Highway signs and online advertisements can commonly be found saying things like “We buy houses.” These ads are typically from real estate investors looking to get a property at a discount, such as a property headed for foreclosure. A foreclosure, often referred to as REO or bank ownership, is a type of distressed property that has come back under the control of the original lender. Real estate investors and discount homebuyers often look to these types of properties as an alternative to paying higher prices for traditional retail properties. In many cases, a foreclosed 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 buying foreclosed properties should familiarize themselves with how foreclosures are processed before attempting to invest large sums of money in these types of assets.

Common Types of Foreclosure Sales

There are two main methods of buying foreclosures. A person can purchase a foreclosure through a real estate agent or through a public auction. If a person is looking to purchase a foreclosure through a real estate agent, it is generally a good idea to make sure that the real estate agent they are 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 held online or in the manner designated by the real estate laws of a given state. Since you are not a lawyer, you should read the laws governing foreclosures in the state in which you are interested in transacting real estate.

The downside of public auctions

The downside of 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 will likely be transferred via a quitclaim deed, rather than a warranty deed. It’s generally 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 to a foreclosed property before you commit to buying.

Title search and title insurance

In many foreclosure cases, people imagine that they will save money by skipping the step of having a title company perform a title search of the property. This is a very risky and reckless practice. When you pay for a title search, the title company is actively and diligently looking for any clouds in the title that may later turn up again to pose a problem. Purchasing title insurance also helps protect a property owner if a lost title issue leads to legal action against the new owner from foreclosure. For example, the property’s bank or lender may not have had actual ownership of the property before it went up for public 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 may 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.

Conclusion

Although buying foreclosures 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 the necessary precautions will usually lead to a profitable outcome for a smart person trying to buy foreclosures. Those learning to make a substantial income in foreclosures will often see the value of using ads that say, “We Buy Homes,” to help them make more profit in the foreclosure market.