Exploring the Different Phases of Foreclosure

While you might hear the term “foreclosure” and immediately think you can get a steal on a property, there are actually different phases of the foreclosure process that will impact your price and methodology for buying this type of residence. If you’re considering a distressed property – like a foreclosure – make sure to understand the different phases and how they will affect your buying experience.

The first phase of foreclosure is considered is “Missed Payments/Motivated Seller”
Pros:

  • The seller is motivated to achieve a fast sale and may create an opportunity for below market purchase price.
  • The seller may be more likely to do repairs.
  • The seller might be agreeable to providing major closing cost credits and other concessions.
  • The buyer can use regular mortgage financing.
  • The buyer can obtain desired inspections within standard due diligence/contingency period.
  • The seller must legally provide a complete history of the property’s condition, problems, repairs, etc.

Pre-Foreclosure/Short Sale
Pros:

  • The seller is motivated for fast sale, which increases the buyer’s bargaining power.
  • The buyer can do all standard inspections, including researching title during due diligence/contingency period.

Foreclosure Auction
Pros:

  • The property will be sold for outstanding mortgage balance owed to foreclosing mortgage holder — this can be a low price for the property.
  • Cash payment requirements reduce competition.

Post-Foreclosure/Real Estate Owned (REO)
Pros:

  • The bank is motivated to get the property sold and will negotiate price, down payment, closing costs, escrow length, etc.
  • The title will be clear, meaning the buyer will not take on any liens, mortgage or back taxes of prior owners.
  • The inspections and mortgage financing are allowed within normal due diligence/contingency period.
  • The house will be vacant.
  • REO sales close within a normal escrow period of time.

Depending on your timeline and budget, a home in one of the foreclosure stages could be a great value and help expand your inventory options. If you’re ready to start checking out these types of properties in Denver, give Metrowest a shout – we’d love to help you start the process.

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