Foreclosures, oh, foreclosures. The media makes it sound so simple and abounding with bargains. Here is what I know.
It is better to get a house before it is foreclosed. Bad things happen to vacant properites: vandalism, mold, decay of various sorts; and foreclosed properties can sit vacant for a year or MORE. Still, there are some "deals" out there that are bank-owned properties. Just have thorough inspections, and don't expect perfection -- you aren't paying for it!
You might also want to consider buying a short sale, but realize this process isn't for the faint of heart or those who need to get into the house in a specific time-frame.
A short sale occurs when the homeowner owes more that the property is currently worth. If mortgage modification isn't an option, then a short-sale is a very positive alternative to foreclosure for the owner.
In a short-sale, the home is sold with the lender agreeing to take less than the outstanding loan amount due (hence the term “short” sale). The owner walks away with no proceeds, but the debt is also usually forgiven. A foreclosure has much more severe credit repercussions as well as tax and deficiency liability for the homeowner.
In a short-sale, the homeowner lists the house with a Realtor, and then the agent and the seller work together to get the bank to take less than is owed on the property. If there are two mortgages or multiple lien-holders, the process becomes even more complicated. Sometimes negotiations with the bank are handled by an attorney, and this can be well worth the attorney fees as they have a higher success rate with the banks. The buyer may be responsible for attorney fees or the bank may pay them.
Banks will sometimes take 20% less than is owed, and fortunately, the process is becoming somewhat more streamlined with more banks willing to agree to a short-sale. Still, the process can lengthy and arduous, and not for every buyer, but it can result in a great deal. There is more you would need to know, but that is it in a nutshell. It is important to realize that you can be negotiating in good faith on a short sale, and at the last minute the bank can decline it or the house can go into foreclosure and you are out of luck.
These short-sale listings will be in the MLS along any normal listing meeting your criteria, but they should say in the comments "subject to bank approval" or "short sale."
When foreclosure procedures actually begin, a listing should note that it is in the foreclosure process. Buying one of these can be tricky as it can be foreclosed at any time, negating any offers or contracts on the property.
Once the property is actually foreclosed upon, it goes to the "courthouse steps" for auction. There may be some deals to be had there, but many don´t sell there as the starting bid is usually what was owed on it, and that is often more than it is worth today. (I am in no way involved in that process. You can find properties going to auction on www.buncombecounty.org).
So then, the properties that don´t sell at auction go to the bank´s REO (real estate owned) department. The bank then lists it with a real estate agent, and those listings will show up in MLS along with the regular listings. These don´t end always as great deals, though they can be, because by this time the bank has in the property what was owed plus 30 - 50k in expenses involved in the foreclosure process. However, I am seeing better deals on REO properties as the banks become more motivated to get rid of their vast real estate inventory!
I do work these properties if they are listed in the MLS. I do not list bank-owned properties (that is really an area of specialty), but some of my associates do so exclusively. I do list short-sales (occaisonally) and understand that process, but I do not have access to properties in default or going to auction "on the courthouse steps" (check the county clerk's office for foreclosure auctions).
if you want to discuss distressed properties.