Foreclosures - The Buying Process

Finding A Home

For those looking for a starter house, a trade-up, or even a weekend place by the shore, a foreclosed house may be the answer. Mortgage foreclosures have increased by about 25% in the US in the last 3 years, owing in part to corporate downsizing and mortgage

Balances that outweigh current market values. The majority of foreclosed houses in metropolitan areas fall in the $50,000 to $250,000 range. Buying a high-end foreclosed house often means purchasing a house in much better shape than the traditional distressed property. The true bargains are found at judicial auc tions, court-ordered procedures constituting the last step in the foreclosure process before the bank takes title to a house and puts it on the open market. But buying a house at auction is fraught with such risks as unpaid property taxes and other attached claims. Buying from a bank has its advantages, including the confidence that the property has clear title and the bank's motivation to sell.

The timeline and the various steps in a foreclosure:

  1. The first step in the foreclosure process is the pre-lien which is usually 30 days long
  2. The next step is the lien which is another 30 days
  3. Thirty days after the lien, a Notice of default is sent by the lender with a period of 90 days
  4. Once the 90 days have expired, a notice of sale is issued
  5. Around 20-25 days after the issue of notice of sale, the property is put up for foreclosure auction

The basic steps in buying a foreclosure property are simple. However, executing all the steps correctly and making money from the deal can get pretty tricky and requires a lot of research and discipline on the part of the buyer. There are several foreclosure properties in the market but good ones are few with intense competition for them.

The steps involved in buying a foreclosure property are as follows:

  • Verify that the property is under foreclosure.
  • Find out the amounts and types of any liens on the property.
  • Find out if the property requires any immediate repairs and assess the cost involved
  • Check out the comparables in the neighborhood and determine a fair market price for the property after factoring the cost of repairs and other fees
  • Arrange the required funds – most of the foreclosure sales require upfront cash
  • Contact the lender who holds the deed of trust and present your proposal
  • Present a counter offer if required
  • Once the price and the terms and conditions are mutually agreed, sign the papers

One good way to obtain a foreclosed property at a good price is to buy the, note (IOU) on the property from the bank or other lender and complete the foreclosure yourself. Here’s how it works:

A real estate lender gets a mortgage note with the property as collateral from the borrower. The mortgages often are sold from one lender to another. To avoid the time and costs of a lengthy foreclosure process, the lender or holder of a mortgage note on a defaulting property may simply sell the mortgage note to an investor at a discount. The investor can then complete the foreclosure process. This is also profitable for the lender, who saves the following costs:

  • Completing the foreclosure
  • Taking possession of the property
  • Managing the property until it is resold
  • Paying operating and any necessary repair costs for the property until it is resold
  • Paying the brokerage commission on the resale
  • Setting aside necessary legal reserves