A foreclosed home can be a deal for the buyer. Foreclosure is the legal procedure used by lenders to enforce payment of a mortgage loan on a home when the borrower is behind on the loan. Homes that are foreclosed on typically sell for less than the actual market value of the property, but there are risks involved in buying a foreclosed home.
Foreclosed homes are generally offered at a public auction in the local courthouse or county recorder’s office in the county where the property is located. The date of the auction and information about the foreclosed property is posted in public notices at these court offices and in local newspapers. The highest bidder at the auction becomes the new owner of the property once the bid amount is paid in full. The minimum bid amount, or the bid that the auction opens with, can be the balance owed on the mortgage plus legal fees or another amount determined by the lender. You will need to have a deposit with you and proof of financing, like a mortgage pre-approval letter, in order to purchase a foreclosed home at auction. The amount of deposit required varies by area, but a typical amount is 10 percent of the purchase price, or winning bid. Some auctions require that the deposit be paid with cash, money order or cashier’s check. You can purchase a foreclosed home by approaching the lender if there were no successful bidders at the auction. The lender becomes the new owner if the home is not purchased at auction and will negotiate with you in order to avoid long-term ownership of the property.
Various legal matters can complicate a purchase of a foreclosed home. Any tenants or occupants still living on the property after the auction become your responsibility to evict. Most lenders will evict all occupants before the home goes to auction, but there have been cases in which the lender did not ensure the home was vacated. There can be unpaid liens on the home that were not voided by the foreclosure auction, such as a city water bill, that you will be responsible for paying as the new owner. The home can have clouds on the title, or unresolved matters that affect the chain of ownership as shown by the land records for the home. Clouds on the title can make it difficult for you to sell or obtain a mortgage on the home. Research a foreclosed home before the auction in order to avoid unexpected problems later.
Most foreclosed homes are sold “as is.” The lender will not make any guarantees as to the condition of the home or the component systems, such as the plumbing and wiring, and is not required to make repairs. You can find yourself with a foreclosed home that has no pipes, toilet or heating system. Some lenders will allow you to look at a foreclosed home before an auction, but they are not required to do so by law. You should be prepared to make major repairs to any foreclosed home you purchase.