Overview of Buying a Foreclosure

You could purchase a home in preforeclosure at a foreclosure auction or from a mortgage lender.

Buying a foreclosure may seem easy. Who would pass up a great deal on a home? The lower the price you pay for a property to rent or flip, the more you will make. What’s not there to love?

Buying a foreclosure property can work well for the buyer, even if it is heartbreaking for the previous owner. Even if you are able to take advantage of this opportunity, it will require extra research, patience, and effort.

What is foreclosure?

It is a process whereby a bank, mortgage company, or other lien holder attempts to take a property away from an owner in order to settle a debt. The bank or lender could actually take the property or sell it to pay off the debt. The debtors lose all rights and all investment. A foreclosure can also be a negative mark on your credit score. Understanding this is important because emotions can run high when dealing with the previous owner.

A foreclosed property could be one of many on the books for the lender. It is possible that you are dealing with an officer who doesn’t know much about the property or for whom selling it is not a high priority. A buyer can become agitated if they are not given the urgency they need.

For you, “foreclosure” can mean many things as the process moves through three stages.

Stage 1: Pre-foreclosure

At this point, the property owner is informed that the foreclosure process has begun. If the owner is unable to cure the default and get their loan back in good standing, then the only way to avoid foreclosure would be to sell the property before the mortgage holder takes the property away.

Pre-foreclosure means that you approach the owner, usually before the property is on the market, and offer to buy it. A good buyer at the right moment can save a bad situation. It will give the owner equity back and help to protect his credit rating from foreclosure. It is important to have a smooth transaction and that you act quickly. Learn more about buying a preforeclosure property.

Stage 2: Foreclosure auction

If the owner is unable to keep the property, it will likely be put up for auction in a foreclosure auction. The property is usually sold to the highest bidder, who must pay cash at the time of purchase. There is not much time to research it beforehand.

A foreclosure auction can offer some great bargains, but the buyer assumes all risks regarding title, condition, or any other aspect. This is a risky investment that you should not make. Learn more about buying at foreclosure auctions.

Stage 3. Bank-owned property (REO )

)

Buying lender-owned properties is not as urgent as the first two stages. However, patience is important. The ultimate goal of the mortgage holder is to take ownership of the property to repay the loan amount.

“Eventual is the key word. Lenders can be slow from a buyer’s point of view. They may take a long time to clear the title, make repairs, and deal with the many foreclosed properties. This might not be the right place for you if you are in a rush to buy.

It’s a good idea not to be an expert in real-estate law and transactions. Also, it’s a good thing to seek the advice of an attorney or real estate agent who is familiar with foreclosures. This is not the type of purchase you can just do. Learn more about purchasing bank-owned property.

Join The Discussion

Compare listings

Compare