How to Buy a Foreclosure That is Not For Sale

Over the last couple of years writing this blog and seeing many investor questions on discussion forums, I see a question pop up over and over. “How can I buy a foreclosure that is not for sale yet?” Typically investors are asking how to buy a house that has been foreclosed on and is currently owned by the bank. The home has not been listed by a real estate agent yet, but is vacant and may have been vacant for a long period. In most parts of the county it is getting harder and harder to find awesome deals since REO inventory has decreased. These vacant properties appear to be great opportunities to buy cheap houses if you can buy them before they hit the market.

How does a foreclosure work?

The foreclosure process is different in every state. In some states foreclosures must be handled by the courts and in other states foreclosures are handled by state appointed offices. In Colorado we have a public trustee that handles all the foreclosures and it is a relatively quick process. In states where the courts handle foreclosures the process can take years. Here is the basic timeline of how foreclosures work.

  • Borrower falls behind on payments.
  • Bank sends warnings, starts charging late fees.
  • If borrower does not catch up in a certain amount of time the bank can start the foreclosure process.
  • The bank hires an attorney to start and complete the foreclosure process.
  • During this time the bank will usually try to complete a loan modification with the borrowers or use a short sale to sell the house to avoid foreclosure.
  • If no loan modification or short sale is completed the bank will proceed with the foreclosure process.
  • The property will go to a foreclosure sale where the bank sets the minimum bid for someone else to buy the home. The bid is usually how much the bank is owed including attorney fees, late fees and interest.
  • The general public is allowed to bid at the foreclosure sale, but it must be cash and in some states the borrower still has a chance to redeem the home or a junior lien holder has a chance to redeem. Redeem means they would pay off the person who bid on the house at the foreclosure sale.
  • If no one bids on the house at the foreclosure sale or the bank is the highest bidder the bank will gain possession (assuming no one redeems the property).

If you are looking to buy a house that is a foreclosure and is not listed you have to first figure out what stage the home is in. If the house is still in the foreclosure process the borrower owns the home, the bank does not. The banks cannot sell a house if the foreclosure process has not been completed. The owner of the home may sell the houses if they can pay off the bank and all other lien holders or they may try to complete a short sale. If you are an investor looking to buy a short sale be careful how you do it to avoid short sale fraud.

If the house had gone through the foreclosure sale then you need to make sure the bank is the current owner of the house and it was not bought by another investor. Public records will show who the owner of the property is.

Here is a great article on how to buy a REO after it is listed.

How can you buy a foreclosure before it is listed by the bank?

Buying a house from the bank before it is listed is going to be very difficult and depending on the bank it might be impossible. I have tried to buy houses from banks before they were listed and I know many investors who have tried as well. I am also a REO agent for banks and I know how their sales process works. Here is a basic outline of how the process usually works when you try to buy a foreclosure from the bank before it is listed.

  • The investor spends hours trying to figure out who the actual owner of the property is. The title of the property can be under some crazy names like electronic mortgage registration C3121. If you do a little more digging and look at who the bank was that loaned on the house before it went to foreclosure you can usually find out who the bank is.
  • The investor finds out who the bank is and spends hours on the phone trying to talk to someone who has a clue about how to buy houses from the bank. Usually the investor calls about 20 departments and might talk to someone in the REO or defaulted loans department (the banks all have different names for their foreclosure department).
  • Once the investor talks to someone who has some idea what the investor is talking about, the bank will tell the investor another company handles our REOs you will need to talk to them. Or the bank will tell the investor we don’t sell our houses before they are listed.
  • If the investor was told another company will sell the property then they might try to call that company. The investor will go through the same circus and then be told we don’t sell our houses before they are listed.

It is a rather frustrating process and a huge waste of time when you try to buy foreclosures from the bank before they are listed. The only time a bank might agree is if the bank is very small and local.

Why don’t banks sell their foreclosures before they are listed?

Most investors want to buy foreclosures because they are cheap and they can get a great deal. That is why I like to buy foreclosures as well. When a home is listed on the MLS there is usually a lot of competition for houses that are priced very well. Many times there are multiple offers and the house is not as good of a deal as it first seemed. Investors think if they can buy a house before it is listed they might be able to get a better deal.

This is exactly why banks do not sell their houses before they are listed on the MLS. The banks also know the more people that know their houses are for sale, the more the houses will sell for. Contrary to some opinions, the banks are not looking to get rid of houses as fast as possible with no regard to how much they sell for. The banks are just like you and me, they want to make as much money as they can. Even after a house is listed on the MLS the banks will sometimes not look at offers for weeks. They want everyone to get a chance to make an offer who wants the home.

