank has the rights to the property.

The process can vary depending by state law, but typically the foreclosure process consists of five steps. 

  1. Missed payment. When the borrower stops making their regular monthly payment, the bank takes action and begins the foreclosure process.
  2. Public notice. The lender makes an announcement in local newspaper. This notice indicates that the borrower defaulted on the loan.
  3. Pre-foreclosure. This is a grace period that allows the borrower to work out an arrangement. Typically the bank would rather collect some of the payment than none. (Pssst...this is a great way for investors to find discounted properties). 
  4. Auction. The property goes up for sale in a public auction, typically conducted on the courthouse steps. Often, the property is sold at a discounted rate so the lender can recover a portion of their loss, or break even. 
  5. Post-foreclosure. If a third-party does not purchase the home in an auction, it is then in the possession of the bank. 
 About a decade ago, foreclosures were common in the world of real estate. Now, foreclosures are much less common, but as a real estate investor, you should be informed about foreclosures and how they work.

The Truth About the Housing Bubble

Just over a decade ago, the housing market bubble burst, leaving millions of people unable to pay their mortgages. As a real estate investor, you might worry about the possibility of another economic collapse. The Federal Reserve recently raised interest rates, and reasonably, many people are worried about the future of the US economy.

When we hear about a housing bubble, we automatically reflect on 2008. It was horrible. The amount of foreclosures and delinquencies was astronomical. Our country entered a deep recession.

The bad news is: we are in a housing bubble again. But don’t panic; this situation is not as dire as 2008. In 2008, the prices were driven by artificial mortgage prices, and borrowers were unable to pay their loans because they either lost their jobs, or they never should have qualified for the loan in the first place.

This time around, conditions are much less threatening. Prices aren’t being driven up by a faulty mortgage system. It’s more of a lack of supply that is affecting prices, which is much less scary.

Home construction is not as rapid as we saw before 2008. In fact, it’s actually slowed down; construction is at a low point. Builders aren’t constructing small single-family homes, because the market has changed. Millennials aren’t buying homes, and it has changed the game! Here’s why that’s a good thing for real estate investors.

You shouldn’t be scared about the market: since construction has slowed on small single-family homes, there’s a greater opportunity for people to rent…from real estate investors! And with fewer homes on the market, the vacancy rates are lower.

Also, since interest rates are up, people are more hesitant to buy a house. They consider waiting a few years, which can cause the bubble to burst. This is actually rooted in sound economics! Perhaps if you can’t afford to buy a home, you shouldn’t. In 2008, people couldn’t afford their homes, but somehow the banks allowed it.

Don’t be afraid of the bubble! People still need to rent. Why shouldn’t they rent from you? As long as you’re purchasing in the right markets, your investments will be safe.

What are your thoughts on the housing bubble? We’d love to hear your experience and insights. Come over to the Morris Invest YouTube channel and drop a comment.

 

 The bad news is: we are in a housing bubble again. But don’t panic; this situation is not as dire as 2008. Millennials aren’t buying homes, and it’s changed the game!