Buying foreclosed homes involves steps such as researching properties, securing financing, attending auctions, conducting due diligence, and completing the purchase, with detailed guides available from sources like RealtyTrac and state-specific guides for regions like California.
Begin by creating an account with any of RealtyTrac, Foreclosure.com, Auction.com and decide where you want to search for properties.
Securing financing provides an estimate of what you can afford and enables you to act quickly once you find a property of interest. When you approach a borrower/owner or a foreclosing lender, secured financing demonstrates that you are a serious buyer ready to purchase promptly.
If you are a first-time homebuyer, especially one unfamiliar with purchasing foreclosed properties, contact a local real estate agent experienced in foreclosures. Ensure the agent understands your priorities and has relevant experience. A knowledgeable agent can be an invaluable resource.
Depending on the property’s status, the seller could be the owner in default, the trustee or sheriff, or the foreclosing lender. To determine the property status, review the foreclosure contact details.
Approach the borrower/owner and offer to buy the property. This allows the borrower/owner to avoid a credit blemish and possibly retain some equity. You can research the title and condition of the property, potentially securing discounts of 20% to 40% below market value, depending on market conditions. Confirm the property’s foreclosure status by contacting the trustee or attorney listed on the property details page. They have the most up-to-date information on whether the property has been sold or reinstated. Evaluate the property’s value and check for additional loans or liens to make an informed investment decision.
If the loan is not reinstated by the end of the pre-foreclosure period, you can bid on the property at a public auction. Be prepared to pay in cash and have limited time to research the title and property condition. Auctions can offer significant bargains but come with risks. Before the auction, you may negotiate a last-minute deal with the owner in default. Auctions are scheduled a few weeks in advance, so act quickly. Confirm the auction status by contacting the sheriff, trustee, or attorney. Auctions can be postponed or canceled anytime, so verify the information close to the auction date.
If the lender or government agency takes ownership of the property, they typically sell it through a real estate agent or online auction to recover the unpaid loan amount. The lender usually clears the title, but the bargain may be less than pre-foreclosure or auction properties. For REO properties, contact the lender’s REO or asset management department to arrange a viewing and possibly make an offer. REO properties have been repossessed by the foreclosing lender.
If you have never purchased a foreclosed home, enlist a real estate agent to help prepare and make an offer. Use the RealtyTrac Agent Network to find a local agent.
Check the property’s estimated value. Focus on properties where the equity (estimated market value minus outstanding loan balance) is positive. This ensures instant equity if you buy the property for the outstanding loan balance.
Prepare an offer similar to a typical purchase offer, contingent on a full inspection and title search.
Make your bid at the auction, often requiring payment in cash via cashier’s check. Conduct thorough research beforehand, as full inspections and title searches are usually not possible.
By following these steps, you can navigate the complexities of buying a foreclosed home and potentially secure a valuable investment.