How to Buy a Bank Foreclosure

You've discovered that bank owned homes can be excellent buys and super investments. But it's the getting from that "good idea" to "making it happen," that you may still need guidance on. Let's check out the foreclosure process to put the buying procedure within reach.

First Step: Do Research to Find Out What Bank Foreclosures on the Market and How They Compare

• Use the local MLS service online to find properties.
• Go to your bank and ask for the list of bank foreclosures they’ll be happy to help you.
• Drive around town you’ll also get a feel for your favorite neighborhoods.
• Talk to your county tax assessor about monthly auctions of bank owned homes.
• Compare how much other homes have sold for in those areas.

Second Step: Get a Firm Understanding of the Foreclosure Process

With any of the various types of foreclosure, a bank is often the mortgage holder. After the borrower/owner has skipped a payment, the pre foreclosure process gets underway. The lender will usually attempt to contact the borrower and is required to file a public Notice of Default, or NOD, if they intend to pursue the foreclosure as a means to recover their collateral.

The property can then go to public auction if the matter isn't addressed by the owner. Often organized by the county court, an auction allows a new owner to take over immediate administration of the property upon purchase-and most bank foreclosures are sold in "as is" condition, without a warranty.

Third Step: Find the Opportunities to Buy Bank Owned Homes during the Foreclosure Process

The foreclosure process provides 3 distinct opportunities for finding bank owned homes that fit your needs.

• The first opportunity is when the property goes into pre-foreclosure. At that time you, the investor, can seek out a borrower/owner directly and make an offer to buy the property. Frequently the most desirable option for everyone involved, this method might leave a profit for the home owner and would steer them clear of a negative foreclosure affect on their credit record.
• Meanwhile, you would have more time to find out the pluses and minuses of the property. If you wait for it to go to the auction block, you probably wouldn’t be able to do any research at all before you bid. At this stage you can find out just how good a buy the home is and where you can negotiate the terms to improve the home’s value potential.
• The second chance for a good buy is when the bank owned property goes up for auction. You are removed from sometimes difficult negotiations with the borrower/owner and you have some great possibilities to save a bundle still.
• As mentioned, you might not have much time to investigate the home you are interested in, other than observing it from a distance, or looking into its tax records. Check with your local auction authority to find out how much freedom you have to examine the pending sale beforehand is definitely suggested. Even simply walking through the bank owned home can give you a good idea of the condition its in and how much work it needs, if any.
• The third opening for buying bank foreclosures is by dealing directly with the lending institution. If the bank takes possession of the property while it’s in pre-foreclosure, or at auction, they will want to sell it a.s.a.p. Usually the bank will sometimes fix up the home if it needs repair to get a sale quicker. At this stage the home is also sometimes referred to as a REO home. Again, there are opportunities still to negotiate with the bank to get the best deal possible.

Think of bank foreclosures like a fire sale: it's the very last resort for an owner to pay their mortgage and avoid foreclosure, or a lender to recoup their investment. Foreclosure sellers are supremely motivated to get sell off bank owned homes whether they're the current home owner or the lender.

Because of this you can begin negotiating as low as possible on your first bid unless the property is a hot one that's being marketed well. The asking price might even be below market value already which makes a good buy right off the bat. As an investor in bank foreclosures, you have all the negotiating leverage on your side. Tip the scales in your favor.