Buyers Guide: Types of Foreclosure Sales

Posted on October 15th, 2008 by saman

The number of homes going into foreclosure sales grows by the day and for people with the means of scooping one up there could be a great deal of savings in the end. Since these homes are usually sold “as is,” you must inspect it thoroughly and make sure you are aware if there are back taxes owed or other financial matters that will transfer to you after the sale. A complete title search for any property is necessary.

Once you have decided on a foreclosed home you wish to make your own, how you actually buy it depends on which type of sale it goes into. The options are pre-foreclosure sale, foreclosure auction, and real estate sale.

A pre-foreclosure sale is the best opportunity if you are looking for a bargain. This sale is made through the homeowner after the foreclosure process has begun but before it has actually been ruled into foreclosure through the courts. These homeowners are under stress and are willing to sell for less than the home’s value in order to avoid the foreclosure process and to keep their credit rating from being affected. Normally you would not want to pay more than 70% of the appraised value of the home, but in our current economic crisis you may have to go a little higher to secure a deal.

You will be under time constraints, but you still need to inspect the home and ensure there are no structural problems or additions to the property without proper permit. Any problems with the home will pass on to you, so make sure you thoroughly go over everything from physical structure to liens. It is best to have pre-approved financing secured and in some cases you could be able to take over the homeowner’s loan and catch it back up to date.

Foreclosure auctions present the most risk for a novice because you will be competing with highly skilled investors and usually the lender. Over half of these auctions are won by the lender, who wants to make sure they do not lose money on the sale. You often are not allowed to inspect the property before the auction, which can leave you on the hook for problems.

If you do manage to win a foreclosure auction, be prepared to pay the full amount of your bid by certified check or cash within a short time period. If there are any homeowners still living on the property you may have to evict them yourself. Overall, auctions can get messy and may be more of a hassle than they are worth to someone simply trying to get a good deal on their next home.

Real estate sales do not come with the hassle and are not as risky, but they also will not give you the biggest savings. They are completely owned by the bank at this point and will come with a clear title. It is much like buying a home through any other realtor process.