Investors' tool: buying foreclosures

Your Georgia Foreclosure News Source

By LATINA EMERSON

The first Tuesday of each month in Georgia is almost like Christmas for many in the real estate industry.

In Coweta County and across the state, potential investors clamor to the front steps of courthouses, after scouring the newspapers for weeks, with their eyes on the prize — buying a foreclosure property.

The most successful in this emerging industry are those who will wait for hours, even a whole day, to make their bid. Their patience is rewarded with property at a premium price — considered a "steal" for many looking to profit in the residuals of a failing housing market.

Bobby Gaines, executive director of the American Academy of Real Estate, recently led a class called "Buying Foreclosures in Georgia" at the University of West Georgia Newnan Center. The class was designed to teach residents of Coweta and surrounding counties how to win at the foreclosure game.

Gaines gave tips for investing in foreclosure properties and lessons to avoid pitfalls in the business. The popularity of the subject was apparent — the large lecture hall was filled to capacity and future classes have already been announced.

According to Equity Depot, formerly the Atlanta Foreclosure Report, the number of foreclosures in Georgia has risen substantially. Coweta County's rates are much lower compared to the 13-county metro Atlanta region, though there are notable foreclosures in the area.

So far in 2007, Coweta County has a total of 699 foreclosures. Foreclosure rates in Coweta are recorded as follows: January – 77, February – 83, March – 80, April – 69, May - 63, June – 74, July – 60, August – 90 and September – 73, reports Equity Depot.

On average, foreclosure rates in the metro Atlanta area are significantly higher than rates in Coweta. Last year, Fulton County had the most foreclosures with a total of 11,437. DeKalb County was close behind with 9,327 foreclosures.

This year, foreclosure totals have almost reached last year's rates, even though more than two months remain in the year. Already, Fulton County has 11,294 total foreclosures and DeKalb County has 8,050.

Other current totals in the 13-county metro region: Cobb – 3,952, Gwinnett – 5,733, Clayton – 3,994, Cherokee – 1,145, Douglas – 1,384, Fayette – 608, Henry – 2,190, Rockdale – 968, Forsyth – 611, Bartow – 657 and Hall – 726, according to Equity Depot.

In total, there have been 41,312 foreclosures in the metro Atlanta area for 2007.

Foreclosures, also called distressed sales, are legal proceedings that extinguish a mortgagor's rights to redeem a mortgaged estate, according to Gaines.

In Georgia, foreclosures are published for four consecutive weeks prior to sale in the legal organ of the county where property is located. In Coweta, foreclosures are published in The Times-Herald.

The notices include information such as the date, amount of debt, property address, name of borrower, deed book and page of security deed, lender name and attorney information.

Foreclosures in Georgia are considered to be non-judicial foreclosures, which do not involve a judge, said Gaines.

Gaines spoke of his first experience in the business. He read in the newspaper about a two-story brick home with a barn on 22 acres of land and ventured to the courthouse steps in Carrollton to make his bid.

He emerged victorious with a purchase of $42,000, though he didn't realize at the time that he had to have cash money in hand. Along with his partner, he scrambled to get the money by the end of the day, and thus began a successful career in the real estate foreclosure business.

"It was a wonderful investment. That was how I backed into the foreclosure game," said Gaines. "These deals do exist out there. I love when people say there are not properties with a lot of equity in them," he said.

Gaines reports that he does not "come out of pocket" for his investments. He buys property based on the first property that he purchased by taking out a line of credit.

"One deal in foreclosure can set you up for years of deals in the future," he said.

According to Gaines, there is one key to succeeding in the industry. "All you need to do is be persistent," he said. Gaines said the foreclosure business requires a great deal of work and patience.

Gaines says there are three types of opportunities for investing in foreclosures. They include pre-foreclosure, at the sale on the courthouse steps and post-foreclosure sales.

Pre-foreclosure sales are considered the best opportunity because there is less competition and the greatest number of properties. There is also the possibility of a regular closing with an attorney and less cash investment, said Gaines.

"I don't think there's a lot of competition in our area for pre-foreclosures," said Gaines.

In addition, the sellers are highly motivated because the sale keeps the foreclosure off their credit report and allows them to have a fresh start.

The cons of pre-foreclosure sales are that junior liens are not wiped out. Also, some homeowners may ask for the investor to "loan" them money to help them keep their home. Gaines warns for investors to never fall into this trap. This action can trigger the Fair Business Practice Act, which is enforced by state law.

Real estate professionals are often the best leads to find pre-foreclosures. "You need a quality real estate professional to work with you," said Gaines. "Find somebody who will believe in you," he said.

For foreclosure purchases at the courthouse steps, would-be investors should be prepared to wait from 10 a.m. to 4 p.m. A person must have cash or a certified check for the full amount of the bid, but in modern society, Gaines advocates for certified checks.

This type of purchase totally wipes out junior liens. The opening bid includes total debt plus late fees, penalties and attorneys fees, said Gaines.

Lastly, REOs, Real Estate Owned, are properties that do not sell at the courthouse steps. According to Gaines, banks and other lending institutions do not want to take these properties back because REOs "do not look good in the eyes of federal regulators."

REOs are easy to locate, but represent the fewest number of foreclosure opportunities. They are listed through insurance agents and can be closed with a regular attorney. The properties are regular purchases that are normally purchased "as is."

The profit potential on REOs might be limited on resale within a certain period of time, said Gaines.

"Start looking at properties," said Gaines. "We're in the midst of the great storm. That is the time to buy real estate," he said.

Gaines shared 10 additional tips for investing in foreclosure property.

*Hire professional laborers to complete repairs. Gaines realized that his "time was better spent trying to find the better deal than trying to hang Sheetrock."

*Seek help from professionals. Gaines suggests that investors should surround themselves with quality professionals such as real estate agents and attorneys, contractors, CPAs, title examiners, insurance specialists and home inspectors.

*Don't rely on the Internet to conduct title searches. There can be errors on-line, said Gaines. Take care in researching security deeds to ensure that all deeds that have been filed are located.

*Remember that flipping or "quick turning" houses, as they are now called, requires the payment of taxes, which can often be extremely high. By keeping property for a while, one qualifies to pay capital gains taxes instead, he explained.

*Gaines highly recommends "fixer-upper" properties. "Look for the house nobody else wants, but would want if there were a little bit of work," said Gaines. The surrounding properties will increase your property value.

*Seek out property with equity, the spread between market value and the debt on the property, or property where you can easily create value. Value can be created through cleaning and minor cosmetic repairs.

*Complete a "drive-by" of a neighborhood. Check out the property and neighborhood. Contact the owner if the home is still occupied, but always be polite and respectful.

*Gaines warns against Internet sites and other sources that claim they can sell information on foreclosures. This information is not available prior to the legal announcement in the newspaper.

*Always ask for a receipt with the date from the attorney during the sale.

*When bidding for property, know your maximum bid prior to the auction. The bid must take into account: after repair value, repairs, carrying costs, selling costs and profit margin.

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