Yeah, I'd say the best thing to do is buy at pre-foreclosure (when talking to the owner) or when the home has been taken back by the lender or bank (REOs). This way you avoid the risks of liens on the property and or not being able to view the property itself. Right now there are a ton of properties going into foreclosure, as I'm sure you know, scan your local paper for ads, search local newspaper websites, check with banks where they list REOs, and there are a number of sites that list foreclosures or REOs and give you tips: http://www.investmentpropertiesinfo.com/locating_foreclosures.html

Hi Kim,

Foreclosure homes are a great deal. Since the owner could not pay the mortgage, the lender took possession of the property and is now tryingto sell it. Use a Realtor who is experienced with REO properties.

Foreclosure homes can be a great deal.
Please remember though, the home is being sold in "As Is" condition.
As repairs to the home will be your responsibility after closing.

Also, it does take longer to hear back from the bank IF they will accept your offer than
a traditional contract. Usually the bank collects offers for a short time, then accepts the one that is best for them.

It depends on where you are buying the home--on the courthouse steps or after the foreclosure has been completed by the bank. If there is a home that you are interested in, you might ask a realtor who works regularly with a title company to do a basic title search for you which they might be willing to do gratis if the realtor does a lot of work with them. Also, you can check county records for information and find out how much the bank made the mortgage for originally, indicating what they need to get out of it. Also frequently the REO homes in my area are listed with real estate agencies--be sure to check for info in the multiple listing service. Good luck--if you get lucky, it could be a great deal, and it has the potential to be a nightmare and take a long time. Remember, it is an "as is" sale, as compared to a regularly purchased home where you have title insurance, home warranties, and state laws that protect you as the consumer.

Your best bet is to buy either pre-foreclosure or post foreclosure (REO bank owned). Avoid buying at the courthouse unless you really know what you are doing. When you buy at the courthouse you are purchasing the property with possible liens, judgement etc. I have personally seen on more than a few occasions buyers bidding on a second mortgage thinking it was a first and other horror stories. Your best bet in an up market is pre-forecloures. In a down market (like now) your best bet is REO's. However you need to have cash proof of funds to participate in this game. The bank will ask to see this before even looking at any offers. Home equity line works if you have one.

Lex

Lex, is it best to have an agent when you do these foreclosures? I have one now while purchasing my first home. I am interested in buying another investment property shortly after. What do you recommend? I am a teacher. Could I show my retirement funds as cash proof or would the potential rent from the rental home be enough proof? I don't have any cash in savings. Just two different retirement accounts. One is an annuity.

Phil, Unfortunately IRA Funds will not work. You will need a cashiers check for the full cash price of the house.

Lex

If buying a pre-foreclosure, make sure and get a prelim title early. Before you get too invested with inspections, mortgage fees, appraisal fees, etc., you want to know that you can clear title and that there are not other liens on the property.

It's risky to buy at the courthouse steps and not for the faint at heart.

REO properties are straight forward, but banks are not always quick in their responses. Once a property has been foreclosed and is lender owned, the title is clear.

Kim, As a Mortgage Professional I see many times people trying to purchase these type of properties to save money. While this maybe a good idea I have seen to many people try to do this alone or deal with someone who is not qualified. I recomend a professional FULL-TIME Realtor who specializes in these type of properties and can show you all the comps in the area.

One of the biggest miss conceptions with buyers of foreclosed property is that you can offer whatever amount and the bank will take extreme low prices. This simply is not the case! For those of you who watch too much TV at 2:00 am in the morning learning how to "Get Rich" from real estate foreclosures take note! REO property for the most part is already priced below market prices. Banks get appraisals and in many cases two different Broker/Agent opinions for pricing. Yes the bank wants the property sold. Trying to get as close to fair market value as they can get. Think about this! What would happen if the banks decided to just take whatever offers they got and sold off their inventory at $100k below their asking prices? The entire economy would fall to pieces. It's not just about satisfying their investors it's about maintaining market value and thus strength in our economy. What you can expect is 3%-5% off the price either in closing costs or price reduction. We all have a line of people out the door willing to pay $.50 cents on the dollar for a property. The best deals are foreclosed homes in many cases, just do your homework and work with an experienced REALTOR who can serve your best interest and show you the market values. Now Go Buy A House!

