Colorado Foreclosure Facts (2008)

Percentage of total home sales that were foreclosures: 19% (tie)
For the same period in 2007: 13%
Q2 foreclosure sales: 19,328
Q2 home sales: 100,513
Annual home sales change: -10%

WHY Buy Foreclosures?

First off, let us clarify that we are in no way recommending that you purchase a foreclosed home in the Denver area.  That kind of investment decision is entirely up to you.  This website is intended for people who have already made that decision, and are now looking for tools and resources to learn how to buy a foreclosure home in the Denver area.

But why should you bother in the first place?  What's the big attraction with these types of properties lately?  We've set out to answer these questions on this website and have provided you with our take on the subject:

Basically, a foreclosure home represents a real estate investment opportunity, through which you may be able to get a great deal on a home (relative to the market value). As you've probably heard, we are currently seeing record numbers of home foreclosures in this country, largely as a result of the subprime mortgage fiasco that came to a head in 2007. So the fact that there are many more foreclosures on the market today is one reason you hear  about buying a foreclosed home so much as an investment strategy.

When a bank forecloses on a home, they want to sell it off as quickly as possible.  Banks are in the business of lending money to people — they are not in the business of managing and marketing homes.  So the bank will often sell off a foreclosure property at a real estate auction, in order to sell it quickly.

This being said, you can sometimes get a really good deal when buying a foreclosed home at an auction, or through a real estate short sale which we will talk about shortly.  In most cases, you can pay less than the home's true market value.  And in some special cases, you can pay significantly less than market value on a foreclosed home!

We now have an unusually high number of people going into foreclosure in Denver and the entire United States. This is partly due to the subprime mortgage crisis that started to emerge last year, and it will probably continue for at least another two years.

So what is a real estate short sale and how can you use it to buy a home for less than market value? To answer this question, we have to look at the typical process of a home going into foreclosure (keeping in mind that this process varies from state to state).

In most situations, a homeowner looking at foreclosure is faced with (3) options:

1.) Get caught up with the mortgage payments and keep the house

2.) Find a way to sell the home before they go into foreclosure

3.) Give in and allow the bank to foreclose on the home

The first option is obviously the most desirable of the three.  If at all possible, the homeowner should try to get caught up on missed mortgage payments in order to keep the home.  Even if the individuals have to borrow money from friends or family, it is still better than foreclosing on a home.  Real estate is one of the best investments you can have, so you shouldn't let it slip away without a fight.

The last option is obviously the least desirable of the three.  Nobody wants a foreclosure to go on their credit history.  This makes a future home purchase / mortgage approvals more difficult to achieve.

In the middle of the road, we have the real estate short sale technique.  This is a way for the homeowner to sell the home quickly in order to avoid a complete foreclosure of the home (something to be avoided at all costs).  With this approach, the lender gets some of their money back, the homeowner avoids foreclosure, and somebody gets a good deal on a home.

How does the buyer in a real estate short sale typically get a good deal?  This is because of the very nature of the short sale itself.  Through this process, the lender agrees to let the homeowner sell the home for less than the amount the homeowner still owes to the lender.  Obviously this often means that the home will be sold for less than market value as well.

Why would the lender do such a thing?  They do it because they want to sell the home as quickly as possible to avoid losing any more money from the nonperforming loan.  The lender also wants to avoid foreclosing on the home, because that means they will have to manage and sell the property themselves (or pay somebody to do that for them).  So the real estate short sale is a way to get the loan off their books quickly, without having to go through the extensive process of foreclosure, real estate auction, etc.

So as far as terminology goes, you can think of the short sale as a way to sell a pre-foreclosure home ... and the real estate auction as a way to sell a home after it has been foreclosed upon.  Both of these options might be a good investment opportunity for the savvy investor, but the short sale is more streamlined and direct (avoiding the possibility of auction with multiple bidders driving the price up).

