Why Non-Judicial Mortgage States, like Arizona, are More Inviting to Investors

When individuals purchase a home, the paperwork they signs as part fo the loan process include a provision that allows the lender to sell the home should the borrower fail to make the agreed upon payments. This is more commonly known as a foreclosure. While this process can take a significant amount of time, depending on a vast array of factors, these homes can be a great option for those who are interested in investing in real estate for a lower cost. However, there are different types of foreclosure to keep in mind. There’s good reason real estate investors prefer to work with foreclosures in states like Arizona that use the nonjudicial process.

How Does the Foreclosure Process Work?

A foreclosure doesn’t automatically trigger simply because the homeowner misses a single payment. In fact, according to Arizona foreclosure laws, this process doesn’t begin until the homeowner is at least 120 days late on their payments. This is a federally mandated minimum. Once the process begins, there is a certain series of events that will take place, each of which leads up to the sale of the home. Foreclosure sales are often significantly cheaper than buying a home on the market because they are geared toward recovering the remaining balance on the loan, rather than making a profit. This means those who are interested in getting involved in real estate investing can often find great deals that provide the greatest chance of a faster return on investment for the property purchased.

The first step in the foreclosure process is to serve the homeowner with a preforeclosure letter that indicates their loan is in default and the foreclosure process is set to begin. Per federal law, this notice must include a letter that states a number of options the homeowner can choose to pursue in order to prevent the foreclosure. This should include the steps needed to reinstate the loan, which usually involves catching the payments up and can be completed up until the day before the foreclosure begins. Another common option offered is the right to redeem the home, which typically requires a full payment of the mortgage loan or reimbursing the individual who ultimately buys the home on the foreclosure sale the full amount they paid. Unfortunately, Arizona state law doesn’t allow for a home to be redeemed after a nonjudicial foreclosure is complete.

While a foreclosure is meant to pay the bank the remainder of the loan so they can recover any potential losses due to nonpayment, the selling price in a foreclosure is often less than what the original borrower still owed. In these situations, the bank does have the option to file for a deficiency judgment against the homeowner for the difference between the two amounts. The good news is paying a lower amount doesn’t affect the buyer of the property at all so real estate investors can often get a good deal on the property to either resell later or rent out.

Why Are Nonjudicial Foreclosures Better for Investors?

Although the foreclosure process can take a considerable amount of time from the first missed payment to the sale of the property, a nonjudicial process is typically a better option for real estate investors because the process takes less time. A nonjudicial foreclosure doesn’t involve the court system, which means there’s less time spent waiting for a hearing that will dictate how the foreclosure proceeds. In most cases, the home will be on the auction block within 180 days of filing for the foreclosure. Because the home is sold on an auction block, it’s possible to get a great deal on a home that can quickly be turned around for a profit, making it a great option for those interested in real estate investing.

Before getting involved in any type of real estate investment, especially if you’re interested in purchasing foreclosed properties, it’s important to be familiar with the laws so you understand how it works and when it’s the best time to look for properties. Arizona offers the nonjudicial process so lenders can recover their money more quickly and turn the properties around without suffering from major financial loss. This provides the perfect opportunity for those who want to purchase real estate to either sell it for a profit at a future date, potentially after making renovations, or to rent to tenants to create a steady stream of income. You can purchase these properties for a lower price than they would originally sell for and then turn around to sell them for a much higher price.

Foreclosure can be a devastating event for those who find themselves in this situation, but it can create an excellent opportunity for individuals who are interested in getting started in the real estate investment world.

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