Foreclosures: We Have to Warn You!

Seems everyone these days thinks they can score a house on the cheap by buying a foreclosed property. There are good deals to be had, but we have to warn you, the process is complicated and risky. Foreclosure properties are much like fire, and you know the old saying, "play with fire, and you could get burned."

There are three different stages of foreclosure, each of which presents different opportunities for buyers. The first step is to figure out which one makes the most sense for you, if indeed any of them do.

Pre-foreclosure

A home goes into pre-foreclosure when a borrower has fallen behind on his payments, but the house has yet to be auctioned off.

Buyers can find pre-foreclosures by sifting through the delinquency notices that lenders file with county courthouses when a borrower misses a payment.

Some owners are open to doing what's called a short sale, which is when a buyer pays less for a house than the mortgage that is owed on it. Lenders have to agree to a short sale, and will then forgive the rest of the debt.

Often, banks are reluctant to approve of such deals since it requires them to take a loss. This process can take months and a lot of badgering before a deal goes through, and not every buyer is up for that kind of hassle.

Sheriffs' sales

Another stage of foreclosure is when homes in default are auctioned off on the county courthouse steps. These homes can be real bargains, but the process is a crap shoot.

Bidders can't inspect the property, so there's no telling how much work it needs. And there is also no telling what kind of liens there are against the home, due to unpaid taxes and so forth, which can also jack up the cost of these homes. Finally, buyers need to come with cash, ready to put 10%-20% down on the spot, and able to pony up the rest in a matter of days. This method of buying a foreclosure is not for the beginner or first time homebuyer!

Post-foreclosure

After a lender takes back a house, the property goes on the market as what's called an REO (real estate owned) property. These are treated like ordinary sales, listed with a broker. Typically, bargains are not as sharp.

If you want to dive into the foreclosure market, this is the only method we recommend you even think about. The process is fairly clean, the title is clear and the property is delivered vacant, even though the prices may not be as low as a courthouse steps auctioned property may be.

Talk to us if you feel brave and want to explore the foreclosure market. We'll let you know if there are any such properties in the market and in your price range of affordability.