Buying a foreclosed property
"Usually... I think that's overstating the case.  You CAN get a bargain (especially if the place is in not-so-great condition), but not every foreclosure will be a good deal even if it is priced well below its most recently appraised value. As the buyer it's your responsibility to determine whether it's priced well or not, and to decide whether you're willing and able to repair its deficiencies after you buy it. The same's true when purchasing any house; foreclosures just make it more likely that there are problems and (hopefully) wind up being priced to allow for them. I don't know of a single website which lists all foreclosures. Some of the home listing websites do have a ""show me foreclosure listings"" filter, and I'm sure that the better tools available to real estate agents can select these. But if that's the direction you're interested in going, you should be looking at distressed properties generally, NOT just foreclosures; you may get a better deal, in the long run, by going for the one that has been mechanically maintained but is just plain ugly rather than the one with a pretty skin whose heating system hasn't been serviced for the last decade. Do your homework, shop around, don't fall in love with any one house... all the same rules apply at this end of the spectrum just as strongly as they do in the mid or upper ranges. Perhaps more so. Happy hunting!" No, it is not true. It depends on the market, the banks' inventory, the original debt that was owed, etc etc. The banks generally want to recover their money, so in case of underwater properties they may end up hold a property for years until prices bounce back (as it happened during the last crisis when many houses were boarded for months/years until banks put them back on the market hoping to sell at a price that would allow them to recover their losses). That may depend largely in which country you are in, the legislation in that country and the state of the economy and property market (more specifically) at the time of the foreclosure. In Australia, where we do not have non-recourse loans (except in SMSFs) the banks are obliged to recoup as much as possible for the mortgagee, however they would not hold on to the property indefinitely, as that could cause other problems and they have to return the mortgagee portion of the funds back to them (if there is any funds left after the bank takes their portion).  In 2008, when the property market here was weak we had bought some foreclosure houses and were able to get them 20% to 25% below what they were selling at the year before. If there was a forclosure in today's strong market in Australia (and especially in Sydney), I dought you would get much of a discount at all. So it may largly depend on the demand and supply at the time of the forclosure. "Like most other things, this is ""sometimes,"" but not always true. Sometimes banks will be willing to sell at a discount, sometimes they will hold out for ""full price."" But if you want a discount, this is a good place to ""look."""
The core competency of banks is to lend money from depositors and re-lend that money to borrowers.  They do not have the expertise to develop real estate.   They have trouble evening managing foreclosed real estate, such that they have to sell them at a discount. "Based on what you asked and your various comments on other answers, this is the first time that you will be making an offer to buy a house, and it seems that the seller is not using a real-estate agent to sell the house, that is, it is what is called a FSBO (for sale by owner) property (and you can learn a lot of about the seller's perspective by visiting fsbo.com). On the other hand, you are a FTB (first-time buyer) and I strongly recommend that you find out about the purchase process by Googling for ""first-time home buyer"" and reading some of the articles there. But most important, I urge you DO NOT make a written offer to purchase the property until you understand a lot more than you currently do, and a lot more than all the answers here are telling you about making an offer to buy this property.  Even when you feel absolutely confident that you understand everything, hire a real-estate lawyer or a real-estate agent to write the actual offer itself (the agent might well use a standard purchase offer form that his company uses, or the State mandates, and just fill in the blanks). Yes, you will need to pay a fee to these people but it is very important for your own protection, and so don't just wing it when making an offer to purchase. As to how much you should offer, it depends on how much you can afford to pay. I will ignore the possibility that you are rich enough that you can pay cash for the purchase and assume that you will, like most people, be needing to get a mortgage loan to buy the house. Most banks prefer not to lend more than 80% of the appraised value of the house, with the balance of the purchase price coming from your personal funds. They will in some cases, loan more than 80% but will usually charge higher interest rate on the loan, require you to pay mortgage insurance, etc. Now, the appraised value is not determined until the bank sends its own appraiser to look at the property, and this does not happen until your bid has been accepted by the seller. What if your bid (say $500K) is much larger than the appraised value $400K on which the bank is willing to lend you only $320K ? Well, you can still proceed with the deal if you have $180K available to make the pay the rest. Or, you can let the deal fall apart if you have made a properly written offer that contains the usual contingency clause that you will be applying for a mortgage of $400K at rate not to exceed x% and that if you can't get a mortgage commitment within y days, the deal is off. Absent such a clause, you will lose the earnest money that you put into escrow for failure to follow through with the contract to purchase for $500K.  Making an offer in the same ballpark as the market value lessens the chances of having the deal fall through. Note also that even if the appraised value is $500K, the bank might refuse to lend you $400K if your loan application and credit report suggest that you will have difficulty making the payments on a $400K mortgage.  