When can you buy a foreclosed home?
As a real estate investor you can buy a foreclosed house at three stages in the process: pre-foreclosure, at public auction, and post foreclosure.
Pre-foreclosure is usually when the house is for sale and the owner is behind on three or more payments. If the homeowner doesn’t attempt to rectify the situation the bank will record a notice of default. At this point the homeowner is usually a motivated seller but is also panicked and in some denial about the situation.
Public Auction is the next step at which an investor can buy the foreclosed home. This happens after the notice of default has been filed. Then the court sets a date for the foreclosure auction sale to take place. The day of the auction, the public is invited to attend. Typically, it is held outdoors on the steps of the courthouse by a sheriff or county clerk. The starting bid is usually the amount of the balance owed on the property along with the fees and court costs associated with the loan. If the starting bid does not win any bidders the price can decrease. The home is bid off in thousand-dollar increments and sold to the highest bidder.
If the foreclosed house for sale at the auction does not get a buyer the property is taken back by the lender. This is known as post foreclosure. Homes for sale in this situation are know as REOs for “real estate owned”. REO houses for sale are usually given to a broker. At this point the house for sale generally is listed at honest market value.
There are positives and negatives about buying foreclosures in all three stages of the process. It is possible to make a profit in all three stages as well. But, it is typically simpler to arrange to buy out the motivated seller’s equity and/or take over their payments at a rock bottom price. For investors the most time efficient and profitable stage is pre-foreclosure.
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