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    Many foreclosures on the market, many home seekers are tempted into buying a foreclosed home at a rock bottom price. However, purchasing a foreclosure is much different from buying a typical home. Before you decide to buy, explore the potential risks and benefits of investing in a foreclosed property.

    Pre-Foreclosure Properties

    The term “pre-foreclosure” refers to the time period between an owner’s default and the lender filing public notice of the default. These notices appear in newspapers, savvy buyers can snap up a good deal by keeping an eye out for new pre-foreclosures.

    Considering buying a foreclosed home?


    On the plus side, the pre-foreclosure stage is generally a good time to buy. If the loan has only been in default a short time, the owners are probably still maintaining the home in good condition.

    Default notices generally give the owner a few months to bring the loan up to date, this gives prospective buyers time to do their homework on the house. This includes gathering data on the home’s fair market value, which can be done by accessing county auditor information and sales of comparable houses in the neighborhood. If you are working directly with the owner, you can also hire a home inspector to perform a comprehensive inspection of the property.

    Finally, if the home is not yet listed on the market, you do not have to worry about competing with other buyers. This can lead to a betterprice.


    Before you fall in love with a pre-foreclosure, be wary of potential problems. If the owners can’t pay their mortgage, they have probably been in serious financial trouble for several months. As a result, the house might need extensive maintenance. The majority of pre-foreclosures are sold “as is”, which means buyers are on the hook for repairs.

    Check the home’s title to determine if it is encumbered by judgment lines or a home equity line of credit.

    Foreclosure Auctions

    If the owner fails to pay the outstanding mortgage, the lender will most likely move on to the auction stage of foreclosure. Each state has its own rules regarding real estate auctions, but there is usually plenty of public notice regarding these sales. House hunters can obtain auction information by checking local newspapers and websites that specialize in posting foreclosure auction information.


    Most mortgage lenders do not want to be in the business of owning real estate. This means that lenders are highly motivated to auction off foreclosures quickly. Buyers can take advantage of this fact to get a great price.


    When property goes to auction, the owners have known for several months that they are losing their home. It is not uncommon for disgruntled owners to intentionally inflict damage before they vacate a property. You might walk into a house to find filthy carpets, damaged walls, and a myriad of other problems.

    You might also have to buy the home sight unseen. Unless you viewed the home in the pre-foreclosure stage, you will not have an opportunity to inspect it before the auction. Furthermore, you must have the financial means to pay cash for the property if you make the winning bid.

    Real Estate Owned Properties

    When a house fails to sale at auction, the lender ends up repossessing it. In other words, the bank becomes the new owner. These properties are known as “real estate owned” or REO.


    If you are patient and willing to wait, you can get a good deal on a bank-owned home. REO properties cost lenders money. The bank must pay for maintenance, upkeep, and any liens on the property. If you have financing in place, the lender might accept your offer even if it is below fair market value.


    You are dealing with a big corporation, and will probably have to wait a long time for the bank to respond to your offer. REO properties typically take a very long time to close. This can be frustrating to house hunters who need to move quickly due to a job relocation or children starting school.

    Get an Expert Opinion

    If you are serious about buying a foreclosed home, seek the advice of a real estate agent. Many specializes in foreclosures and REO properties. These agents are usually aware of the foreclosures in the area. In most cases, know which properties need major renovations. A good agent can also give you tips on how to handle yourself at an auction.

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