HOW TO BUY A FORECLOSED HOUSE: Steps to Buying a Foreclosed House

how to buy a foreclosed house
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Want to know more about foreclosure or how to buy a foreclosed house? This article centers on the meaning of “foreclosed house” and how to buy a foreclosed house at auction, from the bank, with no money down, and in California. We will also be discussing the following: short sales, bank-owned, pre-foreclosure, repossession, bankruptcy, and realtors.


The word “foreclose” was gotten from an old French word known as “forclos”, and is also called “forclore,” with the Latin meaning (for) as outside and (clore) as close.

To buy a foreclosed house, the lender should legally (foreclose)the property from the borrower. Before we proceed, let us know the meaning of foreclosure and other discussions of the following stated above.


Foreclosure can also be known as foreclosing or foreclose, meaning preventing or stopping someone or something from escaping or barring them from doing something. It also means the process or act of recovering debt or taking possession of a person’s properties as collateral if the borrower fails to pay the debt when due to settling the debt.

It is an involuntary process whereby the lender legally does anything to the house/property without permission from the borrower. Foreclosure is done at a public auction. Before a foreclosed, it must complete a foreclosure process. It might last for 120 days depending on the state/area.


A foreclosed house is the past tense of foreclosure. The property(mortgage) owned by the borrower has legally been possessed by the lender. If the borrower fails to pay the debt at the excepted time.

If nothing is done to pay off your debts, the house or mortgage will legally become the lender’s property. That is when the property is foreclosed.

Short Sale

A short sale is an agreement approved by both the borrower and the lender so that the borrower can sell his/her mortgage.

It is also a voluntary process that allows the borrower to sell the properties at a lower price than the amount owed to the lender.

Any transaction made on the mortgage belongs to the lender. And the borrower still has more to pay if the lender wishes.


It is the first phase or step that the lender uses to claim the property of the defaulted borrower. It is a notice the lender gives to the borrower to obtain the money owned before the foreclosure. That is if the borrower fails to pay the specific amount of money at a specific time.

In pre-foreclosure, the lender can let the borrower make a payment or negotiate to get out of pre-foreclosure.

Bank Owned

Bank-owned means a property(house) that is already foreclosed by the borrower or bought back by the lender if it was put on public auction and wasn’t sold after foreclosure. The bank, which has another name as real estate owners, becomes the bank’s own, and the bank maintains it. Bank-owned is out on competitive prices through realtors to recover their initial investment. The mortgage loan on the property no longer exists once it becomes the bank’s own.


It is a request form to postpone or save the borrower from foreclosure through a reaffirmation agreement. The agreement should include that the owner still has possession of the property and that the owner should make the payments on the loan to the lender on an agreed day to avoid foreclosure.

There are two types of bankruptcy namely;

  • Chapter 7
  • Chapter 13

In Chapter 7, the borrower is to obtain a discharge form for all or most of the debts till further notice from the court. While chapter 13 allows borrowers to gain a form that allows them to have some time to settle the debt. It can be 3 to 4 months, or 3 to 5 years, depending on the agreement between the court.


When a house or mortgage is in repossession, it is when a defaulted borrower can’t pay up the debt at the due time. It is a legal process to possess the borrower’s mortgage after foreclosure is already complete. It is one of the consequences of foreclosure on the borrower.

During a foreclosure process, the borrower still stays until the foreclosure process is over/complete. Which will take some days depending on the area/state.

After that, the lender offers the borrower an eviction letter that has approval from the court to evict the house. After that, the lender repossesses the property.

Why Should You Buy A Foreclosed Home?

Usually, a bank or lender is the owner of a foreclosed property. When a homeowner stops making their regular monthly mortgage payments, the lender may initiate the foreclosure procedure to seize ownership of the home.

The following step is for banks and mortgage lenders to try to sell these homes, frequently for less money or with a smaller down payment. The biggest advantage of purchasing a foreclosure is this: You might be able to purchase a home that would have been out of your price range otherwise.

Even though buying a foreclosure carries certain dangers, the procedure isn’t all that different from buying a conventional home, and if you choose the appropriate foreclosure, you might be able to get a home at a great deal.

Who Should Buy a Foreclosed Home?

This could be a useful technique for people who are prepared to conduct an extensive study before making an offer and who are prepared to put up with protracted delays and onerous paperwork.

The ability to pay a sizable sum of money in cash on short notice for repairs, past-due taxes, and liens is quite helpful.

A benefit is being qualified for a government financings program like a 203(k) loan, HomePath ReadyBuyer, or a HomeSteps mortgage. You can use these programs to aid in home purchases.

If that doesn’t work, you could have a chance if you can make an all-cash offer.

Who Should Not Buy a Foreclosed Home?

A foreclosed home is difficult and time-consuming to search for. Making an agreement official is worse. You really shouldn’t take on this if you require housing immediately now or if you lack the emotional fortitude to deal with recurrent disappointments.

If you’re shopping above your means, it’s also not a good idea. You could require a little more money to pay for unforeseen expenses.

What Does It Mean for a Home to Be Foreclosed On?

Lenders have the power to foreclose on a home when a homeowner is unable to make mortgage payments. Your mortgage is tied to your home, much like a car loan is tied to the collateral, the car.

Your lender has the power to take possession of the collateral—your home—if you don’t make payments. Foreclosure is a drawn-out legal procedure that might take years in some areas. In some situations, it can be completed quickly and without using the courts.

What Are the Different Types of Foreclosed Homes?

Bank-owned homes and real estate-owned (REO) properties are the two main types of foreclosed homes. Both properties that are bank-owned and REOs belong to the lender, which is frequently a bank. The stage of foreclosure is the only thing that makes a difference.

