FORECLOSURES BUYING PROCESS

Many home buyers associate buying a foreclosure with getting a deal. This can be true, but there are potential pitfalls. Foreclosure is a process with four distinct phases. The terms and length of each phase vary by state and sometimes by lender. The pros and cons of buying a home involved in foreclosure vary with the phase of foreclosure the property is in when purchased.

 

PHASE ONE: MOTIVATED SELLER (MISSED MORTGAGE PAYMENTS)

Buyer Advantages:

- Financing available for purchase.
- Due diligence inspections included in process.
- Seller obligated to provide full disclosure.

Buyer Challenges:

- Seller may have little, if any, ability to negotiate price depending on their outstanding obligations on the home.

PHASE TWO: SHORT SALE - PRE- FORECLOSURE NOTICE OF DEFAULT

Buyer Advantages:

- Motivated seller.
- Financing available for purchase.
- Due diligence inspections included in process.
- Seller obligated to provide full disclosure.

Buyer Challenges:

- Lender must approve purchase price and terms of sale including any closing cost credits and purchase may take between 45 - 90 days to close.

 

PHASE THREE: FORECLOSURE AUCTION

Buyer Advantages:

- Property sold for outstanding mortgage balance owed to  
foreclosing mortgage holder and therefore the price for the property may be very low and no commissions or attorney's fees paid. 

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Buyer Challenges:

- Auction price must be paid in cash; generally no mortgage financing is accepted.
- As-is sale; no inspections and no disclosures given to buyer
Liens, back taxes and other obligations may be acquired by buyer.
Buyer must research title prior to auction.

 

PHASE FOUR:  BANK OWNED PROPERTY/REO (REAL ESTATE OWNED BY LENDER)

Buyer Advantages:

- Title will be clear and buyer will not assume any liens, mortgage or back taxes of prior owners.
- Mortgage financing available.
- Inspections may be conducted.
- House is vacant.
- Property listed on Multiple Listing Service (MLS); bank will pay real estate agent commissions.
- REO sales close within normal escrow timeframe.

Buyer Challenges:

- As-is sale; no repairs.
- Banks usually require additional paperwork.
- Banks cannot provide disclosures on property history or condition.