Donna LeValley
Buying a foreclosed home these days is tricky, especially in the most expensive cities. The past 15 years have been eventful in the U.S. property market, from the foreclosure surge unleashed by the Great Recession through the COVID-driven real-estate boom, to rising interest rates and persistent inflation.
Finding a foreclosed home
There are opportunities, however, in the turbulence and uncertainty. Periods of high inflation, high unemployment and rising living costs can lead to more foreclosures, short sales, and lender-owned properties (REO, or real estate owned) as lenders reclaim properties from buyers who could no longer meet their financial obligations.
That, of course, means hardship for some, but, as ever, these issues also represent a solid opportunity for investors focused on how to find foreclosed homes to flip for profit, either to live in or as an investment.
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Mortgage foreclosures have been falling as inflation and mortgage rates have softened. “In contrast to the first half of 2023, foreclosure activity across the United States experienced a decline in the first half of 2024,” stated Rob Barber, CEO for ATTOM. “In addition, U.S. foreclosure starts also decreased by 3 percent in the first six months of 2024.”
As foreclosure rates drop, the competition to buy foreclosed and distressed properties is likely to increase.
With many Americans working remotely full-time — often seeking out the cheapest places to live — foreclosed homes represent an opportunity to purchase a property for a lower price than you'll find elsewhere.
Here's our guide to the best foreclosure listing sites and all you need to know.
Foreclosure figures across the U.S.
Some statics about where we stand: According to ATTOM Data Solutions, a property database provider, there were more than 177,431 U.S. properties in foreclosure — default notices, bank repossessions or scheduled auctions — in the first six months of 2024 (the most recent data), down 4.4% from 2023 (and up 7.8% from a two year ago in 2022).
The five states with the highest foreclosure rates for the first half of 2024 were New Jersey, Illinois, Florida, Maryland and Ohio.
Foreclosure activity is down for the first half of 2024. ATTOM’s Foreclosure Activity Report showed a 3 percent decrease from the previous year.
States with the highest foreclosure rates in August were Delaware, New Jersey, South Carolina, Nevada and Florida.
Buying and flipping foreclosed homes might be a path to consider for those who are building a home-selling business. It follows the maxim of buy low, sell high: learn how to find a foreclosed home, buy it on the cheap, make the needed improvements, and sell at or above the market value.
The benefits and drawbacks of buying a foreclosure home
If the home doesn’t sell at auction, it becomes an REO property, and the lender can sell it in the general real estate market or at a later REO auction.
Some buyers are attracted to the idea of buying a foreclosed home in today's competitive and high-priced real estate market.
Here are several questions to consider if you're considering a distressed property.
Benefits:
Lower costs: The biggest advantage of choosing a foreclosed home is a lower sale price. Because lenders are eager to cover their losses, they tend to not price them more competitively.
Financing flexibility: Similar to a non-foreclosed home, you can pursue the usual types of mortgage financing when it comes time to buy a foreclosed home, and the sale has a normal closing period.
Bargaining power: Because banks and lenders want to sell foreclosed homes as quickly as possible, they often pay the real estate agent’s commission and may make further concessions on price, escrow length, closing costs and down payment.
For some federal mortgage defaults, there may be special programs for owner-occupier purchasers to reduce price and competition substantially, such as First Look properties.
Condition and title knowledge: The title will be clear, and you can get the usual inspections.
Drawbacks:
Additional liens: With a foreclosed home, it’s more important than usual to buy title insurance. Even if the bank or lender owns the property, this isn’t a guarantee that the title is clear of liens.
Liens apply to a property and not the person who owes the debt, so buying a house with a lien against it will mean that you now owe the debt that resulted in the lien.
However, a lien may be a bargaining chip, potentially allowing you to negotiate a much lower sale price.
You have to wait for the owners to move out: In judicial foreclosure, the former owner is generally evicted as part of the court judgment but in nonjudicial foreclosure, the lender or purchaser of the home might have to get a separate Notice to Quit or file eviction proceedings.
Right of redemption: Each state has different foreclosure laws and in some cases, the original owners have months to buy back the home uncontested.
This right exists up to the point of sale in all states, and even for a period after auction in some states. Additionally, in states with this right after auction, sometimes the previous homeowner can legally remain in the property during the right-of-redemption period.
You're buying the home as is: While plenty of foreclosed homes are in good condition, some homeowners struggling with their finances may have delayed making necessary repairs.
For properties that have been abandoned, there may be leaks, problems with mold and vandalism. It’s important to have some money set aside to make these repairs.
Find free foreclosure listings near you
Seeking foreclosure homes near you? Foreclosure laws vary by state. Check with your county, town or city. They may have local foreclosure websites or other means of listing local foreclosures and REO properties.
But there is a wide range of online resources for finding foreclosures, including most larger banks (we’ve listed a few):
Equator.com. Equator offers free listings of homes in foreclosure — alongside short sales, open-market listings, and properties available through the Hubzu auction process. Select the "buy" menu, then click on “foreclosure homes.”
HomePath.com. Owned by the Federal National Mortgage Association (known as Fannie Mae), HomePath.com offers free listings of thousands of homes in foreclosure being sold by Fannie Mae.
HomeSteps.com. This site is owned by the Federal Home Loan Mortgage Corporation (also called Freddie Mac). It lists homes in foreclosure that Freddie Mac is selling to investors or potential home buyers.
Zillow Foreclosure Center. The popular website used by home sellers and buyers alike has its own search site for foreclosure listings. You can fashion your own method of searching, filtering by cost or location.
Realtor.com Foreclosures. Realtor.com, a popular website used by new-home seekers or sellers, can help you find foreclosures. You can focus your search using a zip code and/or city. And, while we're on the subject of realtors, by the way, you can also check with local real estate companies and their agents directly to search for foreclosed homes. Many offices have realtors who specialize in this area.
Bank of America-owned properties and foreclosures. This Bank of America site allows users to search for real estate-owned or bank-owned foreclosed properties, by zip code or other methods.
Unlock more listings with these paid foreclosure sites
RealtyTrac. After a 30-day trial for $1.00, it’s $49.60 a month, with discounts on multi-month packages. Members get access to RealtyTrac’s proprietary information, including auction dates and locations, pre-foreclosure addresses, owner information, bank loan amounts and more.
Foreclosure.com. After the free 7-day trial, it’s $39.80 per month. Subscribers receive detailed information on the listed properties, tax roll data, files provided by the lender, local school districts and other listing details.
Explore government sites for foreclosed properties
HUD.gov. Potential investors and other home buyers can find one- to four-unit residential properties that the Department of Housing and Urban Development acquired from foreclosure actions on FHA-insured mortgages.
USDA-RD/FSA Properties. The United State Department of Agriculture-Rural Development and the USDA-Farm Service Agency list properties on this website. Here, you’ll find a small number of single- and multi-family homes, farms, and ranches. Buyers should contact the local USDA-RD office for more information on the property and how to buy it.
IRS Seizures. This Internal Revenue Service website is a portal for finding homes and other property seized by the tax agency for nonpayment of federal taxes.
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