^ This old house. Foreclosure starts when homeowners are at least 90 days behind on mortgage payments and receive a notice that they are in default. That’s called pre-foreclosure. Every state has its own procedure for what follows, but eventually, if the bills aren’t paid, the house is foreclosed and auctioned off by the county sheriff. At least half these auctions draw no bidders, and the home ends up sold to the bank holding the mortgage, for the loan balance. In most cases, the bank then puts the house on the market, with the aim of unloading it quickly. Those bank-listed houses are called Real Estate Owned or REO properties. Buyers can get in at any of the three stages.
^ A bad bid? The riskiest time is at that auction. Buyers must be prepared to pay cash the same day for homes they can’t see or inspect. The safest (and least profitable) is to buy REO property from a bank. The best scenario is to step in before the bank does and work out a win-win deal with the defaulting homeowner. But you’ll need to put in the legwork. Anyone can find lists of properties in default in the public records at their county offices, but there is an easier way. A slew of Web sites amass that data and then sell it, typically for about $40a month. Most offer free trials, so check out a few–like Realtytrac, foreclosure.com , defaultresearch.com or foreclosurenet.net –before you settle on one. The federal government lists foreclosures from its housing programs free of charge at homesales.gov .
^ Let’s make a deal. Defaulting homeowners who go all the way through foreclosure will lose their house and their credit rating, and could end up with nothing, but many people wait too long to take alternative action. By the time their foreclosure approaches, they can’t make repairs, hire a real-estate agent and wait for the highest offer. That’s why private offers work. Some bankers will even cut the amount due on the loan to make a sale happen, so would-be buyers should negotiate with the homeowner and mortgage holder. Research the house, and offer an amount that will allow the seller to walk away with a paid-off mortgage, some cash and his dignity. “Tell them to call the Center for Foreclosure Prevention [run by the nonprofit Neighborworks, nw.org ], and to run your offer by a lawyer,” says Realtytrac’s Rick Sharga. “Differentiate yourself from scam artists.”
^ Patience is a virtue. It typically takes seven months to buy a house, so don’t rush the process. By then, the full foreclosure flood may have materialized, and you might find an even better bargain.