Buying foreclosures is not a great idea, however you should work with a Realtor well verse in short sales and buy throu a short sale. Don't wait until the bank owns the house. There are plenty of opportunities in short sales and great buys this is the best time to invest in real estate. Look for a realtor who understand the short sales system.

Buyer beware, if they did not have enough money for the mortgage, what items require repair? A neglected home may require more repair dollars than purchasing a well maintained home. Make sure you have a real estate professional do a comparitive market anaysis. Pay attention to the physical inspection, pest, mold, heat inspections. Make a cost analysis on time, money, repair talent. Do you need to hire professionals? Remember that a home can sometimes be in foreclosure for about a year. Think of neglecting a home for a year or more.

Hi Kim,

From my experience, you have to be careful with buying a foreclosed properties. Banks are not always in the position to negotiate if the home is priced at market value. But, in many cases, you can pick up a great deal on a home, just be aware that you may still have out of pocket expenses once you purchase the home.

In many cases, (as is the case in NJ), the buyer is responsibie for all inspections, certificate of continued occupancy, and repairs as a result from failed town inspections.

Trips to the town's planning board or zoning board will be required to make sure you are fulfulling any items you need to correct after a town official approves a CCO or CO. Town officials are usually the end all on inspections items. Unexperienced agents may find it frustrating in handling town officials effectively.

As others have stated as well on this issue, banks are sometimes slow to respond to offers and counter-offers.

It's true that foreclosures are on the rise, but lending guidelines have also tightened. So would-be buyers from yesteryear who could easily be approved for a mortgage loan may find it difficult to obtain approval today, unless you have undoubtedly very good credit.. I hope you are in a position to receive a great rate on a loan.

Good luck with your foreclosure purchasing endeavors.

-Carmelo
ct@ctorres.com

Hi Kim,
Real Estate Author and creator of edsforecast.com. I teach, commentate on National TV and forecast valuations for private and government entities. REO's, short sales and pre-foreclosures require personal devotion time and skills. All of which can eventually create reward. However in the present market crisis you need to be very smart. You will likely need to hold the property for a while. Flipping is no longer an easy option. So be sure to have positive cash flow from rent, or have money to back a longer term commitment. You can see forecast valuation for any USA property on my web site and plenty of reports to help you. All no charge. Enjoy. Ed Ross

Foreclosure can be a great opportunity. You just simply need to know what you're buying.

There are essentially 4 stages of foreclosure: "pre" preforeclosure, Preforeclosure, foreclosure, and REO

- "Pre" Pre-foreclosure is before the homeowner has formally received notification that the process has started. In theory, this can be anyone that's about to start missing payments or anyone that is behind on payments and that the bank has not started the formal process. This may range a few weeks to a year or more. We have one client where the bank took 14 months to start the formal process. Certainly, this is not the norm.

- Pre-foreclosure: This is when the formal process has been started by the lender. This is the period from which the lender has notified the homeowner up until the actual sale. Again, this can be very quick or can be drawn out for a very long time. Attorneys fees, late payments and interest add up quickly in this phase. In this stage, it is most likely that a lender will accept a short sale on the property.

- Foreclosure: We refer to this as the actual sale. Depending on where you are looking to buy, there may or may not be a redemption period during which the owner can reclaim his/her property by paying off the debt, fees, etc. You will typically need to pay cash the day of the sale here. The bank is most likely in attendance to protect their interests and set the starting bid.

- REO: If the property does not sell at the actual foreclosure sale, then it becomes an REO (Real Estate Owned Property). The bank now owns the property and has to find an agent to put it on the market.

At each phase, you can find great deals potentially. You just need to know what to look for, what considerations to take into account, and potential pitfalls.

The inspection issue has been discussed in previous answers. I would always go with an inspection even if you're not going for a foreclosure. This is the best way to protect yourself. But typically, the inspection on a foreclosure is not going to help you get any money credited back or any repairs done. Most properties are as-is period. If you're getting it prior to the sale, the owner probably doesn't have the money to repair items. After that, the bank is not going to repair items for you!

I know that's probably a long answer, but I hope it helps!

Heather Seitz
(561) 459-9203
heather@yamon.net

Foreclosures present the most opporunity for gains, but also the most opportunity for risk. The best place to start is reading up on respected resources and then swing by your local county auction. Plan on spending atleast 20% of the value of the home to fix it up if you make a purchase.

Goodl luck.