This investment potential, combined with the fact that we have record numbers of foreclosure homes available right now, is why you will hear a lot more about the real estate short sale in 2008.  And now, whenever somebody asks you what is a real estate short sale ... you'll be able to tell them.

Information below taken is from the Foreclosure US website:

"These days, it seems a lot of real estate investors are researching the topic of buying a home in foreclosure — and with good reason, too. That's because there are a lot of foreclosure homes on the market right now, so there are plenty of good deals to be found. That is, if you know a thing or two about buying foreclosure homes the smart way.

If you're coming into this article with very little knowledge about this subject, don't worry. We will start with the basics and progress from there. With that said, let's start with the reasons that buying a home in foreclosure is popular in the first place.

Buying Foreclosures Can be a Good Investment

The first thing you'll notice above is that I said buying a home in foreclosure "can" be a good investment, suggesting the possibility (but not the certainty) of getting a good deal on a home. This is what attracts people to the practice of buying foreclosures in the first place, the possibility of getting a home for less than market value.

Some people use this practice as a way to purchase the home they intend to live in. Others buy foreclosure homes for a living, turning them around for a profit and moving on to the next deal. Regardless of which camp you fall into, there are certain things you need to know about buying a home in foreclosure before you venture out to do so.

The first thing you should understand is the basic path to foreclosure. Actually, this process varies a bit from one state to another. But the overall process of a home being foreclosed upon goes something like this:

1. The homeowner begins to miss payments on the mortgage (defaults).
2. The lender will send notices of late / missed payments to the homeowner.
3. The homeowner may work with the lender to get caught up on back payments through such tactics as reinstatement (lump sum payment), repayment plans or forbearance.
4. If homeowner continues to default, the lender will begin the foreclosure filings. *
5. The homeowner may try to sell the home through a real estate short sale.
6. If the home is not sold via the short sale process, the lender will foreclose and make an announcement of a forthcoming foreclosure sale / auction.
7. The lender will attempt to sell the property at auction.
8. Eventually, the home will be sold to a new owner in some manner.

* This is one of the steps that vary from state to state. The process that lenders must go through to file for foreclosure and to actually foreclose on the home can take days, weeks or months, depending on the state laws.

This is obviously a simplified version of events, but it should give you a better understanding of the basic process in place here. Understanding this process is the first step to buying a home in foreclosure — in a way that leads to profit.

Why It's a Good Investment

So now that you understand a little more about the process, you can begin to see the potential investment value of buying a foreclosure property. This is an expensive process for the lender to go through, especially when it goes all the way through the series of events to a real estate auction. So in most cases, the lender wants to avoid foreclosure as much as possible. That's where the real estate short sale comes into the picture (see item #5 on the list above).

The short sale is a way to sell the home quickly while it's still in the pre-foreclosure stage (not yet foreclosed upon). That way, the homeowner can avoid a big blemish on their credit histories, and the lender can avoid losing more money (by taking ownership, managing the property, paying additional fees, marketing the property, etc.).

So what is a real estate short sale and how can you use it to buy a home for less than market value? To answer this question, we have to look at the typical process of a home going into foreclosure (keeping in mind that this process varies from state to state).

You can learn all about the short sale process above.  But for now, suffice it to say that the home is typically sold for less than market value so that it sells quickly. That is the lender's goal in the short sale — to sell the home quickly so that they can get the nonperforming loan off their books, not to mention eliminating the hassle of the home-foreclosure process.

So the short sale is one way in which a buyer / investor can get the property for less than market value. So that's one of the ways buying a home in foreclosure can be a good investment."

-One nice thing about a Short Sale is your credit report shows pre-foreclosure instead of foreclosure and credit problems there after are not as hard.

-Avoiding Bankruptcy

-All mortgage debt is fully discharged meaning you will lose your house but not your credit

-Less Impact on your credit score

-It relieves the stress of being in foreclosure and being hounded by the mortgage lender; and it allows your to get rid of your big mortgage payment and move on with your live.

-Lender gets fair market value sooner; less costly than foreclosure.