Understanding Foreclosures

Even the term "foreclosure" needs some indepth discussion, because it means several different things. Bottom line, there are really three types of properties people refer to as "foreclosures" and the process and risks are different on all of them:
 
1.  Pre-foreclosures - Typically, the owner of the property is behind on mortgage payments and the Lender/Bank has started the foreclosure process of selling the home.  However, the lender has not yet completed the process to take possession of the home.  These homes are NOT available for purchase unless the owner has actually put the home on the market.  The owner is always allowed to bring the loan current prior to the foreclosure sale.  If the owner has the home on the market, often they are attempting to sell the home for less than they owe (known as a "short sale") and require the owner's lender/bank's permission for the purchase to go through.  Because these homes are not actually foreclosed, they are not included in our foreclosure search.
 
2.  True foreclosure/auction - This is a property being auctioned/sold "on the court-house steps" because of failure to pay the mortgage or property taxes or other types of liens (i.e. the end result of the pre-foreclosure discussed above).  Typically, the lender will participate in the auction and will bid the loan amount owed to take the property in the sale.  This is the most risky to purchase because there is generally no opportunity to inspect the property (but can be the most profitable when it works) and involves a process of paying through the court.  You must have cash immediately available for a down payment with the court and to pay quickly after the sale is considered final.  There is an "upset" process in NC, that can keep the "paper" bidding going indefinitely after the actual auction at the courthouse.  You do not receive a warranty deed for the property, which can potentially give you title issues.  Because these homes are in a court sale process, not the general market, these homes are not included in our foreclosure search. 
 
3.  Post-foreclosure - These are the "bank owned" (also know as REO - Real Estate Owned) properties that were purchased by the bank at the foreclosure auction (as noted above, if no one else bids high enough to cover the bank's loan, the bank will almost always buy the property for the loan value to keep from losing its interest in the loan).  These are normally the homes you will see as corporate owned, REOs, bank owned, and "foreclosure" on real estate sites.  Since the bank has completed the foreclosure process, the risk in buying these properties is much less than #2 and they are typically handled more "normally" in the purchase process. However, they are often sold "as-is" and some are in bad shape.  A variation of these are the HUD & VA foreclosures. These both have their own system of sales.  These are the homes included in our foreclosure search.
 
As a final note, while some lenders repair their foreclosed properties, many do not.  Therefore, we often tell buyers that they have to have a "stomach" for foreclosures.  Most people know pretty quickly after getting into a few whether they fit their idea of the type of home they want to purchase.   Also, realize that homes that have turned into foreclosures are generally homes that didn't sell in the regular market, so they often have undesirable features.  

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Listings provided courtesy of Triangle MLS, Inc. of NC, Internet Data Exchange Database. Information deemed reliable but not guaranteed. © 2018 Triangle MLS, Inc. of North Carolina. Data last updated .