How To Buy A Home

How Can You Purchase A Home Foreclosure?

One of the ways that you hear about when you want to get a deal on purchasing a home or piece of real estate is purchasing a foreclosure property. As long as you do your homework you can get a great deal. You do have to be very careful about what your getting and any title or repair issue their may be. When you purchase a foreclosure it is usually where is, as is.

For this discussion we are going to talk about bank foreclosures. With a bank foreclosure the bank foreclosure notice and posting will usually list any other liens, and the bank will usually (not always) keep the taxes and insurance up to date to protect their interest in the foreclosure property. And if it is a first lien that is being foreclosed on, then usually all liens except IRS and Tax liens are wiped out in the foreclosure proceedings if the foreclosure is completed by the entity carrying out the foreclosure completes the law suit against the owner of the property.

When you purchase a foreclosure from the foreclosing party, the property is sold to you as-is with no warranties other than what the deed or title document states. So you should have at least driven over to the property and walked around it, and if possible go inside it. Be sure and read "inspecting a property".

The foreclosure property will usually be offered up in an auction being handled by the real estate law attorney at a public place and time as stated on the foreclosure notice if the party being foreclosed on does not solve the delinquency. In order to bid in a foreclosure auction you are going to need cash, a cashiers check or certified funds. The opening bid is usually what the bank has into the property including the unpaid loan principal, attorney fees, taxes, insurance, any maintance fees paid and any maintance done to protect the property such as boarding up and securing the property to protect the foreclosing banks interest. If the property is not sold at the foreclosure auction you can sometime contact the foreclosing bank to try to purchase the property directly from the bank or the REO (real estate owned) department of the bank. Now a days most of the banks just turn the foreclosed properties over to a realtor or realty company that handles and or manages them. They will usually be listed in the mls (realtors multiple listing service).

The other way to purchase a foreclosure would be to purchase it from the owner prior to the actual foreclosure auction. Just like any other FSBO (if not listed by a realtor) you are going to need to make contact with the owner, evaluate the property, and make the offer. Now since this is a foreclosure you probably have the added complication that the clock is ticking on getting this done and the sale completed before the date of the foreclosure sale.

Now the next few paragraphs come with a warning and disclaimer in that I am talking about things that are done by investors to control the property in order to sell it, refinance it, or....... You should check with your legal advisor as well as be aware there is risk involved in most of these methods both financially and legally. I am not recommending, suggesting or endorsing any of these methods. I will say I have been involved in similar transactions where the reward to risk made it worth the effort.

In most of these foreclosure situations you do not have enough time to put together convential financing before the foreclosure sale, not to mention lender required inspections and repairs. Now sometimes if the buyer goes to the lender with a signed contract to purchase the property some lenders will delay the foreclosure, but most will not.

First we need to establish that most banks and lenders put a "due on sale" clause in the original loan papers which means if the property is sold the lender can and usually will demand full payment of the loan. So if the property is sold and the lender does not get paid off they can demand the loan balance be paid off or they will foreclose on the property for their money.

Now suppose I contact Mr. Smith who is behind six months on his house payments. Mr. Smith also needs two thousand dollars to move. I walk Mr. Smith over and get a quick claim deed from him to me. He gives me his payment book and the keys to the house, and I give him $2000.00. I send a certified check to the lender or real estate attorney handling the foreclosure sale for the six months of missed payments, late fees, legal fees, and any other misc dollars required to stop the foreclosure. And then I start making the monthly payments. I do not record the quick claim as I do not want to tip the bank off and cause them to use the due on sale clause to accelerate the loan. There is a lot of risk to this but I am now in control of the property.

Another method is to lease the property from the owner with a lease to purchase type of agreement. The payments for the least need to cover the amount required to solve the foreclosure sale and reestablish the loan. Again I am controlling the property with my monthly lease payments cover the payments to the lender for the property.

The first method above has gotten me burned a couple times so beware. The other thing you want to watch out for are any liens on the property. Since both these methods stopped the foreclosure those liens are still against the property and will have to be dealt with. Do your Homework!!