According to RealtyTrac, foreclosure notices in October have increased by only one percent since the previous month. Although the past year has seen a steady decrease in the number of filings, it’s still a market with a great deal of profit potential for the real estate investor and bargain prices for the first-time homeowner.
The overall process for buying foreclosures is not as straightforward as buying a listed property (if buying any real estate is straightforward), but if you want to win, you have to play the game.
Depending on the type of foreclosure, each process may be different and each state has its own laws.
There are three ways to purchase a foreclosed property—pre-sale, at auction or directly from a bank.
Each source will have a set way of doing things, complete with its own hassles and hoops to jump.
Locate a Foreclosed Property
There are a few ways to locate foreclosed properties in your area. Using two or more of these methods can widen the search results:
- Contact a real estate agent who specializes in foreclosures and can search for you.
- Do a web search. This isn’t as easy as it sounds. Depending on whether it’s bank-owned (REO) or government-owned, you may be looking in a number of different places.
- Subscription services might be able to fill in the blanks, as they compile information from several sources. Keep in mind that many of the listings may not be updated quickly, so you may see properties listed as ‘available’ that have actually been sold.
Get the Specifics
Get the details on the properties you like, including the name of the owner, lender or trustee of the property, an estimate of the balance owed on the loan (or the default amount if a pre-sale), the estimated market value, the details of the last time the land changed hands and the property values of the neighborhood.
Some information may be missing, such as specifics on the property itself, and most importantly, any other liens against the property.
A real estate broker can help fill in the blanks.
Contact the Owner
Contact the owner, bank or trustee with your intention of purchasing the property.
Government agencies require that only real estate brokers contact them, so if you don’t have an agent helping in the search, you’ll need one here.
Choose your Method
Some bank-owned foreclosures enter the market as auctions; others are immediately listed by agencies. Government-owned properties—those whose defaulted loans are from the FHA, VA, etc.—will almost always be sold at auction.
Understand the specifics of each source’s procedures, so you won’t have any unpleasant surprises when the time comes to pony up. In the case of government auctions, preference is given to bidders who will reside in the house, so a real estate investor will take a back seat.
You can also contact local banks about properties if you wish to bypass the hoop jumping. For auctions, you’ll have to wait to see if the property sells first.
If there are no bidders, you’re free to contact the bank directly.
Be Ready to Move Fast
Buying a foreclosed property means having to move fast when needed (even if the banks tend to move slow). Secure your financing, or if paying cash, make sure the amount you want to spend is liquid, so you can pay immediately.
Have a bit of cash extra for wiggle room and any immediate repairs that might need to be made, such as repairing broken windows and exterior doors. You want to secure your new place once it’s purchased.
Play the Game
This is where an experienced foreclosure broker can really help. With the exception of auctions, which operate by selling to the highest bidder, you can turn your broker loose to do some serious negotiation.
A formal offer holds a lot more weight than an informal one.
Cash is king when it comes to getting the price you want. Some banks will also accept discounts if you’re willing to take the property as-is. Show them you mean business.
With the right preparation, information and determination, buying a foreclosed property can be a rewarding—and profit generating—experience.