The process of buying properties that have gone through the foreclosure process can occur in a number of ways. First, the house can be sold at foreclosure auction and the buyer is someone other than the original lender. Second, if there are no bidders at auction, the lender will repossess the house as the highest bidder for $100 above the final judgment amount in the court action.
If an individual purchases property at auction, they will be purchasing a property that may have significant deficiencies with its title, structural problems, property taxes due, illegal structures on the property, unauthorized work, or other issues that may cause the bidder to sorry later bought the house. If he intends to bid on a foreclosed property at auction, I suggest that he try to see the inside of the property before the sale. This is not to say that breaking and entering is the answer, but rather that contacting the landlord and asking them to buy the property from you would be a better alternative. If you have moved, try to get the landlord’s permission if he can locate you and come in with some kind of permission letter in his pocket in case the police are called.
You can also do your public records homework or hire an attorney to do it for you. In fact, a complete and complete title search can be performed by an attorney in a matter of minutes or days. You can also conduct an open search for permits and code violations in about a week, depending on your local city or county code enforcement department. Some cities will take time to do it if you come and others will make you pay and wait 30 days or more. While this is being done, you should have a home inspector do an inspection if you can enter the property, if not, have him do a visual inspection from the outside to see if he notices any structural issues.
The second way to buy a home that has gone through foreclosure is to buy an REO. An REO is a “real estate owned” property that has gone through the foreclosure process and has been purchased at the foreclosure auction by the lender. Often the lender is forced to bring a property up for auction in order to remove or “extinguish” minor liens against the property; otherwise, the lender would have to take responsibility for paying these minor liens if the homeowner gave the lender a “Deed-in-Lieu of Foreclosure” and walked away.
The big difference between the lender getting the REO and reselling it is that they must bring all delinquent taxes on the property to the buyer. He must also provide the buyer with a “fee simple” or “free and clear” title. The process of clearing title deficiencies can sometimes be very expensive, so purchasing an REO eliminates these related issues. However, a clear title does not mean that the property is free of deficiencies and that the buyer has to deal with them on their own. These include boundary disputes, structural damage, vandalism, missing appliances, or possibly even the premises being stripped of all metal, as well as other issues that are excluded from the title policy. This is why a home inspection is so important in determining what problems a buyer should expect when getting title to the property.
Therefore, buying an REO is generally much better than buying a property at the foreclosure auction. There are exceptions, but the buyer should be aware that hidden or unforeseen problems can make a “cheap” purchase more expensive than a new home. So, as always, do your homework and “buyer beware.”
