Buying a Foreclosed Home: How a Foreclosure Sale Works

by Ernest Van Glahn

Looking for a great deal on a home? Foreclosures can offer below-market prices, but it’s crucial to understand the process before diving in. Here’s what you need to know about buying a foreclosed property.

1. Pre-Foreclosure

Pre-foreclosure occurs when a homeowner has fallen behind on mortgage payments, but the home has not yet been repossessed by the lender. At this stage, buyers may have the opportunity to negotiate directly with the owner for a short sale. A short sale happens when a lender agrees to accept a lower payoff than what is owed on the mortgage. While this can be a great way to find a deal, the process can take time and requires lender approval.

2. Auction Sale

If the homeowner cannot resolve the delinquency, the lender may proceed with a foreclosure auction. These auctions typically require buyers to have cash on hand, as financing options are limited. Additionally, auctioned properties are sold "as-is," meaning inspections are not always available, and buyers must be prepared for potential repairs.

3. Bank-Owned (REO) Properties

If a foreclosed home does not sell at auction, it becomes a Real Estate Owned (REO) property, meaning the bank or lender now owns it. REO properties are usually listed for sale through real estate agents, similar to traditional home listings. Unlike auction sales, buyers can often conduct inspections and even negotiate repairs with the bank.

4. Government-Owned Homes

Some foreclosures involve loans backed by government agencies such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). These properties are sold through government programs and may include special incentives for buyers, such as reduced down payment requirements or financing assistance.

Tips for Success When Buying a Foreclosure

Get Pre-Approved for a Mortgage: If financing, obtain a mortgage pre-approval to show sellers you’re a serious buyer.
Work with an Experienced Real Estate Agent: Foreclosures have unique challenges, and an agent with experience in distressed properties can guide you through the process.
Budget for Repairs and Renovations: Many foreclosed homes need repairs, so factor in additional costs for necessary updates.
Conduct Thorough Due Diligence: While some foreclosures allow inspections, others do not. Research the property’s history and consider hiring professionals to assess potential risks.

Ready to Find a Great Deal on a Foreclosed Home?

If you’re considering purchasing a foreclosure, I’m here to help! Contact me to discuss available properties and navigate the process with confidence.