"Buying a Foreclosed Home: How a Foreclosure Sale Works"

“Buying a foreclosed home can be a good way to score a deal while hunting for real estate. A foreclosure is a house whose owners were unable to pay the mortgage or sell the property. As a result, the real estate lender assumed ownership and is now trying to sell it to recoup some of its costs.

Buying a foreclosed home

While foreclosure isn’t as common today as it was during the height of the real estate crisis in 2008, it does still happen. Currently, according to RealtyTrac, 1 in 13,000 homes ends up in foreclosure. In states with the highest foreclosure frequency, such as Maryland and New Jersey, that ratio is 1 in about 550 homes. That’s a lot of foreclosed homes.

While foreclosure is hardly a pretty story for the home’s previous owners, it can be a bargain bonanza for buyers. Since banks are often eager to unload these foreclosure properties, they aim to break even with an asking price that’s typically the sum of the remaining mortgage note plus interest, lawyer fees, and penalties. On average, this ends up totaling about 15% below the home’s actual value—and if you want to buy a foreclosure, you’ll find it often sells for less than asking price…..

• Research how long the foreclosure sat vacant, whether it endured freeze and thaw seasons unattended, or experienced anything that may have caused significant structural damage. Homes in a dire state of disrepair won’t be eligible for a conventional mortgage.
• Hire a home inspector to thoroughly check out the foreclosed home for major problems. Have the inspector give you an estimate of how much money it will take to make repairs.
• You can try to add loan and inspection contingencies to your offer. That way, if you do encounter problems with the home or attaining a mortgage for it, you can back out of the deal without losing your deposit. Just keep in mind that asking for contingencies does not mean the bank will accept them; they’re not the norm when you buy a foreclosure.
• Hire a professional to conduct a title search, says Ben Niernberg, executive vice president at Northbrook, IL–based Proper Title. This may allow you to avoid all kinds of nightmare scenarios—sometimes the bank will clear the liens, but it isn’t required to do so. For instance, let’s say the IRS has a lien on the property for back taxes. That debt doesn’t follow the owner once he sells. Instead, the lien sticks with the property, making the new owner responsible for repayment.”

Heidenry, M. (2019, February 21). Buying a Foreclosed Home: How a Foreclosure Sale Works. Retrieved January 21, 2021, from https://www.realtor.com/advice/buy/what-does-buying-a-foreclosed-home-entail/#:~:text=Buying%20a%20foreclosed%20home%20can%20be%20a%20good,sell%20it%20to%20recoup%20some%20of%20its%20costs.