With such an uncertain economy the real estate market has crashed in recent years. Job loss has led to the inability of millions to pay their mortgages thus their homes have eventually gone into foreclosure. It’s a buyers market. Prices are down everywhere you look and in some regions it’s such a steep drop that loans cannot even be refinanced to help those struggling to keep their homes because the appraisals come in far too low.

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The first thing to realize is that there are four stages of foreclosure and three ways to buy a foreclosure. The four stages include missed payments, notice of default, auction and if it’s not sold during an auction it becomes a bank-owned property as it defaults back to the lender, this is also known as an REO (Real Estate Owned) property. Homes can be bought during the pre-foreclosure phase where you can inspect the home and work with the owner to get the deed signed over and have a secure loan to overtake the property. This usually requires you assume the loan and take over mortgage payments sometimes including any missed payments. Auctions are held once the house has entered the true foreclosure phase the owners have been given several months to make arrangements but haven’t be able to get caught up or simply let the house go. At an auction you have to pay in cash or with a cashier’s check so it requires a good deal of financial backing in place already and isn’t something most anyone can afford to do. The risk is also greater since you don’t get to inspect the property and have it assessed. However auctions also provide the best option for the greatest rewards. Thirdly a bank-owned property or REO is another way to buy a foreclosed property. It’s the safest because you have all the information presented to you and these are typically in the best shape however the financial gain or savings is the least unless you happen to get lucky and the bank just wants to dump a property as quickly as possible.

It seems like buying any foreclosed property right now would be a breeze and a great investment, however there are lots of loopholes and other factors buyers should look into and consider before signing that dotted line.

Title search
Do a title search to find out what is really owed on the property. It may be listed at $200,000 owed on the loan however that could only be a second mortgage that you assume and if you unknowingly buy it for $200,000 and then find out there’s also another loan you have to assume you could have just created a terrible financial situation for yourself. Make sure you find out exactly what is owed on a property before entering any agreement or even putting in a bid. This will help you evaluate your situation better.

Sold "as is"
Foreclosures are sold "as is." What you see is what you get. If you can have the house assessed and inspected. This can usually be done during the pre-foreclosure process but often not after that however stipulations may be made and some states have different regulations than others. You’ll likely have to put some money into the property to bring it to a livable or resalable condition as those going into foreclosure often stop taking care of their property. But there’s a big difference between replacing carpet or fixing up the landscaping and having to replace the air conditioning units and have the ceiling ripped out to stop mold from spreading.

Liens
Check to see if there are any liens on the property. This could be a lien on anything from back-taxes to landscaping and concrete construction. These are all expenses that you can be held liable for if you assume the mortgage and sign the deed.

Redemption periods
Some states allow old owners to reclaim their properties if they come up with the money. Every state has a different law regarding this in terms of what can be done, the time period and whether or not the redemption can be waived. This is important because if the owner comes to reclaim their property you will lose all money you invested into it at that time and be upside down in the investment.

Financial backing
Not all banks will give you a loan on a foreclosure especially if they can’t have their own assessor go out and give an assessment to approve the amount. Thus you may have problems getting funded if you don’t already have the funds at your disposal.