 TITLE: Should I Buy a Foreclosure for My First Home? CONTENT: How Does Buying a Foreclosed Home Work?\n---------------------------------------\nForeclosure occurs when a mortgage borrower fails to keep up with their loan payments, and the lender exercises its right to seize the home and resell it to recoup (or at least reduce) their financial losses. Mortgage issuers typically put foreclosed properties up for auction, which often means selling the home for less than market value. When homes fail to sell at auction, however, lenders may slash the sales price and sell them directly.\nBecause foreclosures are often terrific bargains, they are popular with real estate investors looking to use them as rental properties or flip them for a quick profit. Competing with these investors, many of whom have access to significant credit and can put down extra-large down payments or even purchase properties outright for cash, can be challenging for first-time homebuyers.\nIf that means you, you're not necessarily out of the running for a foreclosure purchase. But to compete with investors, you'll need to lay some groundwork to document your ability to close the deal. You'll also need to be careful and decisive about choosing a property you likely won't have much time to size up before you make a bid.\nTo fully understand what you may be getting into with a foreclosure purchase, it's helpful (and sometimes essential) to work with a real estate professional with foreclosure experience. The National Association of Realtors' Short Sale and Foreclosure Resource (SFR) certification denotes agents and with training in this specialty.\nIt's also crucial to understand that foreclosure typically follows a timeline, and that purchasing opportunities and procedures differ during each stage in the process. The duration of each stage in the timeline may differ according to circumstances and state or local laws, but they typically occur in in this order:\n*   **Short sale**: A short sale occurs instead of foreclosure, when a lender agrees to let a homeowner sell their home for less than what they owe on their mortgage, with the understanding that all proceeds of the sale will go to the lender. (Lenders typically do this after determining that their loss on the sale will be less than the cost of pursuing foreclosure.)\n*   **Auction**: Foreclosure auctions are public events, and may be listed on the websites of the county, city or other municipality that conducts the auctions. Rules and requirements differ by jurisdiction, but foreclosed properties are always offered at auction in as-is condition, with the seller assuming no responsibility for property damage, repairs or financial encumbrances such as unpaid liens.  \n    Properties listed for sale at auction may or may not be available beforehand for inspection, but they are usually listed long enough in advance for a title search to be conducted ahead of time. Some jurisdictions allow a grace period after an auction is conducted that allows buyers to back out of a sale (after a title search or inspection, or for any reason at all) by forfeiting a cash deposit, but in most jurisdictions auction sales are final, and getting out of one will be costly, if it's possible at all.\n*   **Real estate-owned (REO)**: REO designates properties that have been foreclosed upon and are available for purchase directly from the lender. Most commonly these are properties that have failed to sell at public auction, but houses are occasionally available for purchase on an REO basis before they reach the auction block. REO properties may be listed on lenders' websites, but typically are not advertised or publicized and can only be purchased with help from a licensed real estate professional. END