What is a Foreclosed Home?
A foreclosed home is a property in which the current or existing homeowner failed to pay their mortgage or outstanding debt. The homeowner’s rights to it are forfeited, which in turn sends the property to a foreclosure auction or a lending institution for a resale.
Foreclosure is the legal process that gives the lender – usually a bank – the right to foreclose a property after its borrower – the homeowner – did not make timely payments of the mortgage loan.
One caveat: Foreclosed homes may seem like a bargain but you should seriously evaluate its pros and cons prior to making an offer. Check out our article Foreclosure Terms for Buyers for more on the specifics.
Buying a Foreclosed Home
Buying a foreclosed home is often viewed as a win-win situation for both the would-be homeowners and the mortgage lender. For the buyers, it means scoring a great deal on a property sometimes in a prime location, or giving them the opportunity to jump into real estate as part of their investment strategy. For the lender, it’s a way to recoup the remaining mortgage amount fast and easy.
Buying a Home at Foreclosure Auctions
Buying a home at a foreclosure auction is a great way to land yourself a deal and possibly break into a real estate market that was otherwise to expensive for you and your family. Before you take this route to purchase a home, you have to be knowledgeable of its benefits and pitfalls so you can decide if any particular foreclosure actually qualifies as a bargain.
What is a HUD Home?
A HUD (Housing and Urban Development) home is a foreclosed property on a FHA-insured mortgage (Federal Housing Administration insured mortgage).
Under the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) is responsible for providing federal mortgage insurance to potential homeowners intending to purchase a property.
Short Sale vs Buying a Foreclosed Home
For homeowners who are behind on their mortgage payments or have a home with an underwater mortgage (underwater mortgage means the homeowner's purchase loan is higher than the market value of the home itself), short sales and foreclosures are two financial options available; however, the latter can be a long and stressful process that can cause severe damage to the homeowner's savings, assets and credit.
A foreclosure occurs when a borrower consistently fails to make mortgage payments, which gives the lender the right of ownership over the property in question and evicts the borrower.
How to Buy Pre Foreclosures
House hunters who are looking for a bargain comparable to a foreclosure but without all the fuss should consider looking at pre-foreclosures. There is generally less competition from other interested buyers which can allow them you to pay less than the actual market value of the pre-foreclosed property.
What is an REO Home?
When a foreclosed home doesn’t sell at auction, it becomes a bank-owned property, or REO (real estate owned) property. Buying an REO home can save you tremendous amount of time and energy because it is usually sold for less than its market value, and the eviction process has been taken care of by the bank.
The question of 'how to find foreclosure listings?' is a very complicated one and there is no simple answer. There are many sites out there advertising "free lists" and providing out dated listings for an unfair charge. Your best bet is to do a quick google search of a big bank near you combined the term "REO" as many banks list their REO homes on their website.
Another great option is to use Zillow.com which allows the user to filter their results to only show foreclosure listings.
Helpful Articles on Foreclosure
There are a few things you need to look out for if you want to buy a foreclosed property. Whether you’re intending to make it your permanent home or using it to score a profit, you have to weigh all the pros and cons.
As for homeowners who are in danger of foreclosure, filing for bankruptcy might help, if only to delay eviction and going through the tough process of foreclosure.
You can ask directly from the bank or hire a real estate agent to guide you through the process or transact on your behalf. Either way, you have to make an informed decision before signing the deal so you can get your money’s worth and avoid being left in financial ruin.
Here are some more helpful articles on foreclosure: