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What are Foreclosed Homes?

Cathy Rogers
Cathy Rogers

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.

Homeowners may receive cash for vacating their foreclosed home.
Homeowners may receive cash for vacating their foreclosed home.

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.

Newspapers will publish a list of recently foreclosed homes.
Newspapers will publish a list of recently foreclosed homes.

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.

Foreclosed homes are often sold for less than market value.
Foreclosed homes are often sold for less than market value.

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.

Discussion Comments

Amphibious54

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.

anon18267

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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    • Homeowners may receive cash for vacating their foreclosed home.
      By: Andy Dean
      Homeowners may receive cash for vacating their foreclosed home.
    • Newspapers will publish a list of recently foreclosed homes.
      By: by-studio
      Newspapers will publish a list of recently foreclosed homes.
    • Foreclosed homes are often sold for less than market value.
      By: Andy Dean
      Foreclosed homes are often sold for less than market value.