What Is the Process of Buying a Foreclosed Home?

With all of the foreclosed homes on the market these days, buying one of these properties is awfully tempting. But if you have never purchased a foreclosed property, you may be surprised at the stages of the sale that you have to go through in order to purchase one. Here are three of the main steps in the process to purchasing a foreclosed home.

Short Sale Listing
The first step in a foreclosure sale is that the home gets listed as a short sale listing. This means that the mortgage lender has decided to take a loss on the property and list it at a price that is less than what is owed on it. Typically, a short sale occurs within about three months after the property goes into default. During this process, the homeowner typically negotiates with potential buyers rather than the buyers negotiating with the original lender. However, the mortgage borrower must have the lender’s permission to do this first. The drawbacks for the buyer during this phase include the chance that the homeowner comes up with the money owed and pays it to the lender in order to stay in the house. Also, a short sale often takes longer than a normal home sale.

Auction Phase
When a foreclosed property reaches the auction phase, the bank has not taken back possession of it just yet. However, the home is put up for auction in an effort for the bank to get as much of the money owed on it as possible. This is one of the best phases for the buyer because there is a good chance of getting the home at a great bargain. However, it is important to know about any other fees and charges associated with winning the bid. Depending on the amount of the winning bid, you could end up paying more when you buy a home at an auction than you would with a traditional home sale. The other drawback to purchasing a foreclosure at an auction is that you usually have to have the money upfront before you can buy a home.

REO Status
This is typically the last stage that a foreclosed home goes through. At this stage, you as the buyer can hire a home inspector to inspect the home and you can request a title search to ensure there are no outstanding liens or financial holds on the home. This is the stage where you will find out any problems the home has so you can decide if you still want to purchase it.