Buying Foreclosed Property

It's possible, even in a hot real estate market, to get a good deal on property that's in foreclosure. But you'll have to put in some elbow grease and pay attention to details.

There are many homes near or in foreclosure due to:

• Mortgage nonpayment
• Probate after a death
• IRS tax seizures
• Real estate tax nonpayment
• Condemnation or abandonment

You can find information about houses in legal foreclosure from:

• Local newspapers
• Subscription newsletters
• The county deed recorder's office

Buying From A Bank After Foreclosure

There's little risk involved with property a bank has already purchased at a foreclosure auction. A bank will generally pay any other outstanding debts- such as property taxes or amounts owed to the IRS- in order to sell the house with a clear title. Plus the bank will have already evicted the tenants or former homeowners, and appraised the house prior to auction.

A bank has the flexibility to negotiate on the selling price, down payment, interest rate and closing costs. Added together, these factors can make a big difference in whether you can afford a home, especially for first-time homebuyers.

One disadvantage to buying from a bank is that the property may be sold "as is," so it's important to inspect carefully and budget for any needed repairs.

Buying From The Homeowner Prior To Auction

If you can communicate with a homeowner whose property is in legal foreclosure, it may be possible to buy a house prior to auction by giving the homeowner a small amount of cash in exchange for any equity in the house.

But it's important to thoroughly check out any existing liens or other debts on the property, so you know what you're getting into. You may be able to negotiate a discounted settlement with any lien holders.

You'll also want to inspect the property and estimate the costs of necessary repairs. If the costs of paying off the lender, cashing out the homeowner and making repairs are more than the fair market value of the home, it's a bad deal.

If you decide to purchase the property directly from the homeowner, it's important to have a local real estate lawyer draft the purchase agreement.

Buying At A Foreclosure Auction

Buying at a foreclosure auction is the riskiest way to purchase foreclosed property, and shouldn't be attempted by a first-time buyer.

You may not be able to inspect the property, and will likely have to come up with the entire purchase price in cash in a short period of time (sometimes measured in hours rather than days). Plus you'll still end up owing any unpaid property taxes and junior liens (debts put on the property after the debt which caused the property to kick into legal foreclosure).

Buying at auction also comes with the possibility that the former owner will exercise their right of redemption by coming up with the cash to buy the house back within a certain period of time. The IRS also has 120 days to redeem the property if back taxes are owed. A local real estate lawyer can fill you in on the redemption laws in your state.

If you're tempted to buy at a foreclosure auction:

• Research the condition of the property and any existing debts such as liens, unpaid taxes and previous construction debts, by ordering a full title search on the property
• Scope out land use problems such as zoning or toxic waste issues
• Find out how the auction process and rules work
• Sit in on some other auctions ahead of time
• Decide what your maximum offer will be and don't go above it
• Arrange any financing you may need ahead of time

Buying A HUD Home

The federal Housing and Urban Development ("HUD") often has houses for sale which are sold to the public after HUD or FHA mortgage foreclosures.

HUD pays up to five percent of closing costs. And a HUD home which has been pre-approved for an FHA mortgage has already been appraised, so you can move in faster.

HUD properties are sold "as is" on a cash basis through a conventional lender other than HUD. You can only purchase HUD property through an approved HUD broker or agent, who will submit an offer for you.

For a list of foreclosed properties or local broker/agents, you can call HUD national headquarters at (202) 708-2720.

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