Foreclosures can be an excellent way to get a good deal on a piece of real estate, either to live in or as an investment. But the world of foreclosures can get a bit complicated and is filled with legal jargon and processes that are unfamiliar to the typical homebuyer. Here we will explain the process of finding and buying a foreclosed property.
What is Foreclosure?
A foreclosure is a situation where the lien holder takes ownership of a property. This can be due to a variety of possible reasons, but it is usually due to non-payment. The process of foreclosure differs in every state. It generally starts with a series of notices being sent to the homeowner. A legal process follows that leads up to the actual foreclosure.
Phase One: Finding a Foreclosed Home
It is possible to buy a foreclosure before the actual foreclosure process has been completed. This is a common technique used by a lot of real estate investors to find motivated sellers. Sellers that are threatened by foreclosure are often motivated to sell the property rather than face foreclosure.
Next is the actual foreclosure at the courthouse steps. In most states, this process follows the completion of the legal process. In some jurisdictions, the deeds to foreclosed properties are auctioned off on the courthouse steps. This process is known as the trustee sale. Check with your county about the details of your local foreclosure auction regulations.
After the sale on the foreclosed property on the courthouse steps the new owner of the property is often the actual bank that initially loaned the homeowner the loan on the home. After the former tenant—probably the previous homeowner—is evicted from the house, a real estate agent is hired to sell the home.
A realtor will then place the home onto the multiple listing service (MLS). The MLS is the database that Realtors use to list the homes they have for sale on the market. Sometimes you can deal directly with the bank to get a list of their real estate owned (REO) listings.
Phase Two: Buying a Foreclosed Home
Finding a Real Estate Agent
If you want to understand your local housing market, real estate agents can walk you through most stages in the real estate purchase process. A real estate agent will work on your behalf to negotiate and close the deal.
“How much home can I afford?” This question is one of the most difficult problems, and realtors can often point you in the right direction to get preapproved for a mortgage loan by a third-party lender. Realtors can also produce a comparable cost analysis using similar homes to subject property in the immediate area.
Making an Offer
Regardless of the process used to purchase a foreclosure, you will have to make either an offer or a bid on a property. If you have a comparable cost report from your realtor, you know how much the property is worth. Let the numbers not emotion guide your rationale during negotiations.
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Before you undertake the foreclosure purchase process, seek the guidance of real estate professionals—realtors and even real estate attorneys depending on your state law. If you are new to the home-buying process, venturing to buy a foreclosure is a bit of a stretch. Do your due diligence before beginning the process.