How to Purchase a Foreclosed Home

An interested buyer can contact the homeowner in the pre-foreclosure stage, when the latter receives a notice of default. In case the home owner is unable to pay the mortgage dues, or sell off the home in order to meet financial commitments, foreclosure proceedings are initiated by the mortgage lender. A mortgage lender can complete the foreclosure sale outside the judicial system provided the mortgage deed has a power of sale clause. In the absence of the power of sale clause, the lender may have to initiate judicial foreclosure proceedings.

How to Purchase a Foreclosed Home?

Locating Foreclosed Homes: Free foreclosure listings are available on the HUD website. Bank websites also provide a list of REO (Real Estate Owned) inventory, available for sale. In addition to these sources, newspapers also carry information regarding impending foreclosure sales.

Auctioned Homes Vs. REO: Buying at an auction is an option for people who have experience in buying foreclosed homes. Auctions tend to inflate the price of the property. The successful bidder is expected to come up with the cash or the cashiers check right away. In contrast to auctions, buying REO owned by the bank or other entities helps the bidder procure the property at a reasonable price. This is because a property that could not be successfully auctioned off is purchased by the mortgage lender at the minimum bid price. Properties under tax lien foreclosure have a huge price advantage since the foreclosures sale is meant to recover the taxes that are due to the government.

Financing: The government is providing a number of tax benefits to eligible first time home buyers. These include tax credit of $8000, on homes purchased before December 1st, 2009, in accordance with the American Recovery and Reinvestment Act of 2009. Under the Neighborhood Stabilization Program (NSP), grants are provided by the HUD for the purchase and redevelopment of foreclosed and abandoned homes. Round 1 NSP grants were administered on the basis of a formula. The last date for receiving applications for NSP Round 2 grants was 17th July, 2009. These grants will be allocated on a competitive basis. Others with good credit scores can avail bank loans at a reasonable rate of interest.

Drawbacks of Buying a Foreclosed Home at an Auction

Buying a foreclosed home at an auction is fraught with complications.

Buying "As Is": This is a big problem associated with homes purchased in an auction. The successful bidder is expected to pay for the house without even inspecting it. Even buying a REO does not eliminate this problem since the seller does not give any guarantees. However, the buyer can inspect the house before purchasing it.

Title Not Clear: The title deed may not be clear. It's possible that the property may be auctioned by the lender who has a subordinate claim on the house. In this case the bidder may end up owning the first mortgage lender.

Redemption: Most states allow a redemption period during which the erstwhile home owner can pay foreclosure costs, interest and principal payments and regain control of the property. In most states the redemption period starts after the foreclosure sale but before evicting the tenants.

Evicting the Tenants: The successful bidder is forced to evict the erstwhile home owners. This may be an unpleasant experience for many buyers.

Hopefully, this article would have helped answer the buyer's queries regarding how to purchase a foreclosed home. It's evident that buying a foreclosed home is not everybody's cup of tea. People who have little or no experience should contact a good buyer's agent who in turn may have to work very hard to ensure that the client gets a good deal.