how to buy a foreclosure

Another hassle: Most foreclosures that go to auction get postponed, usually due to bankruptcy or loss mitigation (when the bank tries to compromise with the borrower), says Chris Matty, marketing director of He notes that opening bids also change frequently, especially as home values are marked down further.

You can make an offer to purchase a property when it’s in pre-, when the lender agrees with the homeowner to accept less than the outstanding balance of a mortgage loan and avoid .
Regardless of which phase you are attempting to purchase the property, how do you begin the process? There is a growing selection of foreclosed homes to choose from across the country, as today’s faltering housing market yields hundreds of thousands of these properties.
So [buyers] kind of end up in the same position as the people who currently own the house in that [they] can’t get financing or can’t afford the financing that’s out there,” says Bobbi Dempsey, co-author of “The Complete Idiot’s Guide to Buying Foreclosures” (Alpha).
One caveat: When you buy a property at an auction, be sure you have investigated the “right of redemption” law, which means homeowners can reclaim their property within a certain period of time if they pay all past-due amounts and applicable fees for the property.
According to Dempsey, foreclosure sale ads from the U.S. Department of Veterans Affairs (VA) and the Federal Housing Administration (FHA) are posted in the newspaper on a regular schedule; her book advises readers to contact the classified manager at the paper for the schedule.
The most important thing to understand before jumping into the foreclosure market is that these properties were given up by owners who couldn’t afford the payments anymore.
Maintenance and cleanliness can be a problem in foreclosure properties because of the circumstances under which the previous owners moved out, and because of the time the house may have sat empty.
Buying a foreclosure (FCL) is often touted as a way for both owner-occupants and investors to get a great deal on a property.
Buying a home from a lender has its issues as a result of the increased level of bureaucracy and the limited transparency afforded to those who buy foreclosures.
Damage is not uncommon in foreclosure properties and it may be caused by vandals or the former owners.
"A lot of people don’t realize [that] foreclosures are heavily regulated and every state has its own set of laws," says Alexis McGee, the president of "If you don’t have the language proper in your contract, or if you have even the font size wrong, it’s criminal and civil damages—don’t count on every Realtor knowing this." As such, McGee advises against relying on a agent for legal advice.
"In today’s uncertain times it’s important to be working with someone who has been through market cycles before," says Patrick McGilvray, president of, which links homeowners and owners of foreclosure real estate with potential house buyers.
With so many foreclosures on the market, "this is a once-in-a-generation opportunity for many people," says Steve Dexter, a foreclosure expert and author of the forthcoming book Buy and Hold Forever—Building Real Estate Wealth Far Into the 21st Century.
Since many foreclosed homes may decline further in value in the coming months, it’s important that buyers approach the transaction from a long-term perspective." If you are not looking at a piece of foreclosed property from a 10-year time horizon—as an investor or as an owner occupant—then you will likely suffer," McGilvray says.
Only investors with the resources and patience for a long-term real estate investment and homeowners who can afford a fully amortized fixed-rate mortgage should consider buying foreclosed property, McGilvray says.
Many buyers go through real estate agents who specialize in foreclosures, but if there’s a particular property you have an eye on, Blomquist says you can approach the lender directly after the foreclosure but before it’s listed for sale.
First of all, if you’re new to the foreclosure market, don’t even think about buying a property at a foreclosure auction, says RealtyTrac vice president Daren Blomquist.
If you’re seeking to purchase a foreclosure with an FHA loan, Blomquist says the requirements pertaining to the condition of the property are stricter.
The bank that owns the title isn’t going to make needed repairs for you before the sale, and it’s unlikely to lower the price to compensate you for repair expenses you’ll incur.
Factor the cost of any necessary repairs into your budget, since foreclosures are generally sold “as-is.” “Be aware with these REO or bank-owned properties that a lot of them are in pretty poor condition,” Blomquist says.
The bank is required to pay off senior liens like back taxes, you won’t have to kick out anyone living there and you’ll be able to inspect the homes for damage and figure out how much you’ll need to set aside for any repairs.
An increase in foreclosure activity might sound like bad news, but it’s actually a good sign for these markets because it means the logjam that’s been keeping housing in the doldrums is finally starting to break up.
Prospective buyers can’t inspect the home to determine if there’s any damage — highly likely if the house has been vacant for a while — or find out if there are any senior liens (such as outstanding taxes owed on the property).
Through the real estate community, the agent representing a potential buyer of the property after it had been foreclosed upon got her hands on the old inspection report.
REO stands for “real estate owned.” An REO property is one owned by a bank after going through the foreclosure process.
Bringing more than a decade of residential real estate experience, DeSimone is a recognized national real estate expert and has appeared on top media outlets including CNBC, Good Morning America, HGTV, FOX News, Bloomberg and FOX Business.
