Frequently Asked Questions

Foreclosures are an increasingly popular real estate market for buyers, but the complexity of the market creates as many questions as bargains for buyers.

What is a foreclosure?

A foreclosure is a term used to describe a home that is facing auction or potential ownership by the bank after the original owner failed to make timely mortgage, tax, homeowner's due or contractor payments. In a foreclosure, there is a period of pre-foreclosure lasting a few months up to a year followed by the official foreclosure auction. If the property is not sold at auction it is owned by the bank and sold as such.

What is a short sale?

In the grace period of a foreclosure, a home can still be sold by the original owner. If a home has been placed under pre-foreclosure, the owner might be willing to sell for a price lower than the market conditions to get out from under the foreclosure proceedings. These sales are called short sales, or pre-foreclosure sales.

What are the risks of buying a foreclosure?

Many might tell you that the biggest risk is not getting a call back when you're interested in a foreclosed property. Buying a foreclosure can be a headache thanks to the overwhelming number of properties the selling agents are handling. They are difficult to track down and the process can include many hoops for buyers to jump through. But even with those hassles, the biggest risk of buying a foreclosure is the state of the home at the time of sale.

If you buy the home "as is" during a short-sale or at the foreclosure auction, you might be the new owner of a property with substantial tax liens, outstanding contractor payments and overdue homeowner's association fees. You can possibly negotiate these, but you will ultimately be responsible. You might also wind up with a home that still has the original owners still living inside and you're now in charge of moving them on.

If you wait and buy a home after the failed auction, the bank will take care of most of the dirty work for you, but you'll still likely inherit the home "as is." At this stage you might be faced with substantial repairs and fixes. Many distraught owners even intentionally damage the home and these problems will need to be repaired as well.

How do I find a foreclosure to buy?

You can find foreclosures through bank websites, local newspapers, MLS listings, and subscribed websites or newsletters that compile foreclosures from many other small sources. For HUD homes, you can also check the HUD website listing these homes for auction as well.

How much can I save buying a foreclosure?

You'll see a few foreclosures for as much as 40 or 50 percent off the market value of the neighborhood, but with foreclosures there are many hidden costs as well. Be sure to include the costs of any repairs, outstanding liens you'll be handling and the increased price you might end up paying if the auction is heated.