How To Buy Foreclosures

Overview

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments and the lender files a public default notice. The foreclosure process can end one of four ways:

  1. The borrower/owner pays off the default amount to reinstate the loan during a grace period known as pre-foreclosure.
  2. The borrower/owner sells the property to a third party during pre-foreclosure, allowing the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
  3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
  4. The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction.
Foreclosure Buying Opportunities
The foreclosure process offers three bargain-buying opportunities, represented by six different property statuses on RealtyTrac.
  1. Buying during pre-foreclosure (NOD, LIS)
  2. Buying at public auction (NTS, NFS)
  3. Buying bank-owned properties (REO, GOV)

Read our Foreclosure Overview for more detailed information about the foreclosure process, or go to our foreclosure state laws section.

 

5 Steps to Buying a Foreclosure

 

STEP 1. Find a Property

Buying a home in foreclosure can begin with you logging into RealtyTrac and deciding where you want to search for property. RealtyTrac allows you to search by county, city or zip code. We recommend starting with a broader search (like county or city) and narrowing the search later if necessary.

After searching for a property, you can select the status of the property on our search results page.

  1. Select Pre-Foreclosure for Default Notices or Lis Pendens.
  2. Select Auction for Trustee Sales or Sheriff’s Sales.
  3. Select Bank Owned for Bank or Government REOs (repossessions).

Our Advanced Filters allow you to reduce your results using other search criteria, such as price range and number of bedrooms and bathrooms. We recommend that you leave all those other criteria at “no minimum” to “no maximum” when you first search to get the best results. We also recommend you don’t change the Recording Date Range when you first search.

If you want to receive daily e-mail alerts of new properties posted on RealtyTrac that match your search criteria, follow these instructions.

  1. After you select your search criteria, type a name for the search in the Name This Search box.
  2. Check the “Receive daily e-mail notifications of new listings that match this search” box.
  3. Click the “Save My Search” link.
  4. View and edit your daily alerts on the My RealtyTrac page under Saved Searches.

On the Search Results page, you can sort your results by date, address, price or number of bedrooms or bathrooms. You can also view the results on a map by clicking the “View Map” button at the top of the search results. Click “Get Details” on any property to see the detailed information for that property. On the property details page, you can click the “Save Listing to My RealtyTrac” link to save the property to the My RealtyTrac page.

The Property Details page should always include the address of the property and the name of the owner, trustee or lender involved with the foreclosure, depending on the property status. Also included should be an estimate of the unpaid loan balance, which will appear either as the Balance, Opening Bid or First Loan Amount.

The Estimated Property Market Values provided are based on comparable sales. Click on Comparable Sales to view a report that includes up to 15 recently sold neighborhood properties and an analysis of property values in that neighborhood.

The Trans Date and Trans Value represent the date and purchase amount the last time the property changed ownership.

The Balance or Opening Bid provides a good estimate of the amount owed on the loan in foreclosure. The Default Amount (usually only relevant for Pre-Foreclosure properties) is the amount the owner/borrower is behind on payments. Click on Lien & Loan History to view a report that lists additional debts encumbering the property.

The Recorded date is the date when the document with the foreclosure information was recorded with county records. The Entered On date is the date RealtyTrac entered the foreclosure information on the website. You can also click on most of the field names on the Property Details page for a definition.

Some fields of information are missing simply because the field is not relevant to the status of foreclosure. For instance, you will never see a sale date on Pre-Foreclosure properties because the auction date has not been scheduled yet. When the sale date is set, the property will appear with Auction status.

Some fields of information are missing because they were not available from the recorded document that has the foreclosure information. This usually applies to property details such as photo, year built, bedrooms and bathrooms and square footage. RealtyTrac continues to search other data sources to find as much of this information as possible on each property.

STEP 2. Get Financing

Obtaining financing not only gives you an estimate of what you can afford, it also enables you to move quickly once you locate a property that interests you. When you approach a borrower/owner or a foreclosing lender about a property, secured financing will demonstrate that you are a serious buyer and are ready to buy quickly.

