How To Buy Foreclosed Property

Buying a foreclosure can present both great rewards and certain risks. We recommend you do your homework before you buy. Record Information Services has the information you need to begin your research for foreclosed properties.  We gather the pre-foreclosure when it is newly filed, follow that recording through to sale and update our reports weekly.  Liens and other important information is also provided for you to make decisions early on whether you will want to invest it a particular property.

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The mortgage foreclosure process creates three sets of real estate investing opportunities: the "Default/Pre-Foreclosure" phase, the "Auction/Sale" phase and the "REO" phase. It is important to be knowledgeable about the risks and the rewards of each opportunity.


Buying pre-foreclosures involves working directly with the homeowner and sometimes the lender. Your goal is to create a Win-Win scenario. One win is for the homeowners as they make a sale and one win is for yourself when you buy the property at a substantial discount.

To accomplish a successful purchase, most experts recommend the following:

(1)   evaluate and narrow selections to pursue.

(2)   locate loans in default, you can begin this with our weekly pre-foreclosure report and when a property seriously interests you then we recommend that you do a title search

(3) inspect the property if at all possible

(4) evaluate the property owner's needs

(5) determine the market value of the property, fix-up costs, potential sales price and profits

(7) arrange default work out by negotiating with the owner and the lender

(8) close on the property, repair and resell it quickly.

Pros: This is a great investing opportunity if done correctly. Discounts off market value can range from 20% to 35% on average. A low cash down payment is possible if structured properly. You have plenty of time to research properties and sometimes unique and flexible sales agreements are possible.

Cons: It is sometimes difficult to contact the property owner. You will usually have a good amount of competition. You may need to negotiate with the lien holders.

Finally, the court house research can be cumbersome if you decided to personally look up every single newly filed foreclosure or attempt to locate upcoming sales.  You can opt to subscribe to our weekly pre-foreclosure report and let us do all the research at the courthouse. You will be freed up to spend your valuable time focusing on the properties you are most interested in.  A title search is strongly recommended and that research would require your attention.


Buying on the court house steps at the auction can be the most rewarding way to buy properties and the most dangerous at the same time. The property is publicly auctioned off to the highest bidder, and the process moves very quickly. When bidding at the auction, you compete against the lender and other investors.

Auction buyers:

(1) research properties prior to the sale date,

(2) pursue realistic opportunities,

(3) calculate values and potential profits,

(4) determine bid price and

(6) follow the property to the auction and participate.

Pros: Very good to excellent discounts. Investors can achieve 35% to 45% savings off market values and earn an excellent return on investment. This is the only investing method where you can really hit the jackpot.

Cons: Auctions are frequently postponed, wasting your time and effort. It is sometimes impossible to inspect the property. Title Searches are strongly recommended and can cost you some additional money. Certified checks for a percentage of the purchase amount may be required with the balance due in weeks, days or even hours. Improper research can lead to devastating results. Be informed.  Call the auction ahead of time. 


Perhaps the easiest way to buy foreclosed property is buying REOs ("real estate owned"). An REO occurs when the lender takes back the property to gain possession and cut its losses. The lender, however, does not want the property because it is not in the real estate business and is therefore usually motivated to move the property quickly.

Pros: The lender is usually the senior lien holder, thereby wiping out all other liens at the auction. This means an REO will always have clear title, which saves a lot of time, expense and worries when buying foreclosures. Most likely, the lender will also have paid any property taxes in arrears. The lender may either repair the property to acceptable standards or allow a discount to the buyer to accomplish the repairs.

Cons: Rewards follow risk. This is a low risk investing method and the rewards can be on the low side as well. Average savings may range from only 5% to 15% off market value, although discounts of 25% or more are possible if you know how.


Step one.       Get the newly filed foreclosure information early so you can plan.

Step two.       When you get closer to buying, verify that the property is still in foreclosure.

Step three.    Determine the property's fair market value (after fix-up) from local comparable sales.

Step four.       Make a choice. How to analyze the property for buying from the owner before the sale or at the foreclosure sale:

To buy from the owner-in-default subtract all liens and the unpaid property taxes from the fair market value. That will give you the owner's gross equity.  From it subtract all sums necessary to rehab, to reinstate the delinquent payments, the resale costs (commissions, transactional expenses and buyers points) and foreclosure fees. This will give you the owner’s NET equity.

Step five.       To buy the property at the foreclosure auction you would ignore all liens that were recorded junior in time to the one going to sale. Then subtract the opening bid of the lien going to sale and any senior liens (including prop. taxes) from the fair market value of the property to determine the amount of equity up for grabs at the sale and determine your maximum bid amount.

Please see following for more information about Foreclosures & Sales: