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Foreclosed Homes for Sale to Private Real Estate Investor.

Investing in foreclosed real estate can be a smart strategy. However, if you have no experience in purchasing distressed properties you would be wise to educate yourself about the pros and cons. Although there are great deals to be found in foreclosed real estate, locating them can sometimes be as difficult as finding a needle in a haystack.

Foreclosed real estate is sold through foreclosure auctions. In order to purchase properties, investors are required to place a minimum bid equivalent to the balance due on the mortgage note. Oftentimes, foreclosed properties are appraised at less than is owed on the note.

To make matters worse, a large percentage of foreclosure homes have tax or creditor liens attached to them. In some cases, the foreclosed homeowner may still be living in the house. Liens must be removed and the previous homeowner evicted prior to taking possession of the house. Evicting someone from their home is no easy task. Therefore, it is imperative to engage in due diligence prior to placing bids on forlosure properties.

If no bids are placed on foreclosed properties offered through auction, the lender assumes ownership. Once this occurs, the property becomes "real estate owned" (REO) and is sometimes referred to as a "bank foreclosure."

Once the property transfers to REO status, the mortgage no longer exists. If the foreclosed home has attached liens, the bank usually negotiates with creditors to have them reduced or removed. The bank will evict anyone residing in the house. In some instances, banks will invest in repairs, but this is generally not the norm.

The primary goal is to purchase REO foreclosed properties significantly under market value. This isn't always easy to do, as banks want to recoup as much of their losses as possible. Chances are you will need to engage in multiple counter-offers. If the bank isn't willing to budge, you should be prepared to walk away from the deal.

Many banks provide foreclosed listings on their website. REO properties are handled by the Loss Mitigation Department. Contact information for the loss mitigator assigned to the property is usually posted with the property description.

A more efficient way to locate bank foreclosed properties is to locate private real estate investors who purchase bank portfolios. When investors buy in bulk, they purchase multiple properties at wholesale. They then pass a portion of their savings along to individuals who purchase the property. Oftentimes, this can yield an instant 20- to 30-percent equity.

Regardless of where you purchase foreclosed real estate, engage in due diligence to reduce potential risks and pitfalls. By doing your homework, you can make a tidy profit investing in distressed properties.