Updated: May 24, 2023

If You Buy a Foreclosure, Watch Out

Buy a foreclosure and you find a real bargain, but wary. Pitfalls lurk from scam artists to legal and financial snags and physical problems with the homes.
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There are fewer homes to buy in foreclosure today compared to the depths of the recession. Today there are still thousands of foreclosed properties in the pipeline. How do you find homes for sale? You don’t have to pay a lot of money for a list. Many lenders like Bank of America are posting their real estate owned (REO) home listings on their websites. B of A's  portfolio swelled to well over 15,000 REO homes available for sale after it acquired Countrywide Home Loans. Another free, legitimate source for finding foreclosed homes is Homesales.gov. It's a portal to homes owned by the federal government in all fifty states.
As just one example, in Las Vegas and surrounding Clark County, property values plummeted. About 80 percent of the homes offered for sale were distressed properties. Your best option is to work with real estate agents who specialize in foreclosures. Usually only one agent is involved in an REO. These specialists often have long-term relationships with banks, giving them a chance to learn of listings that have yet to be publicly posted.

Buy a Foreclosure Despite the Storm Clouds by Marek Kowalik

Be cautious about the home’s physical plant

Owners lose their homes because they've run out of resources. You can bet that maintenance was deferred while the owner was in a cash crunch. These homes are all sold as-is. Since you probably won't be able to have the home inspected, try to examine the property yourself. Get inside if possible, look at the exterior to see if it was well maintained; check for any signs of termites or cracks in the foundation. Stroll through the neighborhood, looking for graffiti, excess traffic or noise. Drop by a local real estate office to learn the sale prices of comparable homes in the area.

If possible, try to approach a neighbor to chat about the previous owner. If you learn that the foreclosed owner had a bad temper and didn’t go quietly, be prepared to buy a home where the interior has been trashed. It happens

Be certain you have clear title

Another land mine to sidestep in buying a foreclosed home is to get it when the first mortgage has been foreclosed but a second mortgage is still due. There could also be liens on the home from local governments. Don't take anybody's word on this matter. Be sure to do a title search to ascertain if the home will be owned freely and clearly.

Sellers want buyers to have cash or a pre-approved loan before accepting on offer. There is usually little opportunity to haggle about the price. Depending upon the market, foreclosures can sell quickly—in as little as hours or days. They close  quickly, because lenders have already taken a loss and now want their cash. Most of these homes are empty, hastening the move in process.


You can get great bargains at auctions while courting real risk. The process varies from state to state. Auctions can be held at the home itself or on courthouse steps. Usually, the mortgage lenders attend and put in a bid for what they are owed. Many attendees are shrewd speculators who purchase for cash and flip the homes quickly—so at auctions be prepared to swim with barracudas.

Most banks won't approve you for a mortgage if you plan to buy through an auction because their inspectors won't get a look at the property beforehand. It is possible that once you close the deal, you'll find the former owners still living there. The responsibility for the eviction would now fall on you.

Foreclosures and short sales (where the bank accepts less than is owed on the mortgage) are great opportunities for first-time home buyers. As the real estate market continues to strengthen, there will be fewer of these bargains available in 2014.

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