Options for Purchasing Foreclosures: Auctions and Bank-Owned Properties
Sheriff's auctions were the go-to place to purchase foreclosed homes a decade ago. In both conventional and non-conventional foreclosures, this is the last step before the lender attempts to recover part of the loss from the defaulted loan by selling the property to the highest bidder. Buying a foreclosure at auction leaves you vulnerable to any extra liens or poor condition on the property.
Until the present owner leaves, you, the buyer, have no idea what the property is like because many states allow owners to stay for at least ten days following the sheriff sale. If they refuse to go voluntarily, you will need to take legal action to get them removed. Not for the faint of heart—this process can be expensive, time-consuming, and laborious. Still, there was no better spot to get houses at a great discount than today.
These days, it is far easier to purchase foreclosures straight from the lender unless you are looking for a very particular piece of property that you want to acquire fast. In the event that no one bids on a property at auction, the bank that started the foreclosure process will likely purchase it. Bank owned properties are also known as REOs. The bank will hire a real estate agent to list the property after they evict the tenants and clear it out (just remove trash, no cleaning). This gives you, the buyer, the chance to see the home and maybe even get an inspection done before you commit.
Real estate owned (REO) properties are sold at prices that are equivalent to or even better than sheriff sale prices. This is due to the fact that banks currently possess over 1 million foreclosed houses, even if the real estate market is stable. One advantage of buying a house from a bank is that, unlike the sheriff's deed, which does not protect the buyer against additional or unknown creditors, a warranty deed, which provides limited protection from others trying to claim ownership, is typically included in real estate owned (REO) deals.
Keep in mind that when considering these possibilities for purchasing foreclosures, the condition of the property and any necessary renovations are not taken into account. It is still your responsibility to conduct your own research to see if the property is suitable for your plans. But for the time being, it is more cost-effective to purchase bank foreclosures.
