Where to Buy Foreclosed Houses: Sales, Negotiations, REO’s

foreclosed

Any serious real estate investor knows that there is big money in foreclosure houses- homes that have been foreclosed by the bank or the government due to the owner’s non-payment of either mortgage loans or taxes. Foreclosed homes can sell for a fraction of their market value as banks rush sales to earn back even a portion of their losses, making them prime real estate for investors and entrepreneurs who aren’t afraid of risk. The following is a guest post from Avky Inc co-founder and Phoenix native Kyle Uchitel.

When it comes to finding foreclosure homes for sale, it’s important to go into the transaction informed and prepared to do business – and that means knowing the options and what homeowners or banks might be willing to accept as an offer. There are several ways to buy a foreclosure house, including negotiating with the homeowner or purchasing at an auction or trustee’s sale.

Buying Directly from the Owner Before Foreclosure is Final

Inexperienced investors might think that banks would be eager to take possession of foreclosed homes quickly and make a sale, but banks and the government get tied up in lots of paperwork and red tape in the course of foreclosing on a house. In many states, as well, there are specific regulations about how long a homeowner must be allowed to provide the funds to keep their home – anywhere from four months to a year.

In the course of foreclosure, it’s possible for the homeowner to repay the bank loan (or pay back taxes to the government), including interest and other charges, and be allowed to keep the house.

During this period, it’s possible for a savvy real estate investor to negotiate a deal with the homeowner to purchase the home – saving the owner from the black mark of foreclosure on their credit rating, and allowing the buyer to purchase the house at a bargain price. Investors who their research and know the laws can score a terrific house at a fraction of market price.

Trustee’s Sale or Foreclosed Property Auction

Even more well known is the foreclosed property auction or trustee’s sale. This option is both riskier, because a buyer won’t be able to see inside the home before he or she buys, but less guilt-ridden since it makes it possible to avoid any dealings with the former homeowners. Again, the most important thing is to come prepared, do the research, and know the market for the area.

Bank-Owned or REO

The third, and least-common, type of foreclosed property are those that are not sold at auctions. These properties become “real estate owned” or REO homes and are usually fixed up by the bank before being sold through the usual route of real estate agents and house showings, or they may be offered up at auction again. These are usually not worth looking for because they aren’t likely to sell at much of a bargain.

There are some amazing bargains to be had in the foreclosure homes market. Whether a buyer is looking for a home for his- or herself or an investment property, foreclosure houses are the way to save – for those who know how to do the research and avoid the pitfalls of the marketplace.

Kyle Uchitel is a chemical engineer and co-founder of Avky Inc. He can be reached best on Twitter at @kyleuchitel.

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