When a bank lists a house they will get multiple values from real estate agents. They will usually order an appraisal and they will want the home marketed just like a traditional listing. The banks spend a lot of money on making sure they value a home correctly, on the real estate agents who sell the house and on the lawyers who complete the foreclosure. They want to recoup as much of that money as possible and selling a house on the MLS is the way to do that.

The big banks will sell thousands of foreclosures a year and they have set up their systems to work with real estate agents or auction companies to sell those houses. For the banks to sell one house before it is listed to one investor they have to change their system, change the valuation process and it takes more work to make those changes. Plus it may prolong the time it takes them to list a house if they are dealing with an investor who may not even end up buying the home.

Conclusion

Banks want to sell their houses for as much as possible just like most sellers. It simply does not make sense for them to sell one house before it is listed and mess up their system. You may hear about banks selling houses in bulk sales before they are listed. This does happen, but the banks are selling hundreds or thousands of houses at a time all over the country. Those sales make sense to the banks because they can sell many houses at once, with no agents right away. There are also many investors out there who claim to have access to off-market bank owned REO. In my experience none of these claims are legitimate, because it makes no sense for the bank to sell one property off market.

18 thoughts on “How to Buy a Foreclosure That is Not For Sale”

  1. All of you must read Chain of Title by David Dayen. It makes me sick to my stomach reading articles that so cavalierly dismiss homeowners. You know the banks paid billions in fines for foreclosure fraud. You have become enablers. IF you care about truth you should ask homeowners for their side of the story. Read SIGTARP reports. Look at Sundquist vs Bank of America, California Bankruptcy court. Be informed. Be part of the solution by refusing to list property when you discover the homeowner is a victim, not a dead beat.

    • Hi Susan, I am an REO broker, bought many foreclosures, sold short sales before they were foreclosures and done many BPOs for people and banks as well. In every single one of those cases the homeowners were not making payments. When the banks paid all those fines most of the were for robosigning, not because the people made payments, but because the chain of title was not done correctly by the banks. There was worse fraud. I saw it personally where local builders got together with lenders, and appraisers. They upped the prices of homes, made fraudulent appraisals, found non English speaking home buyers who would do ARM loans at negative interest rates. The people in that case went to jail. Still that was not the banks fault for lending the money, they lost a ton of money on those deals because of the agents, lenders, and appraisers fraud.

      While I am sure there are homeowners who were taken advantage of by the banks, almost all the foreclosures were from people who could not make their payments. The banks even offered loan mods, and short sales which was helping the homeowners tremendously. I also know many people who lost a ton of value in their home and kept up with the payments. They did not give up, and they got nothing in return. Not listing homes that go into foreclosure will not change a thing as their are 100 other agents ready to list them and the home already went through foreclosure. There is a court process for foreclosures and if it was done wrong that is where the homeowner can challenge it.

      • I ask that you read Chain of Title by David Dayen. Also read SIGTARP reports. Deadbeats did not apply for HAMP, it took 40 pages every time you applied. Banks ADMIT 80% denial rate, the denial/failure rate is nearly 100%. 15 MILLION house holds did not just stop making payments. They were instructed to, in order to qualify. I also stated you should talk to homeowners. Then, let’s ha e a discussion. Until then you are just an agent of the banks that destroyed the middle class.

        • HAMP is a modification for a loan. I have a problem with some people getting modifcations while others pay what they agreed to pay in the beginning. The denial rate appears to be 70 percent per application, but people can apply more than once. https://mandelman.ml-implode.com/2015/09/sigtarp-report-says-70-denied-for-hamp-loan-modifications-whats-going-on-here/ THat means 30 percent of applications are approved and people are able to reduce the debt they agreed to pay when they got the loan. When did we become a society where people borrow money, but since they can’t pay it back it is expected the debt will just go away?

          You are telling me everyone who lost their home to foreclosure did so because they were told to stop making payments to qualify for HAMP? You lost a lot of credibility with that statement. Even if that were true it means 15 million people stopped making payments so they could reduce their debt that they borrowed to buy a house. I didn’t stop making payments, I never met one person who told me they were instructed to stop making payments. I talked to hundreds and hundred of homeowners in foreclosure or doing a short sale. It was my job to talk to them and work out deals where they could move out. THe banks paid people to move out, some cases as much as $10,000. They paid people $10,000 to complete a short sale. Plus people got to live in houses for years without making any payments on the home. What is your place in all this and how many homeowners have you talked to?

          In my 15 years of doing this I saw one house foreclosed on wrong, and the bank reversed the foreclosure and gave the home back to the homeowners.

