Foreclosure is a term that gets thrown around so loosely that a lot of people use it interchangeably with HUD homes or REO's. In my area, Atlanta Georgia, foreclosed houses are auctioned off the first Tuesday of every month on the courthouse steps of the county where the house is located. Anyone with readily available funds can buy one right there on the spot. The homes that do not get purchased on the courthouse steps, have been through the foreclosure process, and title then reverts back to the bank, or their insuring entity such as Fannie Mae or HUD.
So you want to buy a foreclosure? Here is a step by step process:
- These homes are advertised for 4 weeks in the Counties legal paper, which is the cheapest way to find them. You can subscribe to other publications that make the search easier for you, but that can be a little more costly.
- Mark the adds that you have an interest in. In my case, I look for houses that would appear to have a considerable amount of equity in them. Make sure you ascertain that the loan is a 1st mortgage, as opposed to a 2nd or 3rd. If you buy a foreclosure on a 2nd mortgage, you are buying it subject to the 1st mortgage and may end up having to pay if off, so be careful here. When you buy a foreclosure on a 1st mortgage, everything behind it is wiped out, with the exception of a tax lien.
- Most law firms advertising foreclosures today have a website with a list of the foreclosures they are handling for that month. The web address will be listed in the add. I use these sites to track the properties I'm following to make sure they are still on. For various reasons each month, many of the houses come off the list. It could be that they paid up, or filed bankruptcy, or some other legal issue. Regardless, you don't want to spend a lot of time driving around looking at the ones that are no longer available.
- Once you have narrowed your list down to those still available, it's time to map out your route and start driving by the properties. Chances are very slim you'll ever get to see inside one, but you can take pictures from the street, make notes as to the amount of repairs you think the home will need, and get a good ballpark idea of what the property should sell for when fixed up. Do as much "due diligence" as it takes to make you comfortable from a pricing standpoint.
- Go the the records room of the courthouse and check for tax liens or other title issues that may affect the property.
- You can do it by hand, or use excel to make a spread sheet to keep up with the houses you are interested in. I like to lump all the houses under one attorney together, alphabetized by owners name. This will cut down on a lot of confusion on the courthouse steps. You will also want to put your numbers on here, specifically, the maximum amount you are willing to bid, and any other brief notes to help you out. Be careful about sharing this info with others on the steps, remember, they are competing against you on the bid.
- Get your money ready. Either the afternoon before, or first thing the morning of, you will need to make a trip to your bank. You will need cashiers checks to buy these homes. You may need to get 6 or 8 checks here, depending on the amount of bidding you plan to do. Have the checks made out to yourself so it will be easy to re-deposit if you don't buy anything. Get the check in various amounts as well. Something like one for 100k, one for 50k, two for 20k, one for 10k, and one for 5k. That way, you should be able to land pretty close to your bid price. If you go a little bit over, the attorney can write you a check back for the difference.
- I would suggest a couple of trial runs to begin with, just to get an idea of how things are done, who the attorneys are, what time they show up, who the big players are, who to stay away from, who might make a good partner if you so choose, etc. It will be nothing short of a very interesting day I promise.
Happy Hunting!
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