5 Tips for Buying a Foreclosure

1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers. They list them with real estate brokers. You can work with a real estate agent who sells foreclosed homes for lenders, or have a buyers agent find foreclosure properties for you. To locate a foreclosure sales specialist, call local brokers and ask if they are the listing agent for any banks.

Either way, ask the real estate professional which lenders homes theyve sold, how many buyers theyve represented in a foreclosed property purchase, how many of those sales they closed last year, and who they legally represent.

If the agent represents the lender, dont reveal anything to her that you dont want the lender to know, like whether youre willing to spend more than you offer for a house.

2. Be ready for complications. In some states, the former owner of a foreclosed home can challenge the foreclosure in court, even after youve closed the sale. Ask your agent to recommend a real estate attorney who has negotiated with lenders selling foreclosed homes and has defended legal challenges to foreclosures.

Have your attorney explain your states foreclosure process and your risks in purchasing a foreclosed home. Set aside as much as 5,000 to cover potential legal fees.

3. Work with your agent to set a price. Ask your real estate agent to show you closed sales of comparable homes, which you can use to set your price. Start with an amount well under market value because the lender may be in a hurry to get rid of the home.

4. Get your financing in order. Many mortgage market players, such as Fannie Mae, require buyers to submit financing preapproval letters with a purchase offer. Theyll also reject all contingencies. Since most foreclosed homes are vacant, closings can be quick. Make sure you have the cash youll need to close your purchase.

5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no longer make mortgage payments. Be sure to have enough money left after the sale to make at least minor, and sometimes substantive, repairs.

Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they wont give you credits for repair costs (or make additional repairs) because theyve already factored the propertys condition into their asking price.

Lenders will also require that you purchase the home as is, which means in its current condition. Protect yourself by ordering a home inspection to uncover the true condition of the property, getting a pest inspection, and purchasing a home warranty.

Be sure you also do all the environmental testing thats common to your region to find hazards such as radon, mold, lead-based paint, or underground storage tanks.

G.M. Filisko is an attorney and award-winning writer who purchased a foreclosed condominium and found herself in the middle of a months-long dispute between the former homeowner and the bank over whether the foreclosure was conducted properly. Six months after paying the full purchase price, she was finally able to enter the property. A frequent contributor to many national publications including Bankrate.com, REALTOR(R) Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.