Bank-owned properties are deep in the foreclosure process, which means the owner has ceased paying payments. In response, the lender has begun the formal procedure to evict him or her from the property. Homes that have been “bank-owned” for some time end up in auction when the bank attempts to recoup the cost of the property.

The house is still bank-owned if it doesn’t sell, but it is now referred to as an REO house. REO properties have already been up for auction but have not yet found a buyer. The bank or lender keeps possession of these properties and makes an effort to sell them, frequently through REO real estate agents.

How to Buy a Foreclosed House.

These are the following steps or procedures to consider if you want to buy a foreclosed house:

  • You can buy a foreclosed house in a short sale, at an auction by the lender, or through a very good real estate agent(realtor) that is into it.
  • You can do research and look into financing options for the foreclosed house you want to buy.
  • It is good to look into loans from the FHA(federal housing administration).
  • Using a government-backed or conventional mortgage
  • Don’t look at the property’s desirable purchase price because it can be bargained.

How to Buy a Foreclosed House at Auction.

To buy a foreclosed house at auction you need to know a few procedures stated below;

  • Do your research on where they are doing auction bidding.
  • Find and track the foreclosed house auction site.
  • Confirm all auction details before the time comes.
  • Get your financing in order to buy the foreclosed house at auction.
  • On the day of the auction, go to the venue and do your bidding.
  • Go to the property and be ready to see the condition of the house in a quick process if possible.
  • Collect all the necessary documents concerning the house to identify you as the owner of the property(certificate of ownership/title).

How to Buy a Foreclosed House From the Bank

To buy a foreclosed house from the banks. Here are steps to consider in buying from the bank stated below;

  • Do research on banks that deal with or have a foreclosed house you want.
  • Then you sharpen your bargaining skills and start with a low-ball offer on the property you want.
  • Get your money ready and start your negotiations with the bank for the property. If you want to buy a foreclosed house from the bank,
  • The longer the property is in the hands of the bank, the lower the offer price you will negotiate.
  • To buy a foreclosed house from the bank, you can start your bidding with at least 20%, even below the current market price, or more if it is located in an area with high foreclosure houses.
  • Finally, you can buy a foreclosed house from the bank by paying cash if you see what you want and can afford it. You inspect, and you do any necessary renovations.

How to Buy a Foreclosed House With No Money Down

So as not to miss out on your investment in foreclosed property. This is the viable option to use to buy a foreclosed house with no money down as stated below.

  • First, to buy a foreclosed house with no money down, look for a distressed house around you. Especially in the area where you want to buy.
  • Meet with the mortgage lender that is foreclosing.
  • Also, meet the homeowners if the lender agrees with your plans to buy the foreclosed house with no money down.
  • Having the necessary criteria Like aiming for the FHA (federal housing association) or getting the FHA 203(k) renovation loan, using a credit card, etc.
  • The agent/lender writes up an agreement to purchase with an addendum for loan assumption.
  • Getting approval from the mortgage lender that you want to buy a foreclosed house
  • Close on the purchase with the company ownership or title office with the lender to become the full owner. And then you have the property with no money down.

How to Buy a Foreclosed House in California

These are the following steps to take if you want to buy a foreclosed house in California:

  • Do some research on the foreclosed houses in California online or in person.
  • If you want, you can find a real estate agent to help you buy a foreclosed house in California if you want.
  • Appraise the market value of foreclosures in California.
  • Make an offer/bid or submit them.
  • Get pre-approval for the mortgage on the foreclosed house you want to buy.
  • Secure the properties you have got and, finally,
  • To buy a foreclosed house in California, you have to close the sale (certificate of ownership/title) after purchase.


A realtor is a person that acts as an agent for the sale and purchase of buildings and land as estate agent. The realtor deals with buying a foreclosed house.


A house is a place or structure for human habitation. It can be a place for the rearing of farm animals and doing other activities like office work, e.t.c., which also consists of a ground floor and a ceiling of one or more stories.

Is Buying a Foreclosed Home Right for You?

If you are seeking a good price, have the ability to collaborate with an experienced real estate agent, and are not in a rush, purchasing a foreclosed home can be the correct choice for you.

Who Shouldn’t Buy a Foreclosed Home?

If you are in urgent need of a home purchase and do not have the financial resources to deal with the possibility of significant repairs, you should avoid looking for foreclosed properties.


In a short sale, not all lenders accept it because they might have a loss. So, to avoid short sales, the borrower can sell the property at a higher price before the day of the foreclosure. If you don’t want that option, then you can give your property in deed-in-lieu of foreclosure, even do a bank-owned.

But the better way is to do a bankruptcy to postpone the foreclosure. If the foreclosure is to follow again after bankruptcy, the sheriff’s sales and the trustee’s sales take place.

How to Buy a Foreclosed House FAQs

What is the difference between foreclosure and foreclosed?

A foreclosure is a legal process that the lender uses to claim the property of the borrower if they fail to pay the debt at the due time. A property is foreclosed when it has undergone a foreclosure process, which can take up to 120 days.

Can you negotiate price on a foreclosed home?

Borrowers can negotiate the price if the lender allows and can let the borrower do a short sale.

Why do lender prefer foreclosure to short sale?

In a foreclosure, it costs the borrower more and it always favors the lender, whereas if they should do a short sale, the lender will not gain interest and the sale can be shared equally.

Does lenders want you to foreclose?

No lender doesn’t want to foreclose on your property, but if you do not meet the accepted agreement, then the lender will foreclose on your property.

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