I'd like to pay less for a home.

October 24, 2005 11:53 AM

What happens to foreclosed homes?

When the bank forecloses on a home, how do they sell it? Do they auction it, or sell it on the open market? Are foreclosed-on homes generally good deal? My intuition says that they should be, but perhaps there are additonal factors I'm not aware of.

How would I go about finding and buying a foreclosed-on home?

posted by Four Flavors to home & garden (8 comments total)

Top 4 Books - Buying Foreclosed Properties and eHow's How to Buy a Foreclosed Home should be good starting places.

From the second link, check Fannie Mae and HUD.gov for lists of foreclosed homes for sale. Which I'm going to do right now and see if I can get a nice cheap 4 bedroom 4 bath house on the beach in Santa Cruz for $75.

Also, How to Buy a House at Auction. I'm currently involved in finding a builder who can construct a house in California out of Grancrete.
posted by fenriq at 12:06 PM on October 24, 2005

Many times, the bank has an auction. If, however, the property was seized as part of a larger bankruptcy settlement, you'll sometimes see these properties at Sheriff's auctions.

Real Estate speculators typically start at these types of auctions, but you should be aware that this has become the purview of the "Get Rich Quick" schemers. You'll find yourself in the company of people who have a little money and who clearly don't know what to do with it. That could allow you to pick up property at a highly undervalued price, or get caught in an otherwise unreasonable bidding war.

The only advice that I can offer, if you're looking to get into this, is only speculate in active market places. You can get property for an absolute steal in rural areas, but you'll have a devil of a time offloading it. You really want fast turn-around on your properties, as you don't want to get caught paying too much for financing.
posted by thanotopsis at 12:32 PM on October 24, 2005

Wait a sec- grancrete... as in "Grandma-Crete"?!?

Is this that stuff I remember hearing about a few years ago on TV, where someone's grandma accidentally spilled some random stuff on some other random stuff, and made essentially a completely fireproof paint or stucco? I vaguely remember when they aired those on 20/20 and the like, it was supposed to be the next big thing, and that grandma was going to be filthy rich- and that the big companies were trying to buy her out but she wouldn't sell.
posted by hincandenza at 12:35 PM on October 24, 2005

Four Flavors: "How would I go about finding and buying a foreclosed-on home?"

Watch the legal announcement's section of your area's official legal newspaper (usually each county has one newspaper that's been designated as such, where all legal notices get printed). Each state has a different set of rules, but on one day of the month, all foreclosures must be announced in the paper. If you call the paper, they'll tell you what day each month they run ("Second Thursday", or something like that.)

The notice will give the property address and the foreclosure amount. You can research the property further at the courthouse to see what other liens have been put against the house (like second mortgages, taxes, etc). You can then determine how much, if any, equity is in the house and whether it'll be worth chasing.

The best thing you can do, in most cases, is buy the property from the forclosed-upon party for less than market value (there are many reasons why they might want to dump the property) and then resell it for enough to pay off all the liens plus enough to cover your work.

And it is a lot of work... for every foreclosure, only a small fraction are really worth going after. And for every notice in the paper, only a fraction will go to auction. (And if they do, given the current real estate market in most places, the bank's reserve price will likely be pretty high. You often hear that the last thing banks want to do is forclose, because of all their added expenses, but when it's a seller's market there's no need to settle for low auction prices.)

Anyway, to find out more, look up your local Real Estate Investor's Association. They'll teach you all about where it works in your neck of the woods.
posted by ewagoner at 12:43 PM on October 24, 2005

It probably differs in every state, which may be why some of the above responses appear to me to be incorrect. In my state, however, there is a very specific process by which properties are sold at foreclosure.

First, the bank never holds the auction itself. Nor does the bank set the starting price for the bidding.

This is all handled by the Sheriff of whatever county the property is located. When the bank gets an order from the Court okaying the property to be sold at foreclosure, the Sheriff sends out an appraiser to set a value on the property. The appraiser's value may or may not be closely related to the property's actual market value.

After this is done, the property is advertised for sale in the local legal/general newspaper. The auction is held by the Sheriff (or someone from the Sheriff's office) at the appointed date and time. The property cannot be sold for less than 2/3 of the Sheriff's appraised value so there is zero chance of getting a property for pennies on the dollar.

Often, the bank will have a representative make the minimum bid on the property. The bank then takes legal title to the property at no cost to itself (it just cancels out the debt owed to the bank). The bank then turns around and tries to sell the property on the open market, hoping to get back more than what it bought the property for at auction.
posted by GregW at 2:06 PM on October 24, 2005

Around here, it seems the banks list it with a real estate agent like anybody else does when they want to sell a home.

The bank would like to get as close to market value as they can without waiting too long. In much of the US and Canada right now, it's a seller's market so this isn't hard to do.

With regards to the home, if the previous owners weren't making the mortgage payments then they probably weren't spending any money on the upkeep of the home either.
posted by winston at 6:04 PM on October 24, 2005

The Savings & Loan I used to work at sold them on the open market - listed it at MLS, etc.
posted by deborah at 7:11 PM on October 24, 2005

Also, you could call and ask to speak to someone in the REO (real estate owned) Dept. Depending on how you qualified, it was possible to get a deal on the fees (reduced or waived).
posted by deborah at 7:14 PM on October 24, 2005