The Process for Buying Foreclosed Homes

The process for buying foreclosed homes is relatively simple but painstakingly slow. When you buy from a single seller you negotiate with someone who has the direct say to accept or decline your offer. When you are buying a foreclosed house you have to deal with a bank department where workers are paid not to lose money.

There are 3 stages where you might be looking to buy a foreclosed home:

1. In a pre foreclosure sale - before the actual foreclosure


2. At a foreclosure auction


3. Buy REO property after the foreclosure sale - bank owned real estate

Finding property before the foreclosure auction is not something you will find searching on the internet. You will have to be looking constantly in your County's Record office for notices or subscribe to a service that does the foot work for you (you can find such a service by attending meetings of your local real estate investment club ). Read the details of buying property in a pre foreclosure sale here.

Learning how to buy a foreclosed home at the real estate auction is probably the most risky way of purchasing a house. You will not have the opportunity to inspect the property, need cash at the sale auction for a large deposit and have to come up with the balance usually within 30 days. This is great fun for an investor with cash but very stressful and challenging for someone just looking for a home.

When people talk about the process for buying foreclosed homes they are mostly referring to buying bank owned real estate . The first question is how to find foreclosed homes? There are some sites like RealtyTrac that provides listings for over 1 Million foreclosure properties. RealtyTrac will give you a 7 day free trial to check out their product. Some have had good success with it, in other areas it is out of date - so use the 7 day trial first.

The best way to find foreclosed homes is simply to visit your County Records office weekly. Though this a pain, you will have the edge over others that may bid. Another way to find foreclosures is to find a real estate agent that specializes in selling foreclosed properties. Don't use any average real estate agent. Many part time agents know little about the process of buying foreclosed homes and you will lose out because of their inexperience.

Before you make an offer on a bank owned property you should have your financing in place. A bank is going to accept a lower cash offer than a higher financed offer. Time is money. Learn how to finance investment property and have all of your financing in place before submitting an offer.

After you have the money and located a house be aggressive in making your offer. Don't "think about it". Make a low offer "as is" but do put a "subject to" clause to leave you an out (e.g. subject to inspection, your real estate lawyers approval, etc.). Some banks are getting aggressive with their pricing and precipitating bidding wars on properties. Don't get into a bidding war and over pay. Be patient - if the deal doesn't work, move on. The biggest mistake people make with buying houses is getting emotionally attached.

The next part of the process for buying foreclosed homes is to submit the offer. This is where you need an experienced real estate agent if you have not done this before. The offer is usually submitted to the "loss mitigation department". If the offer is less than what the underlying notes are worth it becomes a "short sale" and additional documentation needs to be submitted to the bank. Your agent needs to contact the loss mitigation department officer assigned to the property that you are making an offer on to get the correct information.

Dealing with the loss mitigation department is time consuming and frustrating. You are essentially dealing with a committee where no one has the authority to make a quick decision. Sometimes these departments just sit on your offer and hope for other offers. Sometimes if several people are interested and the offers are low they may go back to the agents and ask each party to submit their "best offer". Don't bite on this. One bank did this to me and re-submitted the same offer and still won the property. The bank usually asks for a BPO (brokers price opinion) and that may take additional time. Plan on waiting 4-8 weeks for a response from the bank. However, it is important for your agent to make regular contacts with the loan officer.

If you do get an offer accepted make sure that you do a thorough home inspection . Many vacant houses have mold problems and often foreclosed homeowners take every little thing out of the house (furnaces, piping, cabinets, etc.).

If you can find a few foreclosed homes that are 25% or more below market value consider it a major victory. It is simple but not always easy. But following the process for buying foreclosed homes can reap large financial rewards.

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