There are three stages of foreclosed homes that interest buyers: pre-foreclosures or short sales, foreclosure auctions and REO homes, or bank-owned properties. These three stages are all parts of the foreclosure process and can all offer bargains to potential buyers, although tracking down the homes involved can be a challenge.
A term increasingly common in real estate discussion, a short sale is a sale of a home before the full foreclosure process commences. A home enters pre-foreclosure when payments are missed and the bank issues a statement to the effect. Once this is done, the owner has a few options. The first is to catch back up on the mortgage payments by taking out a personal loan or scraping together funds in another way. If this is not possible, the home owner might simply sit and wait on the inevitable. But increasingly more home owners are realizing they can get out from under the burden of foreclosure by selling their homes before it becomes a full reality.
A short sale takes place in the grace period between the first issuance of a pre-foreclosure and the actual foreclosure auction. The seller lists the home for sale through catalogs, newspapers, local signs or possibly a real estate agent. If the home sells in time, the seller stands to break even and come away with far less damage to her credit score than she would under a foreclosure. Short sales are often the biggest area for buyer savings as sellers simply want to unload the property before the bank hassles begin.
Foreclosure auctions are one of the riskiest ways to buy a foreclosure property. The properties sold at auction are sold “as is” including any outstanding liens, taxes and the home might come with the current tenants as well. A home purchased at auction will also require you to come up with the cash amount of your winning bid within the day, usually, or sometimes just a few hours. After the sale, you’ll still be responsible for paying off all the outstanding liens on the property.
If the property does not sell at auction, as most do not, the home becomes a REO property, or Real Estate Owned. The property is now owned by the bank and the mortgage is written off, the tenants of the home evicted and any outstanding liens are settled. The home is then free and clear to be put back on the market where it is typically listed with a real estate agent in the MLS. To buy a foreclosure in this way, you work with your own buyer’s agent to work out the details of the sale and take it to closing.
Finding Foreclosure Listings
Foreclosure listings can be found in many places. Look in newspapers, the country deed recorder’s office, lender’s websites and subscription websites specializing in compiling listings from many sources. Once the property is put back on the market, it might appear in your local MLS listings as well.