- The Washington Times - Wednesday, January 24, 2007

It looks like 2007 is going to be a very hot year for foreclosure sales. RealtyTrac.com, creator of the largest U.S.-based foreclosure database, reports that while foreclosures filed in December 2006 were 9 percent less than November, the numbers were up 35 percent in December year over year.

“New foreclosure filings surpassed the 100,000 level for the fifth straight month, something we’ve not seen since we began issuing our foreclosure market report in January 2005,” James J. Saccacio, chief executive officer of RealtyTrac, said in an online press release (www.realtytrac.com/ContentManagement/PressRelease. aspx?ItemID=1742).

“While the number of new foreclosure filings dropped back from the high point of 2006 in November, the combination of slower home sales and rising interest rates on adjustable mortgages continues to drive foreclosures at significantly higher numbers than a year ago,” Mr. Saccacio said in the statement.

I can hear the sound of chops being licked in the background. The real estate business has been a great creator of wealth for many everyday people, but it also has been the demise of many a millionaire.

If you’re looking to move toward investing in the foreclosure world, it goes without saying that you have to do some homework before collecting your rental checks or flipping the property.

When an investor is buying what I would call a retail investment property, the property is usually in good condition, the seller actually wants to sell the house and all parties will probably use traditional contracts from established sources, such as the local Realtor association. Such a situation creates a stable environment in which to buy a house that is going to continue increasing in value and where you may already have a tenant in place.

When it comes to foreclosures, the ground under your feet is not as firm. It’s almost like Frodo Baggins of J.R.R. Tolkien’s “Lord of the Rings” in his quest to climb Mount Doom while it’s breaking up, with molten lava pouring out, as Frodo tries to destroy the dreaded One Ring.

OK. Maybe it’s not that life-threatening, but almost.

Most often, the contract being used is from the seller (lender), and it’s going to be written to the seller’s favor.

Understandably, the lender is trying to get out of the property without incurring any more financial damage. While they may be willing to incur some closing costs, they’re already taking a large financial drain and just want to get it off the books.

Be sure to hire an experienced foreclosure real estate agent or an attorney to look over your contract before signing the bottom line.

What does it require of the purchaser to perform as far as inspections, utilities, insurance and deadlines?

Is it a boilerplate contract? If so, does it take into account local and state laws that are required, such as municipal disclosures, homeowner association documents and property disclosure/disclaimer addenda, if your area requires it?

I was looking over such a contract the other day and perusing the property. This was a foreclosure situation. It points out what a foreclosure investor needs to be willing to endure to buy a house that’s in disrepair and may have a cloudy title.

The purchaser is dealing with a listing company in Virginia, a lender in Texas, a marketing firm in Alabama, closing agency in Pennsylvania and an asset management firm in Colorado, making use of the fax machine, cell phones, overnight service and e-mail.

Everyone wants this to happen quickly. That’s why the seller has a contract leaning his way, so he can control all the aspects of the transaction and get it settled.

On your end, have all your business partners lined up before you write the contract — the settlement company, if you get a choice; financing; insurance for the house while it’s vacant and being worked on; the construction crew; the cleaning crew; the electrician/plumber/carpenter; and the flooring company.

Once the lender/owner-of-record accepts your contract, you’re going to need to move quickly to get the house fixed up and back on the market for either sale or rent. Your best offense is a real estate professional who has navigated such waters and can help you miss any pitfalls along the way.

M. Anthony Carr has written about real estate since 1989. He is the author of Real Estate Investing Made Simple and contributing author to Donald Trump’s “The Best Real Estate Advice I Ever Received.” Post questions and comments at his Web log (https://commonsenserealestate.blogspot.com).

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