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Foreclosure Guide

Goal

Our goal is to help buyers understand foreclosures and how it differs from a regular home transaction. With a foreclosure purchase, there are different timelines, stages, and rules to follow. However, none of this has to be stressful! HomeHunt is here to help buyers navigate a foreclosed listing and secure their next home.

This guide will explain:

  • The stages of a foreclosure
  • The timeline of a foreclosure
  • Purchasing a foreclosure
  • The pros and cons of a foreclosure
  • Submitting an offer on a foreclosed home

Let’s get started, home hunters!

What is a Foreclosure?

Foreclosures occur when a homeowner is unable to keep up with their mortgage payments. The home is seized and put up for sale by the lender, most likely a bank or loan company.

What are the Stages of a Foreclosure?

Most foreclosures follow specific events, such as the following:

Pre-Foreclosure: When a home is in pre-foreclosure, it means the lender has issued a warning to the owner that they are in default and the foreclosure process is technically beginning. Homes can stay in a state of pre-foreclosure anywhere from weeks or a year or more.

Short Sale: A short sale allows the owner and lender to avoid the foreclosure process by selling the home for less than they owe. The lender must approve the terms; if they don’t approve, they can still sell at auction or in a bank-owned sale.

Auction: Auction winners are typically expected to buy the home in cash and in as-is condition. Financing options may be available, but a pre-approval letter must be included and ready to go.

Bank-Owned Foreclosure: If the lender resells the home, the process is more like a traditional home buying experience with certain exceptions.

How to Find Foreclosed Homes

Aside from locating foreclosed properties on real estate websites, buyers can be one step ahead by searching in the following areas:

Bank Websites: Banks often list the foreclosed properties they seized for sale online. Prices, photos, and home descriptions are listed along with agents' contact information. Fannie Mae and Freddie Mac also purchase mortgages from banks, so it is helpful to check their resources as well.

Government-Owned Listings: The Department of Housing and Urban Development lists any foreclosed homes that it owns on its website, as well as through local real estate agents. However, the homes are sold "as is" and the government agency is not responsible for any issues.

Local County Office: Foreclosure information is filed with county offices. Interested buyers can search from home and bid on available properties on select weekdays.

Foreclosure Listing Services: Certain companies offer access to foreclosure listings for a fee. Some services may even provide estimates of homes’ property value based on comparable sales in the area.

Real Estate Agent: Agents have extensive knowledge and resources to find foreclosure properties fast. By working with banks and lenders, agents are able to receive listings before others, helping clients secure the best listings.

How to Purchase a Foreclosure

There is a different home buying process when purchasing a foreclosure. The most important step is to hire a real estate agent who has experience with these types of purchases. When conducting any type of home search, our HomeHunt Search Portal will display all available homes, as well as any foreclosures in an area. As previously mentioned, the home will most likely be sold as-is, so buyers should make an offer that gives them room to make repairs and cover the unexpected. Make sure to have a pre-approval letter ready to go before an offer is made, just like with any home purchase. If a buyer settles for terms they’re unhappy with, a real estate agent can help negotiate terms, as well as advise when it’s time to walk away, if necessary.

Pros and Cons of Buying a Foreclosed Home

Some of the benefits include:

Lower prices: Foreclosed homes are almost always listed below market value.

Standard loan options: Home buyers can still get financing through a conventional loan or a government-backed VA, FHA, or USDA loan. However, there may be a different buying process given the state of the purchase.

Since buying a foreclosed home is riskier than buying a regular home, the following are cons to watch out for:

More maintenance: Some homeowners do not bother to maintain the home’s condition when they know they’re going to lose their property to foreclosure.

As-is conditions: Lenders want to recoup their money as quickly as possible, which means selling the home as-is.

Beware of squatters: Many foreclosed homes attract squatters since they are unoccupied for months or years at a time. In order to rid them of the property, the buyer must legally evict them, even if that person has no claim to the home.

What to Be Cautious About

Just as there are pros and cons, there are also risks when it comes to purchasing a foreclosure. Be sure to keep the following factors in mind:

Distressed properties: These are common when a bank seizes a foreclosed property. Because they’ve been unkempt and vacant for some time, these properties contain the most issues.

Title challenges: The former owner may issue a summons claiming to still have an ownership interest in the home, that the foreclosure and sale involved an unauthorized agency, or the prior owner never signed off on a key document. This is why title insurance is extremely important.

Financial setbacks: Lenders will not give home buyers money for an uninhabitable property or one that appraises below the purchase price. However, this will not be an issue when paying in cash.

What to Expect After an Offer is Submitted

After an offer is submitted, buyers can arrange for inspections. For a foreclosed home, buyers will want a thorough home inspection that includes a termite and radon check, as well as a sewer and water line assessment. The more buyers know up-front about the state of the home, the better. Many foreclosed properties require extensive repairs to get up to code, which can range from electrical upgrades and plumbing repairs to foundation work. An inspection will uncover most of the work that needs to be done.

Conclusion

Buying a foreclosed home does not have to be difficult. As long as buyers have the right team in their corner, it can be a stress-free experience. HomeHunt is ready to help buyers with their next home transaction, regardless if they’re a first-time homebuyer, an experienced home buyer, or are venturing on a brand new type of home.