“Foreclosed home for sale” means a home is being sold because the previous owner could not make their required mortgage payments. In such a sale, the sale proceeds go to the bank or other lending institution to pay off the balance still owed on the previous owner’s mortgage loan. Of course, if any amount is left after the mortgage is paid off, it would go to the previous owner.
Sometimes a foreclosure sale is conducted with the involvement of a court. This is known as a “judicial sale .” In other instances, it is a bank that originated the previous owner’s mortgage, another lending institution, or a loan servicing company that conducts the sale. These are known as foreclosures by “power of sale.”
Foreclosures may be somewhat different in different states, but in all of them, there are phases to foreclosure. In one of the initial steps, the foreclosing entity must record a notice of the impending sale of the foreclosed property with the county recorder in the county where the property is located. The lender must then publish notice of the sale in a local newspaper of record. Searching for foreclosure notices in local newspapers is one way to find properties in foreclosure to buy.
In some foreclosures, the lender attempts to sell the property at public auction, known in some states as a trustee’s sale. Then, if the property does not sell at auction, the lending institution or loan servicer becomes the owner. They then work to sell the property, often through standard measures, such as listing it with the Multiple Listing Service (MLS). For most people who want to buy a foreclosed home, this is the stage of foreclosure in which they learn about a property and take steps to buy it.
Should I Buy a Foreclosed Home?
One of the main reasons people might want to buy a foreclosed home is that they are sometimes for sale for reasonable prices below the fair market value of comparable homes in the area. This is because the nature of the foreclosure process often creates pressure for the home to be sold quickly, allowing the mortgage company to recover its money and put it to interest-earning uses.
The exact advantages of buying a foreclosed home depend on the phase in which it is bought. Again, it is also important to remember that the foreclosure process differs in different states. So a person would want to know how foreclosures proceed in their state.
What Is a Short Sale?
A person might buy a home from its owner in a short sale. A short sale is when the homeowner sells their home for an amount that is less than the amount they owe on the mortgage. They may do this because the home’s value has decreased due to market changes since the owner bought the home. The homeowner still owns the home because the foreclosure process has not been completed.
A person would probably want to work with a realtor to buy a home in a short sale. It is important to note that the mortgage lender would have to approve a buyer’s offer because the mortgage lender still has an interest in the home. The time it takes to conclude the sale might be longer than for a typical real estate transaction. So, if a person is in a hurry to buy a home, buying one in a short sale may not work for them.
How Does a Foreclosure Auction Work?
Buying a foreclosed home at auction offers a homebuyer the opportunity to pay a purchase price far below fair market value; however, an auction transaction usually must be in cash only. So the buyer simply has to have the entire purchase price in cash. This would be a stretch for most average buyers.
In the rare case that an auction allows a buyer to finance their purchase with a mortgage loan, a person wants to ensure they have initial approval from a mortgage lender. Experts report that a verified approval is best. A verified approval indicates that the buyer’s income and assets have been verified. It communicates to the seller that the buyer is more likely to obtain a mortgage loan for their purchase.
Buying a property at an auction also means buying without an appraisal and a home inspection. A person cannot back out of the purchase if they occupy the home and discover it has significant problems. So a person is taking a risk. A person might want to consult a real estate attorney to buy a house at an auction.
After a foreclosure has been completed and the lending institution owns the property, a person deals with the lending institution. The former owner is no longer involved. The lender has usually cleared the title and evicted the prior owner. Most lenders do not sell foreclosed homes directly to an individual. So a person may need the help of an experienced real estate agent to view available properties.
These homes are usually sold as-is. This means that the prior owner and the lending institution that may own it after foreclosure have not repaired or corrected known problems. However, a person usually has the opportunity to view the home and order an inspection before closing the deal, so they can avoid buying a home that has significant structural issues.
What Are Some Risks of Buying a Foreclosed Home?
As noted, there are risks to purchasing a foreclosed home. For example, some homes that have gone through foreclosure may have been maintained poorly and need redecorating at least, if not renovation. No one has worked to make the property marketable, as most owners do before selling their homes. This could mean that a person would have to spend more money redecorating and renovating before they can occupy the house. A person may have to invest a significant amount of money in the home after they buy it.
A person always wants to ensure that any outstanding foreclosure issues have been resolved and that any other issues with the previous owner’s mortgage have been addressed. A person wants to be sure that they have acquired title to the property that is free and clear of all encumbrances.
The title must be “marketable.” This means that the title of the person who buys the house is not disputed. In some situations, a person might have to file a “quiet title” action in court to ensure their title is marketable and the home can be sold again. But if a person is careful when buying a home during or after foreclosure, this should not be necessary.
Do I Need a Lawyer for Help with a Foreclosed Home Sale?
If you are considering the purchase of a foreclosed home either after the foreclosure is complete or before, you would find it helpful to consult a foreclosure lawyer for advice. A qualified attorney can explain the foreclosure process in your state and inform you of the pros and cons of trying to buy a home at each stage.
If something should go wrong with your foreclosure sale, your lawyer can represent you in negotiating a solution to the problem. Or, if a lawsuit results, your lawyer can represent you in court, for example, if you need to file an action to quiet title.