It is a good idea to get a pre-approval from a lender saying that based on the financial information that you have provided, you will likely be approved for a mortgage of $Z (that is, the bank thinks that you can afford the payments on a mortgage of as much as $Z). That way, you have some feel for how much house you can afford, and that should affect what kinds of property you should be bidding on." "But look at the bright side. The Home Owners Association is telling your neighbor (for the low low fee of $200 every 4 months) to put his garbage can into his garage after every garbage pickup. Your house is worth a fortune, even if nobody is willing to buy the 12 houses for sale on your block (never mind the fact that they have been for sale for the past 2 years or the fact that nobody is willing to ""rent"" a place in butt fuck Egypt for $1500 a month)." Aside from everyone else's explanation about bundling them with other mortgages, a buddy of mine who worked at a boutique lending group basically said that they KNOW these people can't pay the loans back and thus the bank will be able to take over ownership of the home.  Since **housing prices are guaranteed to go up**, they'll be able to make money once they re-sell the property. "There's truth to that, although I'm not sure if the ratio is quite 6 to 1. It IS true that they are processing foreclosures much slower now after the robo-signing fiasco, and also that there is some justification for letting a house stay occupied rather than sit empty.  I disagree with your assertion that ""smart banks"" would dump massive amounts of property at a loss. Selling their inventory quickly would slim their balance sheet (which they been trying to do) and let huge losses flow through their income statement. That's a bad way to achieve a good end, even though the changes are purely accounting and not economic. That's not smart for any business, operating in a vacuum and independent of competition, whether a bank or a retailer. Should GM and Ford sell their backlogs of cars at a massive loss now, just to get rid of the property? There's underlying, economic, intrinsic value.  Properties in the biggest bust markets, like LV and Phoenix, are down 2/3rds from the prices around 05/06; one would argue that the prices are so low they fail to make economic sense. Florida was a huge bust market, but today's NY Times (http://www.nytimes.com/2011/12/28/us/miami-courts-free-spending-brazilians.html?_r=1&amp;scp=2&amp;sq=brazil&amp;st=cse) talks about a recovery in property values, fueled by Brazilians.  Given that cities like Vancouver and throughout the SF Bay Area have seen property prices recover, in part fueled by foreign purchasers (mostly China, etc) why would a bank not want to hold onto the property until it gets a good price?" "I'm in a similar situation, but I live in a state that doesn't allow mortgagees to ""walk away"" without recourse. I would consider a short sale or otherwise abandoning the property if: At the end of the day, real estate is an investment, and you don't realize gains or losses until you close the position. The ""ra, ra"" crowd that thought that real estate was going to boom forever in 2006 was just as wrong as the ""bad news bears"" crowd that thinks that real estate will never recover either.  Investments rise and fall. Many people who bought houses in the 1980's boom (recall the S&L crisis) were underwater for years until prices started rising in the mid-90's. You haven't lost money until you realize that loss." "Just like foreclosing is less than optimal for the banks, a tax sale has drawbacks for the county.  At a minimum, there the manpower needed to process the foreclosure and sale, and in many cases the value for which the property can be sold is probably less than the taxes due.  The problem is this flies in the face of the ""personal responsibility"" talking point that many bankers have been spreading since the beginning of the financial crisis.  It's a moral failing for a homeowner to walk away from an upside-down mortgage, but when the bank does the same thing for a tax bill it's a simple business decision." Nearly every state in the US is full-recourse. If one doesn't seek bankruptcy protection, creditors can seek judgement, and collect assets. Foreclosures frequently sell for approximately half the market price. Considering unemployment risk, homes can be risky.  A far better way to accumulate wealth is with equities (stocks).  However, the risk converts from insolvency to liquidation since during times of high unemployment, equities are also cheap, causing any liquidation used to fund current expenses to be potentially ruinous. "Americans are snapping, like crazy. And not only Americans, I know a lot of people from out of country are snapping as well, similarly to your Australian friend. The market is crazy hot. I'm not familiar with Cleveland, but I am familiar with Phoenix - the prices are up at least 20-30% from what they were a couple of years ago, and the trend is not changing. However, these are not something ""everyone"" can buy. It is very hard to get these properties financed. I found it impossible (as mentioned, I bought in Phoenix). That means you have to pay cash. Not everyone has tens or hundreds of thousands of dollars in cash available for a real estate investment. For many Americans, 30-60K needed to buy a property in these markets is an amount they cannot afford to invest, even if they have it at hand. Also, keep in mind that investing in rental property requires being able to support it - pay taxes and expenses even if it is not rented, pay to property managers, utility bills, gardeners and plumbers, insurance and property taxes - all these can amount to quite a lot. So its not just the initial investment. Many times ""advertised"" rents are not the actual rents paid. If he indeed has it rented at $900 - then its good. But if he was told ""hey, buy it and you'll be able to rent it out at $900"" - wouldn't count on that. I know many foreigners who fell in these traps. Do your market research and see what the costs are at these neighborhoods. Keep in mind, that these are distressed neighborhoods, with a lot of foreclosed houses and a lot of unemployment. It is likely that there are houses empty as people are moving out being out of job. It may be tough to find a renter, and the renters you find may not be able to pay the rent. But all that said - yes, those who can - are snapping." Not a good idea, the bank is a lean holder unless you deduct the remainder of the loan from the purchase price you will end up paying much more. Tell the seller to pay off the loan and provide you a clean title. Btw unless you're getting the deal of the century I'd walk away until I saw a clean title Somebody will have to file all the required paperwork and fees with the local government, state government and even the federal government. This paperwork is used by these governments to record who owns the property and how it is owned.  