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How to Buy a Property in Foreclosure

As a foreclosure attorney for a number of lender clients, my staff and I constantly field phone calls and e-mails from would-be purchasers of the properties we have in foreclosure. Some of the callers are investors; others are real estate brokers calling for hopeful buyers. Still others are people who would like to buy properties to use as residences, rather than to flip or hold for investment. This article attempts to set out the most useful procedures for such callers, to get the most relevant information about a particular property in foreclosure.

First, all callers should know that as the lenders’ attorney, we cannot give out any personal information about the loan being foreclosed. This includes the expected bid at the sale, any alternate address or phone number for the owner, or how much would be required to bring the loan current. We can only speak with the borrower or the borrower’s attorney about such matters; anyone else would need a power of attorney or other written authorization signed by the borrower for the purpose of releasing that information.

Secondly, the only information we can provide to the general public is information already available through the public record. Getting through to us would likely take longer than accessing this information online. Information we can provide includes the property address, the anticipated foreclosure sale date, the “principal balance” (as compared to the total amount) due, and the current holder of the note. All of that useful information can be obtained by reviewing the public trustee websites, and the assessors’ websites (to look for the mailing address of a non-resident owner, for example).

Next, we cannot provide interior access to the property. Until well after the foreclosure sale, and presuming the lender is the successful bidder, we have no access to the property and are unable to let anyone into it. This common misconception is the result of Zillow, Trulia and other online sites implying that we and our lender clients have “listed” the property for sale, which is misleading. Any access to the interior of the property prior to a normal residential foreclosure would need to be granted by the owner of the property.

So how do you go about buying this property, either before it goes to foreclosure sale or afterwards? Before the sale is held, the owner of the property – even though that owner is in default of the loan being foreclosed – still has the right to sell the property. If the proceeds from that sale are sufficient to pay off the loan then the owner doesn’t need any special permission from the lender to do so. So make an offer to the owner, set a closing date well prior to the foreclosure sale date, and buy the property like you would buy any other property. Of course if the amount owed to all lienholders is more than the expected proceeds from the sale, the owner would not be able to sell without short-sale approval from those lienholders. But the owner might wish to explore getting that approval if the offer is made well in advance of the scheduled foreclosure sale date.

What if the owner can’t sell because the property is over-secured, or just doesn’t respond to your offer, and the foreclosure proceeds? In that case anyone is allowed to bid at public foreclosure sales, but keep in mind that a successful bid must be paid in cash. Few institutional lenders, however, will lend to the general public to purchase a property in foreclosure. Thus, investors with established lending relationships, and well-heeled investors with cash of their own, have an advantage at these sales.

If the property goes to foreclosure sale and the lender is the successful bidder, the lender will need time to obtain the deed from the public trustee, and then sometimes must evict the current occupants. Only then will the property be available to be seen by the public for re-sale. Sometimes we receive e-mails with written offers to buy these properties. Although we always forward these inquiries to our lender client contacts, it’s rare for the lenders to respond, because most formally list the properties with local real estate brokers to obtain the most accurate market price. So anyone interested in a particular property should keep an eye on the MLS or other reliable sources advertising properties for sale, to monitor when it’s available.

In conclusion, there’s a wealth of information to be obtained online about these sales, and there’s nothing we are allowed to tell you that isn’t already available in the public record. The ins and outs of foreclosure investing is beyond the scope of this article, but additional information can be gleaned by reviewing Jon Goodman’s article “Foreclosure Investing in Colorado.”

Please contact me if you are a lender in need of a Colorado attorney to initiate a foreclosure action, or a potential purchaser of Colorado properties in foreclosure.