A foreclosed home, also called real estate owned (REO) property, is a house owned by the lender as a result of the previous owner’s failure to pay off the loan. Many home seekers buy foreclosed properties, as they are more affordable than new homes. You can use regular mortgage financing to buy foreclosures and obtain desired inspections within standard contingency periods.
Foreclosed homes undergo pre-foreclosure, auction, and real estate owned stages. In pre-foreclosure, a homeowner has failed on a mortgage, but has yet to be foreclosed upon and evicted. The property is auctioned off to the highest bidder after the homeowner’s rights are forfeited. It becomes a property of the real estate institution if it doesn’t sell at the auction.
Buying a Foreclosed Home
There are two ways of buying a foreclosed home: through a real estate agent or public auction. Find an agent who works directly with banks that own foreclosed properties, join public foreclosure auctions, and check a local real estate website. RealtyTrac, an online marketing place for foreclosure properties, offers a list of more than 1.2 million default, auction and bank-owned properties.
Have a licensed home inspector evaluate the condition of the house before buying. A property inspection will determine the state of the house, the estimated cost of repairs, a fair and reasonable offer, and funding for the purchase.