ShoreBank Blog

10 Steps For Buying a Foreclosed Home

by Michelle on March 24th, 2009

With more than a million foreclosed and distressed properties expected to hit the market, buying a foreclosed home can be a good investment opportunity for the first-time home buyer and investors.  While ShoreBank would rather make a Rescue Loan to help save a home, buying a foreclosed property helps stabilize home prices, strengthens a neighborhood and, at the same time, realizes the dream of homeownership for many.

However, potential buyers should not gamble when buying a foreclosed property.  This is not a process for the faint of heart, but if one does their due diligence and goes about it in a responsible way, buying a foreclosed home can be a very good investment opportunity.  To help home buyers purchase a foreclosed property and ensure sustainable ownership, I am sharing with you my 10 Steps for Buying a Foreclosed Home.

1. Search for foreclosure listings. Track foreclosures in your area to stay on top of the market so you are able to move quickly when they become available.  Use an electronic tracking service like RealtyStore or look for listings in real estate magazines, newsletters, newspapers, and government agencies such as Fannie Mae.com; check public records at the county clerk’s office.
2. Find a real estate agent experienced in foreclosures. Some sellers will not accept offers from unrepresented buyers.
3. Find a real estate attorney. Proceedings and laws can be complex and difficult to understand.  Do some homework on foreclosures laws and procedures. Start by using Google or another search engine to research foreclosure laws in your state as well as to contact an attorney.
4. Choose a foreclosed home to invest in. Some factors to consider include how to purchase a home while minimizing risk and determining the safest home to go after However, bank-owned properties carry the least risk for investors seeking foreclosed homes.  When the bank takes ownership of the foreclosed property, you know there are not any taxes or liens to contend with and that the home is empty of homeowners.
5. Tour the property. And inspect it as closely as possible. It’s best to bring along a professional inspector to determine the property’s condition.  Some foreclosures–unlike fixer-uppers–are in fairly good shape, while others may be way behind in maintenance from sitting empty for an extended period of time that could be quite costly to remedy.
6. Line up financing. To qualify for buying a foreclosed home you will need a good payment history with current creditors. If you need to improve your credit, sign up with an experienced credit counseling agency to help budget and to negotiate on your behalf while settling delinquent accounts.  Smaller banks are usually more open to working with buyers who have tarnished credit histories.  Check your credit report and correct any existing defaults or outdated information.  Get pre-approved for a mortgage–speak with three potential lending institutions to obtain a responsible loan.  Most sellers of foreclosed properties require a cash offer or pre-approved letter in order to make an offer.
7. MLS Search/Comps. Have your real estate agent check nearby or comparable homes to see if the asking price for a foreclosed home is, in fact, a bargain.
8. Do your homework. Check to see if a foreclosed home has any liens on it, such as unpaid property taxes. Find out who is liable for those costs.
9. Make an Offer. This step involves having your real estate agent or attorney prepare a contract offer to purchase the property with bank financing, bid at a foreclosure auction, or submit a sealed bid to the owner after the foreclosure sale.  The key is to decide what the offer or bid price ought to be.  You don’t want to pay more than the assessed value, based on the condition and location of the property.  The goal in buying a foreclosed property is to buy at a low cost so that you can quickly begin building equity.  Foreclosed homes are often sold at discounts of 30 percent or more.
10. Prepare paperwork. Be prepared to deal with more paperwork with a foreclosure than you would with a conventional purchase, particularly when a government agency is involved.

Additional valuable information:
• Find out how foreclosure works in your state. Procedures and legal requirements differ, so get a sense of how soon you can go after a home that appeals to you.
• Be particularly aggressive in negotiating with a bank. Banks are very interested in selling a foreclosed home fast when it’s just sitting on their books doing nothing.
• HUD and other agencies often auction foreclosed homes. However, buyers are frequently unable to inspect any property before making an offer. With so little information, the higher the bid for the property, the higher the risk that you may end up with a money pit.

And finally, it’s important to remember to look for an experienced agent, suitable properties, and outstanding lien issues and be prepared to review a mountain of paperwork.

Tags: community development, foreclosed home, green banking, home ownership, Rescue Loan program, ShoreBank, triple bottom line

This entry was posted on Tuesday, March 24th, 2009 and is filed under Mortgage Lending. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.