Depending on the progression of the foreclosure, the seller will either be: the property owner in default; the trustee; or the foreclosing lender.
Owner in Default - The seller will be the owner in default during pre-foreclosure. Pre-foreclosure typically offers investors and homebuyers the best bargains, but it can also be a difficult stage to purchase a distressed home, as the lender often has the final say. Buying a property during pre-foreclosure involves making an offer to buy directly to the owner in default. The owner may or may not know they are being foreclosed upon, and will undoubtedly be under a lot of stress, making negotiations difficult. If the purchase offer is less than the secured loan(s), then the lender(s) must also be included in the negotiations. It is important to remember that pre-foreclosure can last several months, so patience is essential when considering this purchase tactic. Aside from the challenges of pre-foreclosure, selling the property before foreclosure can offer the owner in default an opportunity to walk away with some of the equity in their property, and avoid damaging their credit history. The buyer may also benefit here, with more time to research the title and condition of the property, and often times realize good discounts below market value!
Trustee - If the loan is not reinstated by the end of the pre-foreclosure period, the property is sold at a public auction. Commonly, buyers are required to pay cash at auction and time is limited (if any), to research the title and condition of the property beforehand. Public auction can offer great bargains however, and buyers are able to avoid dealing directly with the owner in default. When bidding on a property at public auction, you should be aware that you are competing with seasoned investors. Remember that cash is typically required to buy, and if there are any money encumbrances (i.e. tax liens, mechanics liens or second or third mortgages) you will be responsible for paying them off in full as the new owner. You’ll want to evaluate a property’s value by checking for money encumbrances before auction whenever possible. Auctions can be postponed and/or canceled, so it is always a good idea to contact the trustee/attorney to confirm dates and times once you locate a property, as well as the day before the property is scheduled for auction. The trustee/attorney will always have the most accurate information concerning auction dates.
Foreclosing Lender - If the property is Bank Owned (REO – meaning “Real Estate Owned”), you will need to contact the lender directly through their REO or asset management department. You can then inquire about viewing and presenting offers on the property. With REO properties, the lender will usually clear the title, but the potential bargain is often less than pre-foreclosure and auction properties. Some homebuyers receive government-guaranteed financing, which includes loans guaranteed by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA). When these properties go into foreclosure, they are repossessed by the federal government and sold by real estate brokers who work for the government. Buyers interested in purchasing government-owned foreclosures must have a government-registered broker write the purchase agreement.