4 Buying Opportunities in the Life of a Foreclosure

Here’s something that causes much confusion and I think you will find it interesting.

A home in foreclosure goes thru many different stages.  There are buying opportunities at each stage, but the product you are buying and the seller can be very different.                

The confusion comes in because people describe the home at each stage as a foreclosure. 

If you are thinking about purchasing one, make sure you understand what you are buying.

Here they are:

  1. Default is the first buying opportunity.  At this point the homeowner has typically missed at least three payments.  You will be buying the home from the homeowner, and they will need to coordinate the sale with the lender.  If the buyer does not have equity in the home, this is a short sale and they can be next to impossible to close.  Most short sales in this area eventually become foreclosures.

  2. Trustee Sale is the second buying opportunity.  The Trustee sale is the “Foreclosure” sale that happens in a public place, like the steps of the courthouse.  When you buy at a trustee sale, you are buying the note, the property and all of the problems.  At this stage you need to be concerned with liens, encumbrances and the occupancy of the property because you will be responsible for these with the purchase.
  3. REO is the third buying opportunity.  If the property does not sell at the Trustee Sale, it is purchased by the bank (Bank Owned) and becomes their “Real Estate Owned” or REO.  This is the safest place to purchase a foreclosed property because the bank will be required to provide a clean, insurable title.

  4. Post Foreclosure Auction is the last buying opportunity.   Post Foreclosure Auctions are the clearance sale of foreclosure homes.  Banks use auctions to quickly sell properties and get them off their books.   Some of these properties may not have sold in the open market as an REO, or they may have so many issues that the seller feels this is the best remedy.   These homes will be sold with a clear title, but the buyer may be responsible for occupancy.

Before you buy a foreclosure, make sure you understand exactly what you are buying. 

Still confused?   Use the form at the bottom of the page to send me your questions.

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