How to Find Foreclosed Homes

Foreclosures represent an opportunity to purchase properties at a discounted price. The challenge lies in finding these homes, especially in markets where foreclosure filings are rare. In 2023, about 0.26% of all properties in the US were in foreclosure, down a 2.23% 20-year peak in 2010. But with some patience, you can find the golden egg.

This article will guide you through various methods to locate foreclosed properties. Use our tips to overcome common obstacles in your foreclosure home search.

Understanding Foreclosures

A foreclosure happens when a homeowner cannot make mortgage payments, leading the mortgage lender to start the foreclosure process to seize and sell the property.

Foreclosure properties come in different types. Each type presents unique opportunities and challenges, such as varying degrees of renovation needs and negotiation potential. Understanding these types of foreclosure sales can assist buyers in hunting down these elusive listings.

A quick look at foreclosure types:

Type of Foreclosure	Description
Pre-Foreclosures	Properties in early stages, still owned by homeowner
Bank-Owned Properties	Homes taken over by banks post-auction
Government-Owned	Properties owned by government agencies post-foreclosure

Property buyers benefit from a foreclosure purchase because these homes usually have lower purchase prices than traditional listings. Holding onto these properties costs the lender or government money, so they want to offload them. The foreclosure process is also expensive and they want to recover some of their costs. That’s an opportunity for real estate investors to buy properties below market value or for first-time homeowners to get a property they can afford.

Buyers can purchase foreclosed homes through auctions or directly from banks and government agencies. But how do you find them? Here’s how:

Use a Foreclosure Real Estate Agent

Forging relationships with knowledgeable real estate agents can be invaluable in your search for foreclosed properties. Some agents specialize in foreclosure homes and have insider access to foreclosure listings and auctions. Many lenders are now selling their real estate assets through professional agents. Get to know who these real estate agents are and establish a rapport so you’ll know as soon as a new property is in their database. 

Leveraging a real estate agent’s experience with foreclosures could offer a competitive edge. They can also guide you through the legal and financial aspects of purchasing a foreclosed property, ensuring you make informed decisions.

Explore Bank-Owned Properties

Banks often list foreclosed properties, also known as Real Estate Owned (REO)or Bank-Owned properties, for sale after repossession. To find these listings, visit bank websites or contact their REO departments directly.

Remember that banks are motivated to sell these for as much profit as possible. That can cause negotiations to take much longer than a traditional home purchase. It takes weeks for banks to respond to offers. However, the longer the property lingers on the market with few offers, the more motivated they are to move their assets quickly.

Government-owned Properties

Government entities sometimes end up owning residential real estate due to unpaid taxes or home loans insured by government agencies such as the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Agriculture (USDA), or the Department of Veterans Affairs (VA). The HUD Home Store and USDA-RD foreclosure listings are great places to start if you’re interested in government-owned foreclosures. Additionally, you can visit local government websites or offices for auction announcements and listings.

Check Fannie Mae HomeSteps

Fannie Mae’s HomeSteps program sells foreclosed properties across the United States. The website provides a comprehensive search tool to help you find homes in your desired area. Additionally, Fannie Mae occasionally offers qualified homebuyers special financing options and incentives. It’s an attractive option for first-time buyers and investors alike.

Utilize Real Estate Auction Companies

Real estate auction companies frequently handle the sale of foreclosed homes. These auctions are typically open to the public and can be an excellent way to find properties at a reduced price. Be prepared to act quickly, as foreclosure auctions require potential buyers to have financing in place before placing a bid. Popular auction platforms include Auction.com and Hudson & Marshall.

It is wise to attend a few auctions as an observer to familiarize yourself with the process before participating. Research the auction house’s rules thoroughly and understand the type of foreclosure and terms of sale.

When bidding, be confident and decisive but not impulsive. Focus on potentially undervalued properties with good investment potential. Remember, the highest bid isn’t always the best option. Maintaining a disciplined approach is the key to making a smart purchase.

Be aware auction purchases come with higher risks. Not all will allow you to tour the home before the auction, meaning potential issues could lurk inside. Also, it may be less clear if the title is clear of liens.

Leverage Search Engines with Foreclosure Filters

Online listing services like ezHomeSearch have search filters specifically for finding foreclosures, making it easier to locate potential properties. You can also set alerts for new listings that match your criteria to stay updated on the latest opportunities. Remember that persistence and patience will win, as finding the right property in areas with limited foreclosure activity may take time.

Some websites make you pay to search foreclosed homes and auctions. A service like ezHomeSearch is how to find foreclosed homes for free. Your information stays private and there’s never a charge to search the properties.

Attend Sheriff’s Sale Auctions

Sheriff’s sale auctions are public auctions of foreclosed properties often held at courthouses and run by local law enforcement. These auctions are announced through public notices in newspapers or online. Participation requires advanced registration and funds ready, as successful bids usually require immediate payment.

Remember that properties sold at sheriff’s sales are typically sold “as-is,” so thorough research and due diligence are essential. They are often local government-owned properties where an agency foreclosed due to unpaid property taxes, but it could also have been re-possessed under court-ordered circumstances.

Overcoming Challenges in Finding Foreclosed Homes

Scarcity of Foreclosure Filings

In some real estate markets, foreclosed homes for sale can be scarce. To overcome this obstacle, expand your search area and explore multiple sources simultaneously. Patience and persistence are crucial, as it may take time to locate the right opportunity.

