Foreclosure Properties and How to Buy Them

A number of people have asked me how to buy a foreclosure property. Of course, the answer begins with "that depends," because foreclosure is a process with several stages through which distressed properties may pass, including:

• Short sales (usually during pre-foreclosure) 
• Last minute fire sales (seller trying to extract a little bit of equity before the property is lost to foreclosure) 
• Foreclosure auctions (bank has just acquired possession and is trying to sell "on the courthouse steps" in order to avoid carrying the property on its books as Real Estate Owned (REO, a nonperforming asset from the perspective of a bank) 
• REO (foreclosed property) sales, after the property has been taken onto the lender's books, the bank having now decided to list and sell the property 
• HUD homes, repossessed by the government.

The the answer is different at each stage, and of course there are other ways to acquire distressed properties not involved in the foreclosure process (such as trust sales, cash for keys, etc.).

A big factor is location.  Where foreclosure properties are scarce, bidders are many (60 at a recent trust auction I attended), meaning any bargain achieved by the buyer will be relatively small, and the risk of bidding too much is great.  Where foreclosure properties are plentiful, you're generally dealing with a depressed marketplace, meaning that prices will be low but so are the prospects for near-term appreciation.

And of course nearly all distressed properties, including foreclosures, are fixer-uppers.

Here's a good overview by CNN Money on the topic of foreclosure-related distressed property sales:: How to buy a foreclosure - May. 4, 2010.  For more info, contact your real estate blogger! - David

Foreclosure auction of Nicolas Cage's mansion is a flop - latimes.com

"Frat house bordello???"  Extreme though it is, here's the best example I've ever seen of why it's so important to depersonalize a home before listing it for sale!

Foreclosure auction of Nicolas Cage's mansion is a flop - latimes.com 

As much as we love living with decor that reflects our own tastes, homebuyers are looking for something to make their own.  They simply aren't interested in adopting our tastes and lifestyle! - David

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Beware when buying 'as is' | Inman News

Buying a home 'as is' is very risky business.  This is effectively what you're doing when purchasing a home from a bank (foreclosures or REO), trust, or auction, or if you check the "as-is" box on your offer form. Don't think an inspection can change this.  "As-is" means no recourse! - David