Guide to How to Buy Foreclosed Property
If you’re in the market for a new home or piece of real estate, consider learning how to buy foreclosed property. Repossessed properties often come at a discount, so searching the foreclosed housing market is a way to lower prices when becoming a homeowner or landlord.
What Is Foreclosed Property?
Foreclosed property is when a property owner can’t pay the mortgage on their home or real estate, forcing the creditor to foreclose on the property, to recoup their investment. The home owner forfeits the home and the property goes back on the real estate market.
In many cases, a foreclosed property is a new home bought by someone who couldn’t afford it, or by someone before the housing market crumbled and the economic went in the ditch. You can buy an “almost new” home at lower prices than expected. Especially at the moment, there are a lot of foreclosed homes in the system, which means the overall foreclosure market has a lot of good bargains for the prudent property shopper.
Also, understand that there’s always going to be more paperwork when buying foreclosed properties, so just prepare yourself for the extra paperwork.
Finding Foreclosed Properties for Sale
Search newspaper advertisements in the classified section under heading such as “Auction Sales”, “Sheriff’s Sales” or “Foreclosure Notices”. Contact the real estate agents and/or attorneys involved in these foreclosure sales, to let them know you’re interested in the property.
Contact Government Agencies and Lending Institutions
There are several government agencies and government-funded lending institutions that help people purchase property. In the recent housing crisis, a lot of these homes were foreclosed upon, and continue to be foreclosed on. Therefore, these organizations have their own information on foreclosed home and land.
Below is a short list of institutions with information on foreclosed properties.
- The Federal Housing Administration (FHA)
- The Department of Housing and Urban Development (HUD)
- The Veterans Administration (VA)
- Freddie Mac Homes
- Fannie Mae Homepath
- U.S. Department of Agriculture
Any of these institutions might have information on foreclosed homes in your area. Call the local chapter of each, to see if they are having any foreclosure sales in the near future.
Research Foreclosure Proceedings by State
Another resource for foreclosure proceedings and local foreclosure sales are the state authority. Many state websites have links to help you locate foreclosed properties in your state. I’ve included one example of a state institution, to give you a sample of what you might search for: Maryland Foreclosure Proceedings.
Anytime you start to buy property in a new state, familiarize yourself with the state property laws. Foreclosures can often be complicated processes, so don’t get blindsided by an obscure rule or regulation you knew nothing about.
What Is “REO” Property?
“REO” property is “Real Estate Owned” property, where the bank has taken over ownership after a foreclosure auction failed to find a buyer.
Because a foreclosed house often didn’t have enough equity in it to keep it from being foreclosed on, this means that the money owed on the house is often more than the house is worth.
The buyers at an auction have to have a cashier’s check in hand to cover the cost of the sale, while also agreeing to buy the house “as-is”.
That is, you buy the house with whatever liens might be on it, whatever occupants might be in it and whatever damage might be done to it. Add in the price of the original mortgage and any costs or fees associated with the foreclosure proceedings, and you see why most homes aren’t bought in a foreclosure auction.
When no one buys a foreclosed property on auction, ownership reverts to the original creditor and the home or real estate becomes “REO property”. These banks and financial institutions want to recoup as much of their original investment as possible, as quickly as possible, so they often offer such REO properties at a reduced price – sometimes as much as 30% of the original price.
Do a Title Search
Search through public records of the foreclosed property, to see what the title looks like. This gives you information on existing liens, the history of ownership and might even give clues to possible problems. Most title searches can be done online.
Make Contact with the Foreclosure Trustee
Talk to the trustee of the foreclosed property sale. Specifically ask about the minimum bid the trustee or lender is willing to accept. Specifically, learn about the “redemption period” from the trustee.
A “redemption period” is a window of opportunity for the previous owner to make payment-in-full and get their old property back. If there’s a redemption period stipulation and you’re still in that period, you could have the property bought out from under you. Beware.
Obtain Financing
Anytime you buy new property, you’ll need to obtain financing. Search around to find the best financial package to buy foreclosed property, to see if your purchase is feasible.
Inspect Local Properties Yourself
When searching for good deals on local foreclosed properties, always drive out to the site and evaluate the value of the property yourself. If these properties are in your area, inspect these houses and parcels of land, talk to the real estate agents associated with them, then obtain sales prices for comparable properties.
Checking other comparable sales prices on homes lets you know whether you’re getting the house at less than its true value, and therefore are getting a bargain on your foreclosed property.
Remember that foreclosure sales often have the “as is” stipulation, so you’re crazy, if you don’t inspect the property before you buy it. Buying blind is a way to get a bad deal, not a good bargain.
Buying Foreclosed Property
Studying how to buy foreclosed property, you’ll figure out pretty quickly that there’s a whole list of headaches specific to foreclosures. There are special rules, stipulations and fees that go along with the foreclosed homes and real estate. But if you know how to research the local repossessed homes and buy foreclosed properties at a discount, this is a great way to get a nicer home than you would have imagined, or pick up a nice rental property at below market value.