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What are Foreclosed Homes?

By Cathy Rogers
Updated: Jan 20, 2024

A foreclosed home is one where the property used to secure a dept is sold to pay off that debt because the borrower has defaulted, or failed to make timely loan payments. When the borrower does not make payments for a time specified in the mortgage contract, the lender can sell the property to pay off the loan. Because the lender wants to recover its investment in the foreclosed home promptly, foreclosed homes often sell at a reduced value.

The laws involving foreclosed homes vary from state to state. The purchase of a foreclosed home requires different procedures and legal requirements than a normal home sale. Some foreclosed homes go up for auction; in these cases it may not be possible to inspect the property in advance.

In some instances, foreclosed homes are in excellent condition; others need a great deal of repairs. It is important to inspect the property prior to placing a bid. It is also advisable to check the value of comparable homes to see if the price is reasonable. A real estate agent who is experienced in foreclosed homes can be helpful.

Listings of foreclosed homes are published in newspapers, on the Internet, in newsletters and real estate magazines. You can also consult the county clerk’s office to see a list of foreclosed properties. Government agencies, including the Department of Housing and Urban Development (HUD), advertise foreclosed homes also.

Some investors purchase a foreclosed home at a discounted price, make the necessary improvements and repairs, and then sell the home for a profit. If you are interested in making a bid on a foreclosed home, check to see if any unpaid property taxes exist or any other types of liens.

A HUD foreclosure is a home purchased with a loan insured by the Federal Housing Administration (FHA). In the case of FHA foreclosed homes, the lender files a claim with the FHA and then HUD places the home for sale. The home is appraised and placed on the market for a fair value. If repairs are needed, the price reflects such a need; all HUD homes are sold in an as-is condition.

Most HUD homes are sold in a sealed-bid situation. Once the bid period ends, the offers are opened and the highest bid is accepted. During the initial bid period, HUD homes are generally available only to those who want to live in the home, not investors. However, if no one is interested in the foreclosed home for occupancy, the sale then opens to investors.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By Amphibious54 — On Mar 31, 2011

I live in Phoenix and there have been a glut of foreclosed homes for sale. I have found great properties in nice neighborhoods near downtown for less than $120,000. It is definitely a buyers’ market in Phoenix right now.

By anon18267 — On Sep 18, 2008

The home I rent has been recently sold at public auction. My question is who is the new owner? who is the beneficiary?

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