What Is a Foreclosure Property and Should I Be Targeting One for My New Purchase?

We’re in the throes of football season and it seems the collisions are getting worse, despite the NFL’s $100 million dollar attempt to reduce or eliminate concussions. Colleges eject players when they are penalized for “targeting” but the NFL does not. While the NFL doesn’t have a so-called targeting penalty, they do have a rule against helmet-to-helmet contact. If you saw Broncos vs. Panthers game recently, you probably saw a target by Von Miller on Cam Newton. An obvious helmet-to-helmet targeting that Miller got away with. But targeting isn’t always a bad thing, especially when you get off the gridiron. In fact, when you target a foreclosure, you just might walk away with a real bargain.

When banks foreclose on properties, it’s a last resort mechanism. The lender gives up on trying to collect past due mortgage payments, recovers the property and sells it at an auction. There are real estate investors who attend such auctions which typically take place at the county courthouse where the property is located. Should you be one of those investors? Sure, but there needs to be some homework beforehand.

At minimum you need to make a physical inspection of the property. In situations where the owners can’t keep up with the mortgage payments they are often behind on necessary maintenance and repairs, too. When buying at a foreclosure auction, you’re competing head-to-head with some pros. If you’re not sure of the condition of the property, perhaps auctions aren’t your best move.

Instead, contact the lenders directly and review their Real Estate Owned, or REO inventory. These are homes the lender has foreclosed upon that did not sell at an auction or the lender didn’t put the home up for auction at all and placed the home directly into its REO department. Homes that are considered REO have been inspected with repairs made where needed. And just as important, any title issues regarding past due property taxes or other non-dischargeable liens have been addressed. And lenders are motivated to get these homes out of their inventory which can translate into a better deal. If you want to target foreclosed homes, make it a safe play. You can certainly go to an auction but buying from an REO department might be the safe bet.