The best investors for buying foreclosures are those with the time and ability to research all the issues related to making an informed decision. If you’re willing to do the research, in this economy, you will find an abundance of properties to purchase. But before you spend any money, you want to be reasonably certain that there will be no creditor claims that will come back to haunt you even after you buy the property.
10 years ago the best way of buying foreclosures was at a sheriff’s auction. This is the end of the foreclosure process in both traditional and non-traditional foreclosures and when the lender sells the property to the highest bidder in an effort to recoup some of the loss from the defaulted loan. Unfortunately you have little protection regarding any additional liens on the property or the property’s condition when buying foreclosures at auction.
In many states the current owner may remain in the property for 10 days or longer after the sheriff sale and as a purchaser you will have no way of knowing the current condition of the property until after the current owner vacates. If they don’t vacate willingly you’ll have to initiate procedures to have them removed. This process can be tedious, expensive and time-consuming and definitely not for the faint of heart. Even still this was the best place to acquire properties for a steep discount.
In today’s economy, unless you have a specific piece of property in mind that you want to snag quickly, buying foreclosures is much easier from the lender. When a property goes to auction, if there are no bidders the bank that initiated the foreclosure usually buys the property. These properties are called Bank owned or REOs. When the bank buys back a property, they will evict the occupants, clear out the property (just remove debris no cleaning) and list the property with an agent. As a prospective purchaser, this provides you with the opportunity to view the property and possibly have it inspected before committing.
In a stable real estate market, REO properties are listed only slightly below market value, however since banks are currently holding over 1 million foreclosed properties, these bank owned homes are being offered at prices comparable to or better than those at sheriff sale. The best part of purchasing a bank owned home is that instead of the sheriff’s deed which offers no protection from additional or unknown creditors, most REO sales provide a warranty type deed which offers cursory protection from others who may try to claim ownership.
Understand that neither of these options for buying foreclosures factors in the condition of the property or any repairs that may need to be made and you will still need to perform your own research regarding the property and its appropriateness for your plans. However, for the foreseeable future, buying foreclosures from the bank is the better deal.