On the Property Details page, RealtyTrac usually provides the estimated market value and the estimated balance of the loan in foreclosure, called either the Balance, Opening Bid or First Loan Amount.
On the Property Details page, click on the Comparable Sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood.
Subscribers can click on the Contact An Agent tab on any member page after you log in or click on any corresponding links on the Search Results or Property Details pages.
The quickest way to make contact with the owner using RealtyTrac is to click on the “Contact Owner” link on any Property Details page to send a postcard to the owner.
Contact an Agent to find a local real estate agent in the RealtyTrac Agent Network who can help you contact the lender and who can check if the property is already listed on the market with a real estate agent.
Many government-owned properties are already listed with a real estate agent, and you should see a link to contact that agent in the Contact section of the property details page.
The Property Details page should always include the address of the property and the name of the owner, trustee or lender involved with the foreclosure, depending on the property status.
If the lender or government agency takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender usually sells the property to recover the unpaid loan amount.
If the property is Bank Owned (REO), your first step is to contact the lender, whose information is usually on RealtyTrac’s Property Details page.
Click on the Check Loan & History section to view a report that lists additional loans or liens on the property.
Subscribers can click on the Get Financing tab on any member page after you log in or click on financing links on the Search Results or Property Details pages.
If you’re a first-time homebuyer and you’ve never purchased a home, let alone a foreclosure property, it is beneficial to contact a local real estate agent who can guide you through the process of buying a foreclosure.
The first step is to call the trustee or attorney listed on the Property Details page to confirm if the property is still in foreclosure.
Click on the Loan & Lien History section to view a report that lists additional encumbrances on the property.
To determine the property status on RealtyTrac, look at the Foreclosure Status gauge on the Property Details page.
On the property details page, you can click the “Save Listing to My RealtyTrac” link to save the property to the My RealtyTrac page.
If this is the case, you’ll see a “Bid Now” button on the search results page and “Bid Now” links on the property details page.
To use this feature, click on the “History of Notices” link on the Property Details page (under property photo).
To get an estimate of the potential bargain for any property, you need to find out the estimated market value of the property, how much is owed on the property and if the owner has any other loans or liens encumbering the property.
Click on Lien & Loan History to view a report that lists additional debts encumbering the property.
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan.
If the trustee confirms the property is still in foreclosure, and you believe the property could be a wise investment, you should contact the owner in default as soon as possible.
You’ll see a link to do this either at the top of the property details page or in the Contact section of the property details page.
RealtyTrac’s Xamine tool can be accessed by clicking “What’s Next>Evaluate The Property” on any Property Details page.
If the owner does not respond to a postcard you can try to send another postcard (the owner may have a change of heart as the end of the pre-foreclosure period approaches) or you can wait to see if the property is scheduled for auction and attend the auction.
RealtyTrac’s Xamine tool can be accessed by clicking “What’s Next>Evaluate Property” on any Property Details page.
The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction.
Click on “Check Comparable Sales” to view up to 15 recently sold neighborhood properties and an analysis of property values in that neighborhood.
"The safest and best way to buy is when it’s a bank-owned property," said Rick Sharga, a spokesman for RealtyTrac, the online marketer of foreclosure properties.
In addition, the banks selling these places may extend preferential financing terms to the buyers and may have made some repairs before putting the property on the market.
"That means the bank won’t pay for cosmetic issues," said Adam Wiener, a spokesman for the Redfin, the online real estate marketer.
"The buyers and their agents need to be on top of everything from the inspection to the financing," said Wiener.
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You’ll need competent assistance from a real estate agent, attorney, investor, or other professional familiar with local laws and the real estate market, specifically as they apply to your market’s foreclosure system.
Learn about the risks associated with buying a foreclosed home at each stage of the foreclosure process.
Whether or not you should consider buying a foreclosed home depends on several factors, including your homeownership experience, your financial situation, and whether you have access to professionals with experience buying foreclosed properties.
To learn more about buying foreclosed homes to serve as rental properties, read Nolo’s article Buying a Foreclosed Home as a Rental Property.
Before you jump on the bandwagon, learn whether you’re a good candidate to do so, as well as the risks and benefits of buying at each stage of the foreclosure process.
It helps to have already learned the many lessons about the true cost (in time and money) of owning a home (beyond the monthly mortgage payment) and to have developed relationships with home contractors and other professionals who can help you.
Existing or prior home ownership can give you the equity stake you need to cover foreclosure purchase costs, provided you have a solid equity position available in your primary residence.
A helpful homeowner might give you a little advice, like the best place to start a garden, or offer you a heads up on minor repairs, like a bathroom door that sticks.  And when it comes to big repairs, such as a shoddy foundation or termite damage, the owners might be legally required to let you know before you buy the place.
Even in a market flooded with foreclosures, a bank might balk at a low offer, preferring to wait until housing prices bounce back rather than take a huge hit on the investment.
