Understanding the Foreclosure Process

To truly be an effective foreclosure buyer, you have to understand how it is that a foreclosure becomes available for purchase. Knowing how to find the best deals and best prices depends on understanding how the foreclosure is being sold and why, and this is key to knowing how to place the right bids.

Step 1: How a Foreclosure Begins

A foreclosure is a property that is repossessed or put up for sale by a lender as a result of a homeowner's default on their mortgage loan. Generally, the process begins when the lender issues a Notice of Default informing the local authorities and the homeowner of their intention to seek a foreclosure. Once the Notice of Default is issued, there are several possible outcomes of the foreclosure process:

1. The homeowner will have a certain amount of time before a sale occurs, known as the pre-foreclosure period, in which to pay off their default debt. This will allow them to reinstate their loan and maintain control of their property.
2. The homeowner may also find a buyer for their property during the pre-foreclosure period. This allows them to pay off their debt and avoid having a credit-ruining foreclosure on their record.
3. If the pre-foreclosure period goes by uneventfully, the home can be sold at a public auction scheduled in advance.
4. The lender may be able to take control of the property and sell it themselves in order to recover their losses. This usually occurs when a lender works out a deal with the homeowner after the initial foreclosure, if the property does not get a high enough bid at auction, or if the lender themselves bids at the auction.

Step 2: The Pre-Foreclosure Process

The pre-foreclosure period can range anywhere from one month to a year, depending on local law and custom. Often times, homeowners who cannot pay off their default debt will turn to selling their property during this period. For buyers, this can be a great opportunity to find significant discounts, as most homeowners look to sell for reduced prices simply to raise enough to pay off their remaining loan debt. Buying a pre-foreclosure involves dealing directly with the homeowner, and oftentimes this means approaching homeowners and actively seeking out the deals. However, the results can be quite rewarding in today's market.

Step 3: Foreclosures at Auction

The foreclosure auction is the most commonly known way in which a foreclosure can be purchased. If the homeowner does not reinstate their mortgage, the property goes to a public auction, where anyone can bid. Auctions can be tough because they sometimes occur on short notice and don't allow you much time to do research and analysis of the property. However, they offer some of the best discounts, often ranging up to 50% below market value, and avoid some of the trouble of negotiating with a homeowner for a good price.

Step 4: Bank-Owned Properties and Government Homes

If a foreclosure auction fails to satisfy a minimum bid amount, or the lender bids on the property themselves, then the foreclosure home may be awarded to the lender. This is known as government foreclosures and is most common with bank and government lenders like HUD. When this happens, banks will usually fix up the properties themselves before selling them, which can help you save on repair costs after you buy. However, the discounts you'll find on bank-owned homes aren't generally as high as through the auction method. But this can still be a great way to find quality properties for less.

Step 5: Finding the Right Foreclosure Homes for your Needs

Buying foreclosures can be a great way to save money, but you'll have to have the information and tools necessary to find the right properties and decide which methods of buying and homes are best suited to your needs, abilities and price range. To get started, try searching the ForeclosureDeals.com foreclosure listings database to find all kinds of pre-foreclosures, auction homes and bank owned properties in great locations around the country. Our listings are full of all the details you need, and you'll also be able to learn about all kinds of tips and strategies for getting the best deals from our experts.