How to Buy Foreclosures & General Warranty Deeds

Foreclosures and REO can be purchased below market value.

Foreclosure properties and Special Warranty Deed or Limited Warranty Deed properties are both considered "distressed" properties, meaning the borrower has missed payments or lost possession of the property through foreclosure. Foreclosure properties are sold by the borrower who still has title possession, while Special/Limited Warranty Deed properties and Real Estate Owned, frequently abbreviated as REO, are sold by the repossessing lender. Each type of property may be a sound investment vehicle or a homestead property.

Instructions

1. Find foreclosure and REO properties. Look through local newspapers and real estate listing publications. Homeowners in pre-foreclosure, meaning those who have already missed payments, and homeowners in foreclosure, those who have received a Notice of Default, may attempt to sell the property by owner or through a broker to avoid repossession by the lender and, if so, will advertise the home for sale. REO properties can be found on bank websites and on government websites like HUD, FHA, Fannie Mae, and Freddie Mac.

2. Value the home. Check the county property appraiser or tax collector/assessor's website to find homes in the neighboring area that have recently sold. You can also look at real estate listing sites such as Realtor and Zillow for homes currently on the market. Compile a list of homes similar to the one you are considering buying--these homes should have about the same livable square footage and the same number of bedrooms and bathrooms. Add all the selling prices and asking prices together and then divide the total by the number of similar properties; this will give you an estimate of the home's market price.

3. Inspect the house. Walk around the exterior and, if possible, look at the interior. Make a list of all defects and items requiring repair, such as roof/ceiling damage, non-working appliances, carpet damage, and any other issues needing attention. Get estimates for repair or replacement of each item listed.

4. Submit a purchase offer. Take the estimated market value and subtract the total repair costs to arrive at your initial purchase offer. Send a copy to the homeowner or the bank and wait for a response. In the alternative, hire a licensed real estate broker or agent and ask him or her to evaluate your purchase offer to determine if it is correct, too low, or too high. The broker or agent's commission will be paid by the seller, so the agent's services will be free to you.

Tips & Warnings

• Go to the county clerk of the court's website and search for liens on the property; "distressed" properties may have liens against them.

References

• Realty Trac: How to Buy Foreclosures
• MSN Money Central: The Safest Ways to Buy Foreclosures