You can apply for financing with RealtyTrac’s financing partner. The application is free. Subscribers can click on the Get Financing tab on any member page after you log in or click on financing links on the Search Results or Property Details pages. You will be able to apply online or by phone.

STEP 3. Contact an Agent

If you’re a first-time homebuyer and you’ve never purchased a home, let alone a foreclosure property, it is beneficial to contact a local real estate agent who can guide you through the process of buying a foreclosure. If you work with an agent, make sure they know your priorities. Ask any potential agents if they have experience with foreclosures. Especially for first-time buyers, a good agent can be a comforting and helpful resource.

You can contact an agent using the RealtyTrac Agent Network. There is no cost to contact an agent, although you should ask the agent how much he or she charges for commission. Subscribers can click on the Contact An Agent tab on any member page after you log in or click on any corresponding links on the Search Results or Property Details pages.

STEP 4. Contact Owner

Depending on the property status, the seller will be the owner in default, the trustee or the foreclosing lender. To determine the property status on RealtyTrac, look at the Foreclosure Status gauge on the Property Details page.

Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property. The borrower/owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can realize discounts of 20 percent to 40 percent below market value.

If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a public auction offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.

If the lender or government agency takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender usually sells the property to recover the unpaid loan amount. The lender typically clears the title for any buyer, but the potential bargain is often less than a pre-foreclosure or auction property.

Contact Owner: Pre-Foreclosure
When a property is in pre-foreclosure (NOD, LIS), the owner still has a chance to stop the foreclosure process by paying off what is owed or by selling the property. The pre-foreclosure period can last several months, so you may need to be patient when trying to contact the owner in default.

The first step is to call the trustee or attorney listed on the Property Details page to confirm if the property is still in foreclosure. The trustee or attorney has the most up-to-date information if the owner has sold or reinstated the property. The trustee or attorney cannot answer other questions about the property.

If you haven’t done it already, you’ll want to evaluate the property’s value and check for any additional loans or liens encumbering the property so that you can make an informed decision about whether the property is a wise investment. On the Property Details page, click on the Comparable Sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood. Click on the Property & Loan Info section to view Open Loans on the property.

If the trustee confirms the property is still in foreclosure, and you believe the property could be a wise investment, you should contact the owner in default as soon as possible. The easiest way to make contact with the owner using RealtyTrac is to contact the agent listed on the property by providing your name, phone number and email address in the lead form and clicking Contact Agent. This is not the listing agent for the property, but it is an agent who can contact the homeowner for you – either by sending a letter to the owner or going directly to the property. Agents are more familiar with the process of contacting a homeowner in default and generally understand the best way to approach these homeowners to find out if they are willing to sell their property.

If you’d prefer to contact the owner yourself – an option we don’t recommend unless you have previous experience – you can send a postcard or mail a letter yourself to the owner’s mailing address listed in the Ownership Information section on the property details page. It’s important to send the letter to the mailing address as the owner may not live in the actual property.

Learn more about contacting a pre-foreclosure property owner

If the owner is not willing to list the property, you can wait to see if the property is scheduled for auction and attend the auction to purchase it.

Contact Trustee: Auctions
Before the auction, you may have a chance to work out a last-minute deal with the owner in default. Usually a property is scheduled for auction just a few weeks before the auction occurs, so you may have to move quickly if you want to contact the owner.

Auctions can be postponed or canceled anytime, so no matter what the auction date listed on RealtyTrac (even if it’s in the past), it’s always a good idea to contact the trustee or attorney to confirm. We recommend you call when you first locate the property and the day before the property is scheduled for auction. The trustee/attorney has the most up-to-date information if the auction has been canceled or postponed. The trustee/attorney cannot answer other questions about the property.

Some auction properties on RealtyTrac allow you to bid online for the property. If this is the case, you’ll see a “Bid Now” button on the search results page and “Bid Now” links on the property details page. Just click on any of those to be taken to a bidding page where you can see more details about the bidding and submit a bid if you wish.

