ABA Family Legal Guide

Buying and Selling a Home

Meeting the Players

Buying and Selling Without an Agent

How can I buy a foreclosed property?

Most often, foreclosed properties, called REOs (for real estate owned by the lender), are owned by the lending institution or government agency that backed the mortgage. For one reason or another, the owner failed to make payments on the loan and the lender foreclosed on the property (took possession of it). This means that the lender has taken title to the property and has become an owner seeking to sell. One drawback to buying a foreclosed property may be the condition of the property. Generally, the owner who was unable to keep up on payments to the lender (thus causing the foreclosure) was also unable to maintain the home properly.

Mortgages on all types of properties, including single-family homes and condominiums, can be foreclosed. They are sold individually or through auctions. Some institutions advertise their foreclosed properties; others deal strictly through real estate agents. Local real estate agents usually have a current list of the foreclosed homes in their area and can provide information on these properties. There are also several websites, listed in The World at Your Fingertips at the end of this section, which have lists of foreclosed properties available for a fee.

Fannie Mae, the Federal National Mortgage Association, is a large government holder of mortgages. Information on Fannie Mae foreclosures, as well as foreclosures by other federally backed loans, can be found on the Internet. A useful site is given in The World at Your Fingertips.

The Federal Housing Administration (FHA) usually sells its foreclosed properties through an auction announced in the classified sections of local newspapers. Potential buyers submit bids on the day of the auction, accompanied by a certified check for a percentage of the bid price. The highest bidder usually gets the home.

Buying a foreclosed property can be risky if you are not familiar with the procedures involved. In such a sale, there may not be the safeguards that are present in a traditional sale, such as a lender and a title insurance company. Therefore, if you plan to buy foreclosed properties, it is important to familiarize yourself with the process and consult with a lawyer who specializes in this area.