Builders can run into financial problems just like anyone else. A builder can identify a potentially hot market and build around a newly constructed community as a spec home. If plans move as expected, the home is completed and buyers are easily found. But what if buyers aren’t easily found? What if buying a foreclosed constructionthe builder made a big mistake and took on too much risk when building a spec property?

That can mean the bank who issued the original construction loan is missing payments from the builder and the bank begins foreclosure proceedings. Note, foreclosures are the very last thing any bank wants and especially with regard to construction loans because the property that might go into inventory isn’t finished. It has to be completed by a third party.

But just because a bank files for a foreclosure on a construction project doesn’t mean the bank will ultimately take back the property but files to protect the bank’s position. The bank will first file a notice of default which will itemize the past due amounts for the builder that will bring the loan current and avoid the foreclosure filing. Even if the bank does file for the foreclosure you can bet that’s the last thing the bank wants on its books.

When a foreclosure notice is filed against a builder on a property not yet completed, a real estate investor has a unique opportunity. In this instance, both parties are equally motivated to get the builder out of harm’s way and keep the yet completed home out of the bank’s REO department. By following foreclosure filings against builders and construction firms, you have the opportunity to contact the builder as well as the bank and make an offer. You’ll likely find that the bank is not only relieved but also believing that everything is back to square one and the bank loses nothing. But the real estate investor has the upper hand here and has the ability to strike a deal well below what the bank was wanting yet still releases the builder from the lien. When talking to an REO department, ask about any construction loans that may be close to default in addition to existing property.