How to Buy Foreclosed Homes?

Find a property and understand the process

A potential owner should conduct research as to the availability of foreclosures. It is recommended a consumer has an understanding of the kind of property he is looking for prior to bidding on such properties at auctions. Most importantly, the consumer should know his goals for owning this property: Is it a new home or an investment? Is he going to live there permanently or intend to rent it out after the purchase? How much time and money is the potential owner willing to invest in the property? What is the neighborhood like and are there other foreclosed homes in the vicinity?

A potential owner may attempt to purchase the property before the owner defaults it to the lenders. He may make these attempts at the county courthouse or other auction sites. The consumer may try to purchase the property through real estate brokers. Finally, he may seek to acquire government homes, though only HUD-approved (Housing and Urban Development) brokers may make such bids.

Should the potential owner consider a HUD home, he must understand the process of purchasing this property. HUD houses are typically on the market about six months after foreclosure. While local governments get the first option to buy (after which the property is often used for Section Eight or other subsidized housing), consumers who had pledged to actually live in these homes have the first opportunity to make a bid. Investors then have an opportunity to purchase the listing should the home be on the market after ten days or so.

The potential owner should understand that the legal steps to purchasing a foreclosed property differ from state to state. He should be proactive in understanding the different state laws, as each state has different procedures and legal requirements; thus, it is advisable for the potential owner to do some research as to the varying legislation when finding an foreclosed home.

Contract for private inspection

It is important to understand how long the home has been empty. Depending on the region, it may also be important for the consumer to learn whether or not the foreclosure home was winterized. The consumer should learn the history of the foreclosure home to make a wise decision, as a home, even one in foreclosure, is still a large investment that needs to be done properly and wisely.

It is essential for the consumer to realize whether or not there are any judgments or liens on the property. Are there unpaid taxes? Who would then be liable for those and other associated costs? Is this property worth the market value even with these encumbrances? Foreclosed homes can potentially come loaded with surprise expenses, and the owner should be cognizant of these risks and how to deal with them.

Banks generally require a home inspection prior to lending money for a mortgage; however, the consumer should still hire a private inspector if he is paying out of pocket for an ultra-cheap home. Because previous inspections are not always reliable and conditions often change considerably, it is financially beneficial and prudent for a consumer to hire a private inspector to look at the foreclosed home and property. Inspections can prevent further damage, as they may realize that certain repairs must be done before further damage occurs. At the very least, these inspections can affect the potential owner's negotiation power as he may be able to acquire a better price.

Acquire Financing

A potential owner should spend time learning how to obtain financing so that he can both estimate what he can afford and also speed the process when actually locating a property. In today's market, foreclosed properties are a hot commodity, and it is important that a potential owner has the ability to acquire financing in a relatively efficient manner or else another party may acquire the property instead. Secured financing assures the foreclosing lenders or original property owner that the potential owner is very serious about this purchase, and that the potential owner is financially solvent and prepared to go through with the deal.

Contact Original Owner

The consumer should uncover the status of the property and make every effort to contact the original owner. When an individual purchases a property in the pre-foreclosure stages, he should approach the owner and make an offer for the property. The potential owner can research the title and condition of the property, which will affect his asking price as there may be justification for deep discounts below the market value.

At the end of the pre-foreclosure period, potential owners will bid on the properties at public auctions. Here, the buyers must pay in cash and there may not be time to adequately research the title and condition of the property prior to the auction; however, there are often good deals at these events, so many potential buyers accept the risk that comes with bidding on these properties.

Lenders or government agencies take ownership of the property through public auctions or through agreements at the pre-foreclosure phase. While the lender generally clears for the title for any buyer, potential owners are still better off purchasing the property at either the pre-foreclosure or auction stages.

Pre-Foreclosure

While a property is in the pre-foreclosure phase, which can last several months, the owner can actually stop the foreclosure process by either selling the property or paying off its debts. First, the potential owner will want to research the property's value to look for any additional loans or liens on the property. Next, the consumer should uncover whether or not the property is still in foreclosure by contacting the trustee or attorney, both of whom have updated information as to the status of the property. Should the trustee or attorney confirm that the property is in foreclosure, it is imperative that the consumer contacts the owner in default immediately via phone, mail, or even going to the property in person to look for the owner.

Auctions

Auction dates can be delayed or outright cancelled at any time, so it is recommended that potential owners contact the trustee or attorney prior to the auction. Auction dates are announced only several weeks prior to the actual auctions, and so there is relatively little time for the potential owner to work out a last minute deal with the defaulting owner. Should the potential owner believe the property is a solid investment, he can then attend the auction to make a bid. Information as to the time and location of the auction can be found via the trustee/attorney, courthouse, and a variety of other sources. Additionally, it is beneficial for the potential owner to attend other auctions to get a feel for what they are like, as it is a very fast process and the consumer should know exactly how to act by the time of the auction.

Bank Owned

If the property is owned by a bank, the potential owner should contact the lender and ask to speak with the Real Estate Owned or asset management department to learn about the properties.

REO sales take place when the lender takes back the property to gain possession and cut his losses; however, in these situations, the lender is motivated to move the property quickly because he is likely not in the real estate business. The consumer must refer to a foreclosure notice to determine the name of the lender as well as the balance owed on the mortgage. As before, the potential owners should asses the value of the property and investigate any hidden extra costs such as liens or additional loans.

Government Owned

If the property is a government-owned property, the potential owner should make the respective inquiries to find out the status of this property and how to go about purchasing it.

Make an Offer

As stated earlier, potential buyers should learn the estimated market value of the property, if there are any liens or other encumbrances, and find out what is owed on the property. An offer amount should be somewhat below the market value, yet above any associated costs such as liens or repair bills. These decisions must not be taken likely, and the consumer will want to spend the necessary time and effort figuring exactly how much he can afford and the extent of his negotiating power.

Should the property be either bank owned or in the pre-foreclosure stage, the potential owner can prepare a typical offer that is conditional on both the title search and also a full inspection.

Should the potential owner be purchasing the property at an auction, he will need to make the bid at the auction. Often, the buyer must pay in cash or with a cashier's check at the actual auction. While the buyer will not be able to conduct a full inspection and title search when purchasing the property at the event, he will still likely get a good deal on the property if he conducted some research prior to the auction.