Foreclosed Homes

Written by Stephanie Dula
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Foreclosed homes are a good source for real estate investment opportunities. Buying homes that are in some stage of the foreclosure process is typically a risky process that can yield a big payoff for the well-researched buyer. While it's possible to purchase homes for up to 50 percent below market value, steals like these are not typical and much homework must be done before attempting a foreclosure purchase.

One option for purchasing discounted property lies in the pre-foreclosure process. Buying in this stage requires negotiating directly with the owner of the home who has defaulted on the mortgage and is facing foreclosure. People in this situation are sometimes desperate to salvage their equity, and many will settle for a low price in exchange for being able to pay off the lender and walk away.

While buying this way can translate into big returns, it may mean a complicated process of dealing with liens or unpaid taxes on the home. There may also be tenants who refuse to leave, forcing an unpleasant eviction procedure. The home may also have sustained considerable damage by previous owners who may not have been able to maintain it properly. It's important to thoroughly inspect the property before jumping on a deal that may seem "too good to be true."

Foreclosure Auctions

Buying at auction is another option for those looking for ways to buy foreclosure homes at discounted rates. Public auctions will take place and the property sold to the highest bidder when a defaulted owner's redemption rights have been exhausted. States carry different regulations regarding the period of time these owners have to work something out with their lender in order to reinstate the loan or pay off the outstanding mortgage balance.

Auctions can be a good place to score some real bargains, but again the stakes are high. Buyers typically need the full purchase amount in cash within a day or a week of the sale, depending on state. Those interested in purchasing at auction may have little time to research the property or do an inspection, but it's a good idea to find out the value of surrounding properties. This way a buyer can make an informed decision when deciding how much to bid.

REO Foreclosures

When a lender buys back the property at public auction, it becomes a real estate owned (REO) property, also known as bank owned or lender owned. When a lender repossesses a home, it will typically place the home on the market for a discounted rate in hopes of a quick sale to cover losses incurred in the foreclosure process. Buying REO property may yield less profit than other types of foreclosure properties, but it has many benefits, including a title free of all other liens.

Other lender owned foreclosures include those that have been repossessed by government agencies. Agencies like the U.S. Department of Housing and Urban Development and the Department of Veterans Affairs administer loans to demographic groups like those who have served in the military and low-income families and individuals. When borrowers default on these federal loans, the agencies come in and foreclose much as private lenders do. They put these homes on the market "as is" for below-market rates.

Finding Foreclosure Listings

There are several methods for finding out about foreclosures in any given area. Since foreclosures are not listed on traditional multiple listing services in many states, it may be necessary to subscribe to publications and services that specifically provide these listings. Listings can include pre-foreclosure properties, homes going to auction, and lender owned homes.

These services may provide varying degrees of information regarding properties, so it's important to shop around for the most comprehensive listings. Most buyers prefer additional community details like crime rates and school system information. Professional real estate investors also suggest becoming acquainted with state and local foreclosure law before taking the plunge into this risky business.


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