"So the bank recoups a little more money and the new home buyer gets a property that’s fresh and they don’t have to do a whole lot to it," Mattison added.
Last year, across the country, houses that had been through foreclosure sold for an average of 28 percent less than other houses.
How would you like to knock tens of thousands of dollars off the price when you buy a home? You can do just that if you buy a foreclosed property.
The stereotypical foreclosure property has been neglected, even trashed, but there’s a flip side.
The MLS is fully accessible for any real estate agent, so it is highly recommended that you either get your own real estate license or work closely with an agent you like and trust (after all, a real estate agent is generally paid by the seller, so it’s free for you to use an agent!) However, you don’t need to only rely on your real estate agent to tell you what properties are listed – because you can generally get that information online through many different websites such as,,, or These sites will help you sift through nearly all the listings and give you at least some of the information about the property.
Buying a property during this period known as “pre-foreclosure” is a common technique used by many real estate investors and can be a good way to find motivated homeowners.
This process is known as the “Trustee Sale.” The bidding generally opens with an automatic starting bid of whatever amount is owed on the property, so no – it’s generally not possible to simply go and bid $1 on a property at the courthouse.
Cash Only – Finally, when buying a foreclosure at the courthouse steps, you will need to have all the money the same day to purchase this property.
We got a bidder’s card, talked to the bank reps and found out that one house we saw and researched had an opening bid within our budget and under the assessed value of the home — so we bid on it! Two other investors counter-bid a few times, but we won the bid and got our first house at the foreclosure auction.
My husband and I have just recently achieved our long-time goal of buying a foreclosed house, turning it into a rental property and creating a steady stream of income from the monthly rent we collect (at 17 percent profit on the initial cash investment every year).
Very good post! I have thought about buying a foreclosed property, but really don’t have the time to invest in researching the area, heading to the courthouse, renovating the house, etc.
After you identify a few houses in your chosen location or size range, research each offered property’s sales and tax history, as well as its current assessed value on the County Property Appraiser’s website, which are all public record.
Once you hear this number you will need to evaluate on the spot whether purchasing the property is financially feasible given your cash budget, current market conditions, the research you did on the property and your personal criteria and plan for the investment.
Our county publishes a twice-weekly list of the properties to be sold at the foreclosure auction held each Tuesday and Thursday at 11 a.m. A large portion of our time each week is spent physically viewing the properties and researching them online or in the courthouse books.
Next, research each property owner (also listed on the County Appraiser’s property record page) online via the County Clerk of Courts Public Record Search because whatever that the owner owes regarding that property outside of the loans (liens, back taxes, etc.), you will owe when you purchase a foreclosure home.
Instead, you need to start the bidding at the acceptable opening bid amount for each property, which is the lowest amount the bank is willing to accept for a property at the auction that day.
People get the idea they can buy a house at auction for $100 because they have heard that someone “bid on behalf of the plaintiff (the bank) for $100.” But auction buyers cannot counter the bank bid at $150 dollars.
Newspaper notices of foreclosure sales are disorganized; foreclosure-listing Web sites charge hefty monthly fees; lenders post only minimal information on the properties they’ve taken back.
When a foreclosed house in good shape and in a desirable location gets to market, it often attracts multiple offers, even in this struggling real estate market.
Consequently, many houses receive no bids at auction, and the lender ends up putting the house on the market through a real estate broker.
In both my day job covering the housing market and my own search for a house, I’ve seen what has worked for many buyers of foreclosed homes.
Buying a foreclosed house at a "courthouse steps" auction requires a good amount of knowledge — and cash.
If a house is up for auction with an opening bid far below its current market value, it’s likely to be snatched up by professionals who regularly attend the auctions, armed with stacks of cashier’s checks to pay the full amount.
But a foreclosed house might still be an easier way to get what you want than trying to get stubborn individual sellers to lower their list prices.
Buyers tend to believe that banks will do anything to unload foreclosures, including letting the buyer buy that foreclosure for 50% of its value or less.
When buyers watch TV news reports that sensationalize foreclosures or read headlines that foreclosure filings are increasing, it’s normal for buyers to automatically jump to the conclusion that banks are desperate.
Market value might be 50% less than the last time the home sold, but that foreclosure price will generally reflect the value of the homes around it.
If a home buyer or an investor wants to buy a cheap foreclosure, it’s easy to assume that all foreclosures sell for pennies on the dollar.
Where to Find a Cheap Foreclosure to Buy I often receive calls from investors asking me about buying a foreclosure very cheaply, and the truth is it’s rare to find such a listing in MLS .
Why the Price of a Foreclosure Can Appear Cheap You can buy a foreclosure generally for much less than its original loan balance, especially in a declining market.
To find a cheap foreclosure, buyers need to reduce the competition for that foreclosure.

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