Filtering Through Various Sources

Sifting through the numerous sources of foreclosure listings can be time-consuming. Streamline your search using online platforms with foreclosure filters and set up automated alerts for new real estate listings. Additionally, consider partnering with a foreclosure real estate professional already doing the filtering as part of their daily work. They can assist in identifying potential properties.

Assessing Property Value Accurately

Accurately assessing the value of a foreclosed property is pivotal to making a sound investment. Begin by consulting with real estate agents to obtain a comparative market analysis of similar properties in the neighborhood. Utilize multiple real estate websites to check current market trends and comparable homes’ sale prices.

Even though it’s not always possible, a physical inspection is essential to identify any necessary repairs that could impact the property’s value and your bottom line. Partnering with professional home inspectors or contractors can help you get an accurate estimate of repair costs. Remember these costs in your mortgage payments and overall budget to ensure a profitable purchase.

Acting Quickly on Opportunities

Foreclosed properties often attract significant interest due to their competitive pricing. Be ready to act when you find a potential opportunity. Secure your financing options in advance so you’re able to get it in before someone else does.

How to Find Foreclosed Homes For Sale

Purchasing a foreclosed home can be lucrative, but it requires due diligence and strategic planning. If you’re buying foreclosures, you could snag a lower sale price and face less competition than with traditional home sales. But, it’s a good idea to team up with a real estate agent who knows the ins and outs of foreclosure since these deals can get tricky. These purchases come with potential risks. But if you’re prepared, it can be a smart investment.

Checking out foreclosure listings on online resources like ezHomeSearch gives you useful info about these properties. You don’t need to pay for special access to find foreclosed homes to buy.

FAQs

What are the cons of buying a foreclosed home?

These properties are generally sold “as-is,” meaning any existing issues—such as structural defects, missing appliances, or overdue maintenance—are the buyer’s responsibility. This can result in extensive repairs, which might offset the initial savings. A home inspection can identify any potential issues with the property.

The buying process can be lengthy due to potential legal complexities and bureaucratic hurdles, such as with buying government-owned foreclosures. It may delay possession of the property. Meanwhile, it sits unoccupied and unmaintained, increasing the chances of damage.

Some foreclosed homes may have multiple liens, title issues, or unpaid taxes attached, increasing financial liability. Competition among investors for foreclosures can be fierce, which may lead to bidding wars and drive up prices beyond expected savings. All-cash offers stand out because they can move quickly, but it takes having financial resources to make such a purchase.

Why do banks sell foreclosures so cheaply?

Banks sell foreclosures at reduced prices primarily to recover the outstanding balance on the property loan as quickly as possible. When a property is foreclosed, it is considered non-performing. That impacts the bank’s balance sheet by tying up capital and reducing liquidity. By selling the foreclosed home at a lower price, banks aim to swiftly eliminate the associated costs and liabilities, such as maintenance, taxes, and insurance. The discounted price also helps attract buyers in a competitive market, ensuring a more rapid sale.

What are some tips for determining what purchase price to offer on a foreclosed home?

1. Research Comparable Sales: Start by looking at recent sales of comparable homes in the same neighborhood. Review the sale prices of similar properties to determine a reasonable price range. Real estate websites and local tax records are great resources for this information. So will your real estate broker partner.
2. Evaluate the Property’s Condition: Consider the condition of the foreclosed home and how much you may need to invest in repairs. If possible, do not waive the inspection contingency. Conduct a thorough inspection to assess any potential renovations. Calculate the cost of repairs and factor them into your bid to ensure you won’t be overextending your budget.
3. Understand the Bank’s Motivation: The longer a bank owns a property, the more motivated it is to close quickly. Knowing how long the home has been listed can provide leverage in negotiating a lower purchase price.

What does “short sale” mean?

A “short sale” occurs when a property is sold for less than the amount owed on the mortgage. In this scenario, the lender agrees to accept a reduced payoff to release the lien on the property, allowing the sale to proceed. This typically happens when the homeowner faces financial difficulties and can’t keep up with mortgage payments, leading to the risk of foreclosure.

Short sales can be an attractive option for buyers as they may secure properties at below-market prices. However, the approval process from the bank can take time, and buyers might find themselves in a competitive situation against other potential buyers. Furthermore, since the seller may still occupy the home during the process, it may not be in the best condition when viewed.

What does pre-foreclosure mean?

Properties listed as “pre-foreclosure” are distressed properties still owned by an independent owner and not the bank or government entity. The owners are aware they are in default and may be trying to sell the home as a way of making up their mortgage payments. Each state has different laws around approaching owners of pre-closure homes, so check with a local real estate expert or attorney.

What states have the most foreclosures?

As of the first half of 2024, New Jersey, Illinois, and Florida reported the highest foreclosure rate. Their rates were at 0.21% and 0.20% of all homes. Foreclosure actions were also high in Nevada, South Carolina, Maryland, and Connecticut, all with 0.19% filings.

Do you pay closing costs in a foreclosure purchase?

Closing costs are still a part of the potential deal, but there are ways to lower or avoid them. For instance, you could negotiate with a mortgage lender to wrap closing costs into the home loan. Some banks might cover some of the closing costs if they can sell it fast, but that’s a rare circumstance.

What are other options for finding under-market value homes?

Investigate probate or estate sales. Probate or estate sales occur when the original homeowner passes away, and the property must be sold to settle the estate. These sales can sometimes lead to opportunities if the property is not maintained or debts remain unpaid. Contact local probate courts or estate sale companies to inquire about upcoming sales in your area.