Essentially, there are three opportunities for buying foreclosure properties: 1) the pre-foreclosure stage; 2) at the public auction; and 3) bank-owned, or real estate owned (REO). The first step is to determine which stage of foreclosure process you are interested in and figuring out strategies to successfully purchase in that stage. Each of the three buying opportunities has advantages and disadvantage. For an interactive demo on the risks, rewards, and returns in foreclosure investing click here Here’s a brief overview of the three stages:
Pre-Foreclosure (NOD, LIS)
Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. 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 20-40 percent below market value.
Wondering what happens after foreclosure? Then please read on. Remember that understanding foreclosures is the first step for homeowners to stop foreclosure. It is also the first step for investors to buy foreclosure properties.
Learn more about buying pre-foreclosure homes
Auction (NTS, NFS)
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 often offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.
Learn more about buying foreclosure auctions
If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender will usually want to re-sell the property to recover the unpaid loan amount. The lender will then typically clear the title and perform needed maintenance and repair; however, the potential bargain for these REO homes is typically less than a pre-foreclosure or auction property. Bank foreclosures can become government foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban Development (HUD) or the Department of Veterans Affairs (VA). In that case the government agency would be responsible for selling the property.
Learn more about HUD foreclosures and VA foreclosures.