Serious home buyers will always find ways to get the best value in their real property purchase decisions. They will always go for those options which they perceive can offer them good deals in terms of the intrinsic value both in the short term and long term.

One of the emerging options for bargain hunters are foreclosed homes. The inventory of foreclosed real estate properties are still within the upper range and lending companies and banks are anxious in unloading these properties to prop up their liquidity and improve their financial position. At best, buyers can snatch a good deal which can be as high 20% lower than the real market value of these real estate properties. However, the increased potential of earning windfall profits from the purchase is also accompanied by the increased risk of getting “dud” purchases.

If you are going to include in your options foreclosed real estate properties then it is crucial that you properly understand the rules of the game so that you don’t end up like a headless chicken running into a potentially disastrous real estate deal. Aside from the risk that you have to manage, you will also have to contend with the intense competition posed by experienced real estate stakeholders and investors.

If you are dead set in going the “foreclosure” route then it is critical for you to observe the following ground rules.

1. Launch a Comprehensive Search

You logical option shall be through online search of foreclosed homes for sale. You can get the list from websites that specialize in this particular privileged market and industry information. How can you narrow your search for the best buys? Your best bet shall be in locations where there is higher number of distressed real estate properties. In most instances, lending companies and banks are more aggressive in pushing for the disposal of these properties as they are being significantly weighed down by this financial baggage.

2. Stay Away from Court Auctions

This purchase option is better left to experienced and seasoned real estate investors. There are other ways we can get bargain deals from foreclosed properties without having to increase our chances of getting burned financially. Although, you can get the best bargains when you participate in court auctions of foreclosed real estate properties, there are a lot of negatives that can work against you especially if you don’t have the experience and wherewithal in taking calculated risk in your bidding options.

3. Get the Latest Market Updates

Knowledge is power and it is the single most important item that you must have in order for you to make informed buying decisions. It is extremely important for you to understand that foreclosed properties do not necessarily connote bargain sale. Make sure that you are not assuming an overpriced or bloated mortgage loan when you are buying a foreclosed property. You must remember that market value of real estate properties have gone down to record lows from their 2006 record levels.

4. Get a Pre-Approved Mortgage

Real estate experts stress the importance of getting a pre-approved loan before working on the purchase of foreclosed properties. Most lending companies have already instituted stringent requirements in the approval of mortgage applications particularly those involving distressed real estate properties. It is important that you are properly informed by your lender on the terms of mortgage plans for foreclosed properties.

5. Undertake a Thorough Inspection

Never finalize your decision to purchase a foreclosed property without a thorough inspection. Most of these properties will require repair and it is essential that you include the cost of repair in the assessment of the financial viability of the purchase.

Learn how to sell your own house here: For Sale By Owner

If you’re looking to buy a home from an FSBO listing check here: FSBO Listings

Foreclosed Homes FAQ:

Question: Where can you find free listings of foreclosed homes in your state?

Answer: Any real estate agent can get you a list, although most states will be broken into specific areas.

Question: Process for buying a foreclosed home?
I am trying to buy a foreclosed home that did not sell at the courthouse door. I put in a bid, and it is at the bank. How long will it be before I hear something? I just don’t understand this whole process.

Answer: That’s a little unusual. Banks don’t sell their foreclosures direct, they list them with Realtors. If you have submitted an offer directly to the bank, then you need to follow up and make sure it’s being considered. Historically they will sit on offers waiting for a higher one. Why? They’re trying to minimize their loss. On the other hand they may be clearing up the title. When a mortgagee acquires property through a foreclosure auction, they don’t get complete title to the property. They get a certificate of title. It takes a court action called quiet title, to perfect ownership. That may be the reason for delay.

Question: Any tax break for a foreclosed home?

Answer: If you bought one, the tax benefits are the same as buying any other home.

Question: Buying short sale homes vs. foreclosures…will banks move much on the price?
Are short salehomes as negotiable as foreclosures? I have purchased 3 foreclosed properties and negotiated awesome prices. I have never looked into or tried to purchase a potential short sale. Will banks move as much on them as they will a foreclosed house?

Answer: Just like in foreclosure you can get get discounts in short sales. The difference is the amount of time for it to get accepted. Short Sale can take anywhere from 3-6 months to get accepted and tons of paper work. I’ve made an offer and closed on a REO within 30 days. Both are very good techniques, I prefer short sales for a few different reasons.

Question: Ramifications of foreclosing on my wife’s home.?
My wife purchased a home before we were married. We are now both living in the house. I am not on the mortgage. The house is worth less than what we owe and we would like to buy a bigger one. I am preapproved for a mortgage on my own but can the bank come after us or her if we foreclose on the home? Will it just affect her credit. We are fine with doing it if it just ruins her credit and nothing else.

Answer: You don’t foreclose, the mortgagee (lender) does. Yes, her credit will take a hit, but she also risks a deficiency judgment. If you buy a home together (both in title) any judgment won’t attach to your new home. The judgment only attaches to property (real and personal) she owns herself. Double check with an attorney before proceeding.

Question: How to apply for foreclosed homes?
My husband and I have been trying to find a house and obviously been looking at foreclosed homes. How do I go about applying for them? Is it hard getting one? I am new to this and would like some information.

Answer: You don’t *apply* for one. You employ the services of a realtor after you have been to the bank and gotten your pre approval letter for a mortgage, and then you go look at foreclosed properties. If one is in your budget that you like, you work with the realtor to make an offer.

Question: Where can I find foreclosed homes?
Does anyone know of of any websites that list actual foreclosed homes without a fee?

Answer: Your BEST source for foreclosures is your local real estate agent. Precious few foreclosed homes can be purchased directly without using real estate brokerage. If a smaller local bank has a few ‘in house’ foreclosures, they will deal directly with you. ALL of the larger lenders will not deal directly with buyers. Their REO property is handed off to real estate agencies for disposition.

You can attend foreclosure auctions if you wish, but the deals there are rare. The MAJOR bidder on any auction property will be the lender holding the mortgage(s). They will bid up the price until the sale prices meet what they need to satisfy their loans. As well, you need cash to buy at auctions. No time to arrange financing.

Question: I’m buying a foreclosed home, I think the property tax are way too high considering today’s economy and other homes in the neighborhood. How do I go about getting my property taxes lowered?

Answer: Most likely you are going to get a larger tax bill at signing then when your purchase price gets recorded the amount will be reassessed on your purchase price. They are most likely charging you for what the home sold for last. Making the taxes larger. That’s the way it was done on our sale in CA. Took about 4 months to get the credit back once the property was recorded with our purchase price an reassessed on the smaller purchase price.

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