Foreclosure Overview

A foreclosure of a property occurs when a borrower is in default of their loan and has not made a mortgage payment for more than 120 days.  Borrowers find themselves in this situation for various reasons, however the most common causes are unexpected job loss, divorce, or just they are simply over-extended in debt. 

When someone enters foreclosure, they have forfeited their ownership rights and the lender has assumed possession of their property.  Not only is the individual in a bad situation (no home, lost money, bad credit) but the lender has also lost money on their investment and are now responsible to unload the property.  Many buyers like to capitalize on this situation and purchase a foreclosed upon home that the lender is quickly trying to resell.  Here a few different options if you are considering purchasing a foreclosed property as your first home:

1.      Pre-Foreclosure negotiating with the lender (known as a short sale) – this option can be very time consuming to negotiate with the lender, however you do avoid having to compete with other potential buyers at an auction.

2.      Pre-Foreclosure negotiating with the home owner – This is a viable option barring the owner has some equity in the property and does not need a lender to lower the owed balance.

3.      Auction at the county courthouse – A trustee is hired by the lender to sell the property at a public sale. 

4.      REO (Real Estate Owned) or Bank Owned Property – If all three options fail in the attempt of selling the home.  The bank has no choice but to buy the home back and list for sale with a real estate agent.

Keep in mind that foreclosed properties are not always in the best condition.  In most cases the owner has been forced out of their home, and this sometimes results in the home being vandalized, missing appliances, water damage, among other possible damages.  So for the right buyer, foreclosures can be a great investment at a substantial discount.  However, remember that forelcosures can require more work than buying a home listed in a conventional manner.