how to buy a house out of foreclosure

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.
"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).
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.
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.
Please note that once you make your selection, it will apply to all future visits to If, at any time, you are interested in reverting to our default settings, please select Default Setting above.
To learn more about all aspects of the home buying process, including buying foreclosed homes, fixer-uppers, and others, get Nolo’s Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder, and Marcia Stewart (Nolo).
Auctions often attract hard core investors who have the cash to flip the property (sell within a short period for a profit) and others who’ve been around the foreclosure block a few times.
Here are the pros and cons of buying a foreclosed home at each step in a typical foreclosure process.
Months after the buyer first defaults, assuming he or she doesn’t bring the loan current, the lender attempts to auction off the property.
Buyers can expect a discount of 10% to 25% compared with buying a home through traditional channels, says Dean Street, an agent and 30-year veteran of foreclosure buying in the western U.S. But the road to auction can be bumpy, too.
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.
The lender can publicly auction the home to recoup some of the loss on the loan, but the homeowner can still be liable for the difference between the mortgage amount at the time of foreclosure and what the home eventually is sold for by the lender.
Other lenders will make payment arrangements with you to make up the missed payments, but the lender can request a partial payment for this agreement.
Foreclosure is the legal method used by lenders to take back a home due to missed payments on a mortgage.
Call your lender to get the total amount due to stop the foreclosure and ask what payment methods are acceptable.
The lender will forgive the amount due under your mortgage and cease foreclosure proceedings.
Your repayment plan will keep your home out of foreclosure once confirmed by the court, if you make the payments due under the plan in full and on time for the plan’s duration.
"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.
(A short sale occurs in lieu of a foreclosure, when the lender allows a homeowner behind on payments to sell her house for less than the loan balance.) Bridge is a certified distressed property expert, gaining her certification through a program run by the Charfen Institute, which provides training for real estate professionals.
Foreclosed houses often are sold "as is." But an inspection still is worth it, "so even if you’re buying as is, you know what you’re getting into," said Steve Morgan, general counsel for the Colorado Association of Realtors.
The process for buying a foreclosed home from the lender should start the same way it does buying any home, said Walter Molony, spokesman for the National Association of Realtors: Find a knowledgeable real estate agent.
The vast majority of foreclosed houses will be vacant, said Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington, D.C. That usually makes it easy to tour the house and hire an expert to see what work is needed to bring it up to your standards.
"Sometimes the property could still be occupied and the owner (or) renter probably isn’t too happy about leaving,” said Tyrone Adams, director of communications and events for the Colorado Association of Realtors.
"I think the buyer of a foreclosure must have a buyer’s agent," said Roxane Webster, a real estate agent and buyer broker with Keller Williams Realty in Greenwood Village, Colorado.
According to Trulia, another real estate tracking Web site, the median sales price in Edgewood, which was $101,698 in the first quarter of 2012, has dropped 20 percent since last year (and 37 percent since five years ago).
I assembled a team that included two tenacious real estate professionals; a first-rate contractor; a mortgage broker to help navigate the tangle of Federal Housing Administration, Internal Revenue Service and city and county regulations; as well as my parents.
Despite my considerable student loans and lack of cash, I thought that a mix of down-payment assistance programs, a generous first-time home buyers tax credit and an F.H.A. loan might give me the opportunity to realize an American dream that just two years previously I was sure would never be for me.
In my county, DeKalb, there were over 10,000 new foreclosure filings in 2011, according to the Atlanta Regional Commission’s report on foreclosures, to say nothing of homes sitting empty because they are in limbo with the banks or because investors abandoned them.
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.
While selling your home may not be an attractive option, it’s better than having a foreclosure on your record, and if you have substantial equity in the home, you may be able to come out of the deal with some money.
If you’re in serious financial trouble, don’t worry about credit card bills, personal loans, and other unsecured debts until after you pay your mortgage.
Your lender may have such a program, or you can see if your local housing authority or extension service offers debt counseling or foreclosure avoidance services.
Worse yet, you may still end up owing money if the sale of the home doesn’t cover your loan balance, and a foreclosure hits your credit like a freight train.
Just a couple of missed mortgage payments can start foreclosure proceedings, and before you know it the house you’ve worked so hard to buy can be taken away from you.
If you can reduce your interest rate or take on a different type of mortgage you may be able to lower your payments to a manageable level.
If you’re having trouble making payments, you may benefit from credit counseling or a debt management program that includes housing counseling.
If no other remedy is available, consider offering the lender a "deed in lieu of foreclosure." You essentially just sign the home over to the lender.
Thanks to fierce competition among lenders, a dizzying array of mortgage options, and government policies to encourage home buyers, more people than ever before were able to buy homes pre-recession.
Refinancing is occasionally a good option, particularly if your mortgage carries a high interest rate and interest rates have since declined.
Still, depending on your situation, bankruptcy may be your only option to keep your home, and if you’re in dire financial straits you should consult a reputable bankruptcy attorney to discuss your options.
You will most likely need to provide the lender with bank statements and other financial documents so that they can review your financial situation.
Falling behind on these debts can cause you to accumulate fees and can damage your credit, but the consequences are simply not as serious as falling behind on your mortgage, so prioritize your debts accordingly.
He finds the community here wonderful and says, “The incredible human interaction makes it feel like a real group on editors collaborating on a how-to manual, instead of usernames talking on an online forum.” To new editors, he advises that they join in, make small edits, and be open to learning from other editors.
Some of these scam artists scan foreclosure lists looking for victims, and they may offer quick fixes such as "refinancing" schemes that actually trick you into signing your house over to the scam artist.
There are, unfortunately, plenty of people and companies who try to take advantage of homeowners desperate to avoid foreclosure, and there are a wide variety of foreclosure-avoidance scams, so be very careful, especially if you’re contacted by a company.
Restructuring can take many forms, but generally involves extending the term of the loan so you have longer to pay (and thus make lower monthly payments), spreading delinquent payment of several years, and/or lowering the interest rate on the loan.
You may end up with higher rates or fees that you can’t pay, and you’ll end up facing foreclosure again, with even less money this time.
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.
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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