Foreclosed Homes Sales

Get your dream home for less

First, the bad news: foreclosures are up, way up. Forecasters expect that there will be a record number recorded within the next two years.

But this is actually good news for the patient and diligent home buyer, who can get into their dream home for much less by buying a pre-foreclosure or foreclosed property.

Pre-foreclosures are a good place to start. When homeowners fall far enough behind on payments, the lender issues a Notice of Default. This is the first step in the foreclosure process. Because these are public records, the savvy shopper can locate these properties via the Internet or newspaper public announcements.

Short Sales

Sometimes a "short sale" of a pre-foreclosure property can be arranged. This is when the lender agrees to sell a property for less than the amount owed on it. By some estimates, it costs lenders an average of $50,000 to foreclose on a house. This is a good number to keep in mind, along with the average market value in the area, when preparing an offer. If an agreement can be reached prior to foreclosure it will save the lender some money and the homeowner a major credit blemish.

Shoppers should tread lightly when approaching a homeowner about a potential short sale. A story surfaced recently about an investor in such homes who was greeted by an armed homeowner, sitting on his front porch, waiting for the lender. Losing a home can be very emotional.

Potential buyers should also know that the homeowner has likely already received many other solicitations, usually via letter, to arrange a short sale. So the best approach is probably to speak to them in person, dressed casually, so as not to appear official. Sympathy and a willingness to help can go a long way toward getting into a new home at a substantial discount.

Auctioned Properties

If the homeowner does not update payments on the home, and no short sale is arranged by 90 days after the Notice of Default is served, the lender will file a Notice of Trustee Sale. This is essentially an auction announcement. The property will be auctioned off on the county courthouse steps.

Buying a home in this manner can be risky. These properties are sold "as is," for cash only, and may have serious structural problems that aren't obvious as no inspection is allowed. They may also be encumbered by liens. For instance, it may be the second mortgage holder who has foreclosed, and the buyer will become responsible for the first mortgage that remains on the property.

Usually, the lender, who is then anxious to sell them, retains these properties. As the maxim goes, "Banks are not in the business of owning real estate." Because this is the case, if a property does not immediately sell, a buyer may be able to negotiate a selling price under market value.

Patience Pays

It pays to be patient if you are pursuing one of these properties. One buyer waited four months to hear back from the lender on the property she had made an offer on. She credits the eventual acceptance of that offer to persistence and a little bit of the human touch. She sent the lender a Christmas card with a picture of her family, explaining how happy they would be in their new home.

Sometimes lenders will turn their owned properties over to an auction house to be sold. An opening bid is set, as well as a reserve price, which is the minimum amount a lender will accept, and is not disclosed to bidders.

Buyers can get great deals on a home purchased in this manner. However, in order to avoid "auction fever" a buyer should set a firm limit on what he or she is willing to pay for a property and stick to it. One recent auction attendee picked up his new home for more than 20 percent under market value. That's an incredible deal.

But the best news is that with all of the foreclosures predicted to be coming on the market, the determined home buyer should be able to find the perfect new home, at a great price. If that is you, happy house hunting!

By Cierna Ritts