Article #4 from Foreclosure Articles
by David Whisnant Editor, Real Estate Investor, and Attorney

Foreclosures:

Why I Do Not Buy Foreclosures On The Courthouse Steps

two mortgages. The first was in good standing, but the second mortgage was behind. The second mortgage was foreclosing. This meant that whoever bought the property would owe whatever was on the first mortgage in addition to whatever they paid at the sale. Thus, if the first mortgage was $20,000 and someone bid $100,000, they would have bought the property for the $100,000 in cash plus the $20,000 in debt secured by the property, or $120,000. (Foreclosing on a second does not wipe out the debt owed on a first mortgage).

I went back and forth with another gentleman trying to buy this condo. He finally trumped my highest bid by a whopping $20,000. He then asked, “Is this a first or second mortgage that is being foreclosed on?” I told him that it was a second, but by that point, his bid was in, and he was buying it for $40,000 more (1st mortgage balance) than he thought! You can’t compete against deep pockets that have not invested the time to be properly trained on foreclosures. He probably lost at least $10,000 on this deal. THAT is an expensive education in real estate investing. Good training on buying foreclosures is far cheaper than learning the tough way.

There is so much competition at foreclosure auctions that finding a good deal is going to be hard. We only have so many hours in the day to work on foreclosures and real estate in general, and our time must always be spent on the most lucrative activities possible when given a choice. As you can see from the true story above, many people with big checks in their pocket don’t have the first clue about what they are doing. They either pay too much for foreclosures, or don’t understand basic foreclosure law to know what they are buying at the foreclosure auction.

My advice would be to focus exclusively on pre-foreclosures if you are in a competitive area. There is less competition, and your profits from buying these foreclosures will be much higher. Plus, you can actually see the foreclosure property before you buy. These foreclosure buyers paid more than list for these condos. They will have to evict the owners, and they have no idea what the condition of the foreclosure property is. I’m glad to be teaching about foreclosure, with information that I have learned over the years. This will help other people avoid costly mistakes and buy foreclosures with less risk.


Foreclosures |  Page 2

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