Multiple Ways to Buy a Foreclosure

Posted: 18 May 2008 | Categories: Investing

Multiple Ways to Buy a Foreclosure

Foreclosures can be bought in a variety of ways. Some investors focus on buying properties when they are in the pre-foreclosure stage directly from the home owners. Others prefer to buy foreclosures from banks that have retaken ownership of the property. The method for purchasing foreclosures most often depends on what you, as the investors, feels most comfortable doing.

While not for everyone, one method of securing foreclosures, while challenging, can often yield great results. For instance, you can generally buy a property at a significant discount through a public foreclosure auction. However while buying a property at auction may have its obvious advantages, there are also several disadvantages that a potential buyer needs to be aware of in order to get the most out of the process.

Compared to the other forms of foreclosure buying mentioned, buying a foreclosure at auction is the more risky route for several reasons. First, you may not be able to perform an inspection of the property prior to submitting a bid. This makes it difficult to calculate just how much money you will potential need to spend in renovations and repairs. Worse, if there are any major more costly structural issues involved, you would not know until after you had bought the property. Then, it would be too late because you would have no recourse. All sales are final.

New members search FREE with trial! Click here for Bargain Network Homes!Secondly, you may find yourself having to come up with the entire purchase price in a very short period of time (sometimes hours if not days depending on that state’s laws). Thirdly, you are still responsible for paying any outstanding taxes or junior liens that may be owing on the property. Finally, you may not have title to the property immediately following the auction if the owner has a right to redeem or if the IRS decides to take the property for any back taxes owed. The right of redemption by owner varies from state to state and Uncle Sam generally has 120 days to redeem, if they choose.

We are not suggesting that you steer clear of buying foreclosures at auction, just that you proceed cautiously and with both eyes open. If you decide to buy at a foreclosure auction, then be sure to:

Do your own due diligence. Research the property as much as you can prior to the auction date. Ask if bidders will be allowed to inspect the property before submitting a bid or if some type of inspecting document will be provided. At a minimum, try to walk the property to spot any potential large problems. Then, go to county records and search property records for any existing debts such as liens, unpaid taxes and previous construction debts. If you don’t feel comfortable doing this yourself, order and pay for a full title search.
Check out the land use requirements. Investigate to see if you may encounter any land use issues such as zoning or toxic waste issues that may interfere with your future plans for the property.
Familiarize yourself with the public foreclosure auction process. Each state – and county – runs their auction process differently. Talk to the department/person in charge of running the auction and know what the rules are before the auction day roll around.
Go for a test run. The beauty of public auctions is that they are public and open to everyone. This provides you with a great opportunity to sit in on a few before the one you are interested in starts. This is a good time to see who is typically bidding on foreclosures and how the whole process operates.
Set your limits. It is easy to get caught up in an auction. More than a few people could probably attest to spending way more than they expected simply because they go caught up in the moment. That is why it is so important that you calculate your maximum bid before hand and stick to it. If you think you may get carried away, take a friend or colleague with you who can talk some sense into you should you feel the urge to splurge.
Secure all needed funds before the auction. As we mentioned, you are generally required to either pay the full purchase price that day or within a few days after the auction. This varies by state so read up on the requirements. Therefore, it is important that you arrange any financing or lines of credit you may need well before the day of auction and that you are able to access those funds quickly.

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