Government Foreclosure Process Explained
Buying a government foreclosure is a bit different than purchasing other bank-owned properties, but with a little planning and preparation, they can save you tens of thousands from the cost of a home or investment property. Learn how to buy right in any economic situation with the government foreclosure tips below:
Buying a Government Foreclosure
- Find the local government foreclosure listings in your area. Government foreclosures may include homes from HUD, VA, Drug Enforcement, Marshall Service, or even the IRS. Each program has its own website; some are nationwide while others cover only certain geographic zones or states.
- Locate the broker. Most government foreclosures require participation in a sealed bid auction process in order to purchase the property. In order to submit a bid for HUD and VA foreclosures, you will need to use an authorized broker – no other bids are allowed.
- Owner or Investor. Determine whether you are purchasing the home as an owner-occupied dwelling (not as a vacation or second home) or as an investor. Many programs, such as HUD foreclosures, are first offered to owner-occupants and then opened up to bidding by investors and others.
- Highest Net Bid. It is possible to be the highest bidder yet still not win the auction due to transaction fees or other expenses. HUD, VA, and other government foreclosures often use the “highest net” to determine the winning bid, so be sure to reduce all expenses possible to submit the most competitive bid you can. Also keep in mind that the suggested minimum/starting bid is just that– suggested. It is possible to submit “low ball” offers of fifteen percent or more below the suggested bid for properties in need of repair or other financial investment.
- No Bid Situation. Sometimes a property doesn’t sell, at which point it is typically reduced in price and eligible for re-bidding. If you suspect that a property might not sell, then place a low-ball bid or wait for the price to be further reduced. Just remember, once the price is reduced, it may attract the attention of more buyers, so you may come out ahead by submitting an early “low ball” offer instead. Here’s another quick tip: most government foreclosures have a sign-in sheet to be used by each broker and prospective buyer. Take time to review it to have a general indication of the interest in the property.
- As-Is. Government foreclosures are all sold as-is, but allow additional inspections to be performed at the buyer’s cost. Additionally, government inspectors will provide written notification of known defects or problems in advance. Just ask the broker or download a copy from the website listing before going to a government foreclosure auction.