Buying a House in Preforeclosure

There's a window of opportunity to buy a property from a homeowner in financial distress before a foreclosure sale happens.

By , Attorney University of Denver Sturm College of Law
Updated 2/11/2025

As a prospective homebuyer in the United States interested in affordability, you might have considered buying a home from someone who can't make the mortgage payments and is in foreclosure. It's important to understand that foreclosure involves many phases with different parties.

Buying a house in preforeclosure can be a strategic way to get a good deal in the real estate market. However, it requires a thorough understanding of the process and the potential challenges involved. You'll need to identify potential properties and negotiate with homeowners and, perhaps, their lender in the process.

And, if you aren't able to buy a home that's in preforeclosure, you might consider buying a home at a foreclosure auction or one that's REO (bank-owned).

What Is Preforeclosure?

When a house is in "preforeclosure," the homeowner is behind in payments, and the lender is starting to take action. Perhaps the lender has filed a notice of default or started a lawsuit to officially begin the foreclosure process, but the foreclosure sale hasn't yet happened.

During this preforeclosure period, the homeowner typically has a limited amount of time in which to try to catch up on past-due mortgage payments plus fees, sell the home to pay off the loan, or work out an alternative to foreclosure with the lender, like a mortgage modification, short sale, or deed in lieu of foreclosure.

How to Find a Prospective Home in Preforeclosure

So, how do you find out about a preforeclosure property? This information is, in fact, publicly available, even if the homeowner hasn't listed the property for sale.

Check the Legal Notices

Foreclosure sales are usually listed in the legal notices section of local newspapers, which are often online. These notices are published for a specific number of days or weeks, depending on state laws. The notice typically includes details such as the borrower's name, lender's name, property description, auction date, time, and location.

Looking Online for Houses in Preforeclosure

Online services like foreclosure.com and realtytrac.com compile information on homes headed toward foreclosure from public records. You might have to pay a fee to get the information.

Review the County Records

You can also visit your local county recorder's office to search for foreclosure-related documents like a notice of default or notice of sale, which are public records. These documents contain information about properties in preforeclosure, including the property owner and property address. You might also be able to find information online.

Multiple Listing Service (MLS)

If the homeowner is trying to do a short sale to avoid foreclosure, the home will probably be listed on the MLS. A real estate agent can help you search the MLS.

What Should I Look for When Buying a Home in Preforeclosure?

Of course, a savvy buyer looking to purchase a home in preforeclosure will be primarily interested in properties that are worth more than the current homeowners owe on the mortgage. That's because you'll probably be able to offer the current homeowners less than market value but more than what they owe on the mortgage loan. The loan proceeds pay off the mortgage, and the homeowners get out of foreclosure. This way, you get a bargain while still helping the homeowners get out from under the mortgage.

However, if the seller owes more than the property is worth and can't make up the difference or negotiate an agreement with the lender, an alternative to foreclosure is a short sale. In a short sale, the lender agrees to the sale of the home for less than what the homeowners owe on the loan. You'll have to work with the homeowners and the lender in this scenario.

Negotiating the Sale of a Preforeclosure Home

If you find a homeowner who is, in fact, ready to sell, you can negotiate just as you would any other home-sale transaction (although with a short sale, you'll also be negotiating with the lender). However, you could be pressed for time. Depending on the state in which the property you are buying is located, the homeowner could have as little as a few weeks or months before a foreclosure sale date.

So, you'll have to close the deal before the lender puts the house up for auction. A foreclosure auction is the traditional form of selling a home that has gone through the "preforeclosure" phase. Once the foreclosure sale takes place, the home is considered foreclosed. At that point, if the property reverts to the lender at the foreclosure sale, it becomes "Real Estate Owned" (REO).

Buying an REO Property

After acquiring a property through the foreclosure process, a lender will get an REO property ready for sale as quickly as possible and list it for sale. You can make an offer on the home (and so can anyone else).

If you and the lender settle on a price and close the deal, you'll become the property's new owner.

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