Paperwork, Paperwork, Paperwork! Why Documentation is Important i
Buying foreclosures is not as complicated as it seems sometimes. Sure, some people recoil in fear at the idea of going to a foreclosure auction – a public place where investors and homebuyers clamor around for the opportunity to pick up steals – and actually placing a bid on a property. And sure, the idea of all the paperwork and red tape that is thought to be involved in buying foreclosures makes others reluctant to even consider the idea.
It’s not as bad as it seems, but that doesn’t mean paperwork and doing one’s due diligence on a foreclosure property isn’t worth it. In fact, doing one’s homework by researching a property is an all around wise choice that can make the profitable process of buying a foreclosure well worth the time it
Due diligence includes researching the title on the property, examining the property in person with a qualified inspector, and checking to see if there are any liens on the foreclosed home before bidding. It also means understanding what obstacles may arise in the process.
For example, finding who owns the mortgage is thought to be a simple, straightforward process. But due to the rise of mortgage-backed securities – in which the originator of the loan sells the mortgage to another entity, who uses it, along with other mortgages, to support securities that are then sold to investors – many banks have engaged in questionable practices involving the title that have made the situation a bit murky.
A recent study by Reuters discovered that in many cases, paperwork for foreclosures owned by banks and other entities was either incomplete or missing entirely. In fact, many foreclosures take place without any original documentation remaining at all. This is because banks, when they sell the mortgage, often dispose of the originals because they are no longer a concern for the lender.
Of course, when the foreclosure comes up for sale – or happens at all – these issues arise and cause a lot of headache for all those involved.
Paperwork on transfer of documents from one institution to another must be properly endorsed. This ensures that a chain of possession exists from the originator to whomever holds the loan at the time the property is foreclosed. This chain, in many cases, is often missing.
How should an investor or prospective homebuyer react? Doing the homework and putting in the time to take a look at the ownership of the mortgage that is attached to the property being sold is one of the necessary steps in buying a foreclosure, especially today. This small time investment could pay dividends when the investor is able to avoid nasty headaches and instead buy the foreclosure outright – and profit as a result.