A foreclosure occurs when a homeowner defaults on their mortgage and the lender takes possession of the property after a legal process that varies in length by state. Judicial foreclosure states like Florida and New York require court approval, which can stretch the process to 18 months or more. Non-judicial states like California can complète a foreclosure in as little as 120 days. The result is the same: a bank-owned property, called an REO, that the lender wants off its books, often at a discount to market value.
Ways to buy a foreclosure
You can purchase foreclosures at three stages. The pre-foreclosure or short sale stage occurs before the lender takes title and requires lender approval on the sale price, which can delay closing by 60 to 120 days. The auction stage, held at the county courthouse or online, typically requires cash payment within 24 hours and offers no inspection period. The REO stage, after the bank has taken title, is the most accessible for traditional buyers because properties are listed on the MLS and standard financing is usually permitted.
Critical due diligence before you buy
Bank-owned homes are sold as-is, with no seller disclosures and no negotiation on condition. Title searches are particularly important on foreclosures because junior liens, unpaid HOA dues, and municipal violations can survive the foreclosure process and attach to the new owner. Always order a title insurance policy and commission a full inspection even if you cannot verify every system is operational. Budget a repair contingency of 10 to 20% of the purchase price, especially for properties that have been vacant for six months or more and may have sustained weather or vandalism damage.
