Four Foreclosure Investor Precautions
By Tod Snodgrass
The number of NOD preforeclosures notices are on the rise . Fortune magazine reports they are up triple digits in 2022 compared to 2021 . There are several factors causing the uptick : COVID mortgage forbearance overhang , the current recession , rapidly rising interest rates this year , etc . The increase in the number of homeowners and landlords in trouble is causing a lot of ( both note and property ) investors to start taking a hard look at how they can profit from these changes in the market . Precautions include :
1 . Depreciating prices . For those who came into the investor market after the last downturn , you may not be aware that residential property prices in many markets dropped by 40 %, from peak ( 2008 ) to through ( 2012 ). Some areas / types of real estate dropped by even more . The cautionary tale is to be sure to build in enough equity in foreclosure properties you seek to acquire . In an up market , where prices are appreciating double digits every year , how much equity you initially acquire is usually not the first box you check as an investor . However , as the old saying goes : That was then , and this is now . Assuming the recession worsens , you need to build in more of an “ equity buffer ” into each deal to protect yourself from making no profit ( or actually losing money ) when you go to sell the property or note .
2 . Judicial vs . nonjudicial states . The number of virtual wholesale note and property deals are increasing nationwide ; wholesalers need to be knowledgeable about what laws apply in the state in which the investment is being made . About half the states in the nation are what is referred to as nonjudicial . That means they typically employ what are known as trust deeds and trust deed notes . The foreclosure is undertaken without using lawyers and judges . Judicial states usually require you to go through the court system to adjudicate your claim . Nonjudicial states usually cost less and take less time to foreclose .
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