If you haven’t done it already, you’ll want to evaluate the property’s value and check for any additional loans or liens encumbering the property so that you can make an informed decision about whether the property is a wise investment. On the Property Details page, click on the Comparable Sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood. Click on the Loan & Lien History section to view a report that lists additional encumbrances on the property.

If you believe the property could be a wise investment, you can attend the auction to bid on the property. RealtyTrac usually has the auction date, time, location and opening bid. If any of this information is missing, you can often get it from the trustee or attorney. If you’ve never bought at auction before, we recommend you attend several auctions just to observe before you attend an auction to bid.

View Foreclosure Auctions for more details.

Contact Owner: Bank Owned
If the property is Bank Owned (REO), your first step is to contact the lender, whose information is usually on RealtyTrac’s Property Details page. You should contact the lender directly and ask for their REO or asset management department to find out how you can view and possibly make an offer on the property. REO means “Real Estate Owned” by the lender. It’s another way to say the property has gone through the foreclosure process and has now been repossessed by the foreclosing lender.

If you haven’t done it already, you’ll want to evaluate the property’s value and check for any additional loans or liens encumbering the property so that you can make an informed decision about whether the property is a wise investment. On the Property Details page, click on the Comparable Sales section to view a report that evaluates the home’s market value based on comparable sales in the neighborhood. Click on the Loan & Lien History section to view a report that lists additional encumbrances on the property.

Some bank-owned properties on RealtyTrac will give you the option to contact the property’s listing agent directly. You’ll see a link to do this either at the top of the property details page or in the Contact section of the property details page.

RealtyTrac usually has the name of the lender/bank listed on the property under the Foreclosure Parties section. But if you have trouble finding a phone number or address for them through the Internet or otherwise, below are suggestions for tracking down the lender.

1. Contact an agent to find a local real estate agent in the RealtyTrac Agent Network who can help you contact the lender and who can check if the property is already listed on the market with a real estate agent.

2. Check out the Transaction History section of the details page to check if RealtyTrac has any further information on that property. This section will give you a list of historical records RealtyTrac has for the property. Other records may have more information, such as the lender name, address and phone number that was missing on the original property record.

3. You can contact the local property assessor to find out the owner’s name and mailing address. Since the property is bank owned, the property assessor should have the bank or lender listed as the owner. Go to statelocalgov.net to find the local property assessor in your area.

Contact Owner: Government Owned
Many government-owned properties are already listed with a real estate agent, and you should see a link to contact that agent in the Contact section of the property details page. If the listing agent’s information is not available, you can contact a local agent using RealtyTrac’s Agent Network (click on the “Contact an Agent” tab at the top of any member page on the website). Or you can try to contact the government agency listed directly.

 

STEP 5. Make an Offer

If you have never purchased a foreclosure property before, we recommend that you have a real estate agent help you prepare and make an offer. Contact an Agent to find a local real estate agent in the RealtyTrac Agent Network.

To get an estimate of the potential bargain for any property, check the Equity & Loan-to-value on the property. Since the bank will be looking to break even by getting back the outstanding loan balance, you should be focusing on properties where the Equity (estimated market value – outstanding loan balance) is positive. This means if you buy the property for the outstanding loan balance, you will have instant equity in the property. Even if the bank wants more than the outstanding loan balance, you can have equity in the property as long as you pay less than the market value of the property. If the property has negative equity, where the owner owes more than the property is currently worth, then getting a deal is still possible but may be harder to come by unless you’re an experienced investor.

Based on your research of the potential bargain, you can make an offer. If the property is a pre-foreclosure or bank owned, you could prepare an offer similar to a typical purchase offer, contingent on a full inspection and title search.

If the property is selling at auction, you will need to make your offer, or bid, at the auction. In many states, bidders are required to pay in cash in the form of a cashier’s check at the auction. You probably won’t be able to conduct a full inspection and title search when you buy at an auction, so it’s important to do careful research before attending an auction.