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What You Should Know About Buying a Foreclosure

January 11, 2012

You’ve probably seen the infomercials, the websites and the ads about the potential wealth and savings waiting for anyone who buys foreclosure properties.  These ads capitalize on the drop in housing prices, lower interest rates, and the record number of foreclosed homes on the market.  Before you decide to buy a foreclosure property, it helps to educate yourself so you have realistic expectations.

A foreclosure typically occurs when a borrower is significantly delinquent on the property’s mortgage.  The lender then acquire title to the real estate, it’s referred to as a Real Estate Owned (REO) property.  At that point, the lenders goal becomes getting the property occupied, which helps the neighborhood and the community, along with recovering a portion of their costs.


Usually foreclosures sell for lower prices than comparable homes that are not financially distressed. The lending institution is a motivated seller because they just want to unload the house. Buying foreclosed properties is a popular choice for bargain home buyers. Deals can be found at discounts of 25% to 50% off normal list price! Listing prices may also be lower to compensate potential buyers for any associated risks involved in buying a foreclosure.

Another possible reward of buying a foreclosure is that you the buyer holds the negotiating leverage. Buyers can ask for contingencies, allowances and credits on any items you find unsatisfactory.


The largest problem of a foreclosure is a poorly maintained property. Previous owners have little motivation to continue the upkeep on a house they no longer are responsible for. Some disgruntled residents may even damage the house. Lenders are now less likely to repair problems or destruction before they list them for sale.

There are also legal risks when buying a foreclosed property. If the owner still occupies the property and/or the lender has not taken the title outright to the property, the legal problems can be considerable. You may have to process an eviction or you could even be liable for unpaid back taxes on the house.

Potential Problems

If you decide to buy a foreclosure, you have to be willing to give a little in your criteria and location than you normally would. The house you will buy will almost certainly not be move in ready, or be exactly what you are looking for. Work will have to be put into the foreclosure to get it to your standards.

In Summary

Foreclosures provide a good niche market for real estate investments. But every foreclosure is not going to be a good deal for you. Learn the pro’s and cons of the foreclosure buying process. Have a strategy in mind when researching foreclosures and know your realistic limits. Don’t get involved is something that will cause more harm than good!


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