Prior to the settlement date they also will need to verify how the property is described and owned so that you are sure that you are being sold the exact property you expect, and that it is delivered to you free and clear of all other debts. If this is done wrong you might discover years later that you paid money for something that you don't really own. In some jurisdictions this has to be done via a law office, in others there is no requirement for a lawyer. Because a mortgage company, bank, or credit union is giving you money for the loan, they may require you to use a settlement attorney. They don't want to discover in 5 years that a simple mistake will cost them hundreds of thousands to fix. The mortgage company is required to give you a more detailed estimate of all the closing costs before you are committed to the loan. The quoted paragraph is not good enough. Even if you can avoid the use of a lawyer these functions still need to be done by somebody, and that will still cost money. I've done this in AZ. It's important to know which lender is foreclosing, because if it's not the most senior one, then your purchase can later be foreclosed. A foreclosure extinguishes all junior interests, but can itself be extinguished by a more senior interest. I may not have the correct terms here but you get the idea. You should also check to be sure property taxes are current. They are probably being paid by the original lender, but it wouldn't hurt to check. Make sure you understand the requirements for participation in the auction. In my case they required that I bring a $10K cashier's check made out to myself. On winning the auction I endorsed the check over to the auction company and had 24hours to come up with the remaining funds in cash. The property I bought had been previously sold at a Sheriff's sale to satisfy a judgment in favor of the Homeowner's Association for delinquent dues. The HOA bought the property at the auction and received a Sheriff's deed. At this point the original owner's possessory interest in the property was extinguished. Nevertheless, the original mortgage and deed of trust were still in place, being senior to the HOA's interest. About a year later the lender foreclosed on the property and I bought it at auction at the courthouse. This had the effect of extinguishing the HOA's interest, a fact that took some explaining to the water utility to get the account in my name :-) Both of you sit down with a lawyer who practices in real estate and foreclosures, and hash out every single possibility of what could conceivably go wrong, with nothing out of bounds.  Come up with a reasonable and fair plan for resolving each situation, that you are willing to commit to, life and breath, for real, no exit.  Put all of it into a legal commitment between you two.  However this is a fearless, searching and even ruthless contemplation, requiring a level of intimacy and personal responsibility you may not be comfortable with. and there's absolutely no room for dancing around unspoken questions.  So in essence, it puts the hardest stuff up-front.  If you put that much thought and honesty into it, you'll probably be OK. But you probably won't want to be that honest, or won't want to do the deal after you do. I'll compare it to a situation that is different, but will involve the same cash flow.  Imagine the buyer agrees that you buy only 70% of the house right now, and the remaining 30% in 7 years time.  It would be obviously fair to pay 70% of today's value today, pay 30% of a reasonable rent for 7 years (because 30% of the house isn't owned by you), then pay 30% of the value that the house has in 7 years time. 30% of the value in 7 years is the same as 30% of the value today, plus 30% of whatever the house gained in value.  Instead you pay 70% of today's value, you pay no rent for the 30% that you don't own, then in 7 years time you pay 30% of today's value, plus 50% of whatever the house gained in value. So you are basically exchanging 30% of seven years rent, plus interest, for 20% of the gain in value over 7 years. Which might be zero. Or might be very little. Or a lot, in which case you are still better off.   Obviously you need to set up a bullet proof contract. A lawyer will also tell you what to put into the contract in case the house burns down and can't be rebuilt, or you add an extension to the home which increases the value.  And keep in mind that this is a good deal if the house doesn't increase in value, but if the house increases in value a lot, you benefit anyway. A paradoxical situation, where the worse the deal turns out to be after 7 years, the better the result for you. In addition, the relative carries the risk of non-payment, which the bank obviously is not willing to do. You can be a co-borrower on the property that your father owns. Some Banks require that you also be part owner of the property, some banks do not require this. You can take a home loan for a new property, normally Banks will ask you of all your current loans [auto/other home/personal/ etc] to determine the amount they will be ready to lend. Edit: The first loan I believe your father already has a property in his name ... your father can apply for Loan against property ... if he does not have sufficient income, then you can guarantee the loan [ie co-sign on the loan, some banks allow this ... however there is no tax benefit on this loan]  .   The second is the Home Loan for the balance amount that you would get it … Both the loans can be taken from the same Bank, there would be a overall cap as to the amount of loan a Bank would give depending on your income, further the finance for this house will only be to the extent of 80% of the value.