Foreclosures: What You Need to Know

Road signs and online advertisements can commonly be found saying things like “We buy houses.” These listings are typically from real estate investors looking to obtain a property at a discount, such as a property headed for foreclosure. Often referred to as REO or bank-owned, a foreclosure is a type of distressed property that has returned to the control of the original lender. Real estate investors and discount home buyers often seek out these types of properties as an alternative to paying higher prices at traditional retail properties. In many cases, a foreclosure property will sell at or below market value. In some situations, however, they will sell for well above market value. For this and many other reasons, those who are interested in purchasing foreclosure properties should familiarize themselves with how foreclosures are processed before attempting to invest large sums in these types of assets.

Common Types of Foreclosure Sales

There are two main methods of buying foreclosures. A person can buy a foreclosure through a real estate agent or through a public auction. If a person is looking to buy a foreclosure through a real estate agent, it is generally a good idea to make sure the real estate agent he is working with specializes in this type of real estate transaction. On the other hand, a person can easily bid on foreclosures at a public auction in the county where the property resides. Most public auctions, involving REO properties, are conducted online or in a manner designated by the real estate laws of a given state. Since you are not an attorney, you should read the foreclosure laws of the state in which you are interested in transacting real estate.

The disadvantage of public auctions

The downside to buying foreclosures at public auction is that real estate investors sometimes offer properties above retail market value. This can become a problem for people interested in making their investment profitable. Another disadvantage of public auctions is that the bank or lender is usually not required to post any collateral, and the property is likely to be transferred through a quitclaim deed, rather than a surety deed. It’s usually a good idea to research the different types of title deeds. You’ll want to know what it means to take possession of a certain type of deed for a foreclosed property before you commit to buy.

Title search and title insurance

In many foreclosure cases, people figure they will save money by skipping the step of having a title company conduct a title search on the property. This is a very risky and unwise practice. When you pay for a title search, the title company is actively and painstakingly looking for any clouds in the title that may come back later to raise a problem. Purchasing title insurance also helps protect a property owner if any lost title issues lead to legal action against the new owner for foreclosure. For example, the property’s bank or lender may not have had actual ownership of the property before it went up for auction. In such a case, the person or entity in the chain of title who can show that they have an unresolved interest in the property can sue for damages. Without title insurance to protect the owner from foreclosure, this will typically leave the new owner with a large financial loss that could have been avoided.


Although foreclosure shopping is a great way to acquire property at a discount price, a person should always be aware of the issues involved to mitigate any risk. Understanding state laws and taking all necessary precautions will generally lead to a profitable outcome for a smart person trying to buy foreclosures. Those learning how to make a sizable income in foreclosures will often see value in using ads that say, “We Buy Homes,” to help them make more money in the foreclosure market.

Leave a Reply

Your email address will not be published. Required fields are marked *