Foreclosures and Short Sales

Foreclosures and short sales can be good real estate investments for the right kind of buyer. Learn how the process works for both buyers and sellers.

Frequently Asked Questions

  • Should I buy a short sale or a foreclosure property?

    If you can wait for a foreclosure, you could save tens of thousands of dollars more than if you buy a short sale. Unless they’re preapproved by the lender, short sales can take months to be approved. If you’re the only bidder on a short sale, or if the lender is taking a long time to approve a short sale, you may be better off waiting for a foreclosure. In a foreclosure, the bank has seized the property and is making the sale itself. It may be willing to take a lower price in order to get the property off its books.  

  • What are the pros and cons of buying a house in foreclosure?

    The most obvious advantage of buying a foreclosed house is that the price is usually below market value. On top of that, the closing tends to be relatively quick. Although many foreclosures need repairs, if you rehabilitate a property, you may be able to sell it at a profit. The downsides: You often don’t get to see the inside of the home before you buy, and it could need a lot more work than you expected. The market for foreclosures is also very competitive, and foreclosure auctions usually require you to pay cash.

  • How can I buy an REO property?

    A real estate-owned (REO) property is a foreclosed home that failed to sell at auction and is owned by the lender. You can search for REO listings on your own, but a better option is to hire a buyer’s agent who specializes in REO properties. A buyer’s agent represents you but is usually paid by the seller. Once you’ve found a property you like, consider all the costs and get an appraisal to see what it’s worth. You may be able to negotiate hard with the bank, which should be eager to get the property off its books, especially after the home has been on the market for 30 days.  

  • What is a deed in lieu of foreclosure?

    A deed in lieu of foreclosure, sometimes referred to as simply a "deed in lieu," transfers a home's title from the owner to the bank that holds the mortgage. The action is taken by the borrower in lieu or instead of having the lender foreclose on the property. It can free the owner from financial liability in a way that can be a bit less damaging than a foreclosure.

Key Terms

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