Are You Considering Buying a Foreclosure?


Almost every buyer I work with wants to buy a foreclosure. What they really want is to get the best deal possible.

In many cases, negotiating with a seller who has considerable equity in a property is going to yield a better result for the buyer than negotiating with a bank. Foreclosures can be a good way to buy a property for less money, but theres more to it than that.

There are three stages of foreclosure. A property need not go through all three phases to get to foreclosure. It all depends on the mindset of the seller/borrower and whether they want to work with the bank.

Phase One: The Short Sale
With a short sale, the sellers need to sell, whether because of relocation, divorce, adjustable payment, or some other urgent reason, and their property has devalued below the amount they owe the bank.

These properties are often still occupied, and the listings appear on the multiple listing system. In fact, the bank wont work with the seller without a Realtor.

Short sales are sold in as-is condition. Buyers may conduct an inspection and get out of the deal if needed, but neither the bank nor the seller will pay for any repairs.

It can take two months or longer for the bank to approve a short sale. Most buyers cant manage that type of uncertainty.

If the bank approves the contract and agrees to forgive the rest of the loan, the property may still be sold subject to other liens such as utilities, taxes or homeowners association liens for which the buyer may be responsible.

Phase Two: The Auction
If the short sale didnt work because the bank refused to lower its price enough to get the property sold on the open market, the bank steps in and holds an auction, with a minimum price or bid. Unless you saw the property during phase one, you will not likely see it as part of the auction. These are true as-is sales, sight unseen, and the bank requires a certified check at the time of the auction. This phase is not for the faint of heart. There are several auction Web sites, but clearly you need to be a risk taker.

Phase Three: Foreclosure or Bank Owned
In this scenario, the bank has taken possession and is desperate to sell. Chances are good that these properties are in horrible condition. They are still sold as-is. Some banks restrict access so they will not even allow an inspector; others will allow an inspection prior to settlement with the understanding that the bank will pay nothing toward repairs. Like short sales, these properties are listed on the multiple listing system. These can be down right scary.

My recommendation for buying in this buyers market is to look for the best deal for your circumstances. Dont focus on foreclosures or pre-foreclosures to the exclusion of other properties. Because of the number of listings overall and the relatively low conforming interest rates, buying now (even if you need to sell to do it) is still an excellent investment.