Instead of refinancing to get their hands on quick cash, many homeowners are finding themselves in financial trouble with little or no equity in their homes, and are walking away and letting the lenders foreclose. According to RealtyTrac, the nation’s leading online marketplace for foreclosed properties, 318,355 properties entered some stage of foreclosure nationwide during the third quarter of 2006, a 17 percent increase from the previous quarter and a 43 percent yearly increase from the third quarter of 2005. But the news is not all bad. Foreclosed properties have turned into a windfall for savvy investors.

Johnson and a partner bought a foreclosed property for $39,000, using financing from their credit cards; then with the title in hand, went to the bank and took out a $40,000 loan for an extensive rehab. A short time later, the home appraised at $115,000, $35,000 more than they had invested in it. Johnson’s next move was to try another technique, he sold the equity in the home to a new investor, then used the cash he got to buy another foreclosed property. How did Michael Johnson find the properties he ended up buying? He established relationships with some of the lenders in town, letting them know he could step in and take foreclosed properties off their hands. He also regularly goes down to the country courthouse to review foreclosure notices, then spends a lot of time doing research. In addition to determining the stability of properties that have been foreclosed on, he also has to take the amount of delinquent taxes and other charges into consideration. Recent reports indicate that four percent of all homes sold in the U.S. will eventually end up in foreclosure. And when a foreclosure is imminent, lenders are willing to be creative in order to avoid a prolonged legal process and unfavorable public relations.

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