          • I suggest you take Susan’s advice and educate yourself as to the realities of organized crime networks stealing homes through identity theft and forgery, in addition to a list of other federal violations. That’s giving you the benefit of the doubt that you just lack the knowledge of what is truly happening coast to coast. Otherwise, you are not only enabling, you are an aider and abetter and may very well end up as a defendant in civil and criminal court.

          • Can you send me some solid data or sources on that? What is your role in the situation? Please explain how I am an aider and abetter by stating my opinion on foreclosures? There is no more free speech?

      • Mark, I can tell you with absolute certainty that I paid my mortgage. On time. Every month until one month I went to pay via wire transfer as I always did and the mortgage company was GONE and my payment was rejected. It wasn’t until 4 years later that I found out that they were raided by the SEC and shut down and filed bankruptcy. I had no one to pay to. 10 years have past and I still have my home. Some third party debt collector claims they have my mortgage although my mortgage was part of the originators bankruptcy and they were taking my money DURING their bankruptcy with no notice to me whatsoever although they later claimed they sold my mortgage 2 months before their bankruptcy yet I have proof of wire transfers that they accepted for 5 months after they supposedly sold my mortgage and after their filing of bankruptcy. There is absolutely no proof of the note and even the trustee company refused to foreclose despite said 3rd party debt collectors claim they own the mortgage and that i am in default. You know it’s bad when a trustee company won’t even touch it. There is a severe cloud on my title and I can’t sell my investment that I bought to secure my future and unlike the banks and investors, I don’t get compensation for THEIR error though they recieved 30 times my mortgage through MBS insurance annuities. A title-less home holds no value to me or anyone else in my position and I am not alone. Many are in that same situation. What say you now? Am I the deadbeat looser who just doesn’t pay my mortgage?

        • That is a crazy story! Did you ever talk to a lawyer? That would be the first thing I would do in that situation. Most will do a consultation for free and many specialize in that sort of thing. I never called anyone a dead beat loser, I have no idea where you got that from. I would say that it sounds like you have had your house for ten years without making a mortgage payment. If your mortgage payment was $1,200 a month that would be $144,000 you have saved in that ten years. I would say absolutely you have received compensation for their error.

          • I have a lawyer Mark. A very good one but I didn’t purchase my home to be a renter, I purchased it as an investment that I can never use as such. Just ask yourself this. Would you pay Dodge for your Toyota vehicle and never receive a proper clear title after doing so? If not, why would ypu expect someone to pay Bank of America for a New Century mortgage and never received title for doing so? This is the case 80% of the time and well..the other 20% people can’t pay their mortgage. Our neighbors could no longer pay their mortgage because he was in new construction and well…when the banks caused the housing bubble and the crash he lost his job. Here’s a great interview to watch that explains it all.
            Part 1
            https://youtu.be/9hdrqTK0HtA
            Part 2
            https://youtu.be/dTPzovAZmWE

          • Look up everything that you can find on New Century Mortgage Corp. It will give you some real insight on what happened.

          • I must also clarify Mark that I was not compensated $144k as I moved out of my home 4 months after my last mortgage payment as I was told that I owed 25k in arrears by the next defunct Countrywide even though 4 months of mortgage payments nowhere NEAR added up to that amount. I had the 4 months mortgage payments available to pay but Countrywide refused them and set up a foreclosure because they insisted I owed them 25k. My mortgage was less than 2k a month. You do the math. It wasn’t until 7 years later that I moved back in to my house as 2 foreclosures were unsuccessful without my contesting them due to title issues. So no, I did not live rent free for 10 years and reap the rewards of it. And again, I didn’t purchase to be a renter and I am out about 100k in equity as it sits right now because I cannot sell thanks to several clouds on my title. One being put there by known MERS robosigner. I also only received a $400 compensation check which I refused. Sorry but $400 doesn’t cut it. Thanks but no thanks!

          • So you still got to live in your house for free for 3 years which is $72,000 at $2,000 a month. Plus you get to live in it for free for the foreseeable future. I am not saying your situation is how it should work or legal, just trying to show some positives. I also think there was fraud and situations like yours that happened. I never said they did not. What I did say was it was rare and not why every foreclosure happened as it was previous stated. I think you assumed 80 percent of foreclosures happened that way which is crazy! I would love to see a source for that stat. Other posters were also indicated I broke the law somehow by posting an article on how foreclosures work. I would love to see that law.

  2. Perfect, as an agent this will save me tons of time explaining this same process to the countless bargain hunters who saw a bank sticker on a home’s window and want to know how they can buy it. Better yet, I’ll also pass it on to the newbie agents that I mentor so they understand it as well. Great job, thanks for the sickle

    • Same situation. Usually they have a plan for that house like sending it to auction or they found a title problem that they are trying to fix. Once in a while they will sell those in a pool sale and it will go to another bank or hedge fund.

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