I get this question almost every day and what I can tell you is yes, sometimes you can save money on a home that is in default. But, you have to know what you are looking for and be prepared to wait for it.
Why do I say, that you have to be prepared to wait for it? Two reasons, if a home is in default, there is a possibility that the bank may need to approve a short sale, and that can take months. The other reason is usually when a person goes into default on a home, for the first couple months, even if they have equity, they are in denial and may not want to sell to you.
When I sit down with someone in my office that wants to save money buying a property that is in default, we first discuss what they are looking for and what their timelines are. Second, we discuss how they are going to finance the home. Is it through a traditional mortgage or if the bank will allow it, can they just assume the mortgage of the person in default if they catch up any back payments?
This option can be the best and quickest sometimes for both the buyer and seller, if the bank approves it. What I do is tell people to go to my website and download the NOD list from the county they are looking in, that I post each week on my Pre-foreclosure page and see if there is a home there that fits their needs and is in a neighborhood that they desire. Then, call me and tell me the property they are looking at and I will contact the owner and see if we can work out something on your behalf and make it a win-win situation for all.
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