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Buying Foreclosed Homes


Often when people think of buying a foreclosed home or property, they think of stepping into the home of their dreams for a great price. This scenario is possible and if you are prepared and know what to look for, you can find some great bargains. However, the flip side of that is that foreclosed homes can also be your worst nightmare. You might find the house needs major repairs, which will require some serious money to be invested. Unfortunately, some people losing their home through foreclosure purposely do damage because they do not want anyone else to enjoy the home. Learn how to avoid foreclosures here.


Following are some specific scenarios of buying foreclosures and the pros and cons that go with them:

Buying Foreclosed Homes at the Auction

When you hear of a house selling on the courthouse steps, this is literally what happens. There will be lenders and investors all standing outside on the steps bidding on the house. This type of bidding is both exciting and intense and the process moves fast. To avoid devastating results, it is imperative that you conduct as much research as possible.

In order to be involved in auction buying, you first need to do the following:

· Thoroughly research any properties you are interested in prior to the sale
· Keep your options realistic
· Weigh out the financial profit if you should win the bid
· Decide what your highest bid will be and stick with it

  • Pros
    • Savings off market value can be as high as 45%
    • Outstanding return on investment
  • Cons
    • Auctions can be postponed
    • Seldom are there opportunities to inspect the house before the sale
    • Title searches can be costly
    • Requires large amounts of cash to be laid out


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This type of foreclosure is a deal between the homeowner, seller, and in some cases, the lender. This can be a very successful way for both parties to make a smooth transaction. First, start by finding loans that are in default. With this option, you will be able to inspect the house and determine what the seller's needs are. Next, you will need to find out the value of the house, what it will cost for any repairs, and how much profit you could make on a resale. To stay ahead of the game, you will need to make any repairs as quickly as possible and turn a quick sale after you purchase the home.

  • Pros
    • Discounts off market value as high as 35%
    • Requires a small down payment
    • Provides adequate time to conduct research on specific properties
    • Sales agreements can be customized and flexible
  • Cons
    • Homeowner can sometimes be hard to reach
    • Competition for the purchase is high
    • Possibility of negotiating with other lien holders (second mortgages, Government liens, etc.)


Real Estate Owned (REO)

Of the different methods of buying foreclosed homes, this is probably the easiest. In this situation, a lender will take their property back in order to regain possession and then accept the losses. Since the lender does not want to keep the house, they are considered motivated sellers.

  • Pros
    • In the majority of cases, the lender is the senior lien holder, which removes all other liens
    • There is always a clean title
    • Normally any property tax in arrears has been paid by the lender
    • In some instances, repairs will be done by the lender
  • Cons
    • Savings are generally much lower - 5% to 15%



More information about foreclosures:


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