If you are in the market for a new home, a foreclosure may be the diamond in the rough that you’re looking for. Like other aspects of real estate, there are pros and cons of buying a foreclosed home and while it may seem like an excellent strategy to get a home for a better price, doing your research will help ensure that this is the right move for you.

Preparing for Closing? Order a Property Title Search First 


What Does Foreclosure Mean?

A foreclosure occurs when the original owners can no longer meet their mortgage payments. The bank will seize the home, take ownership, and sell the home as a foreclosure.



Homeowners who receive multiple notices and are still unable to make their payments will proceed with the foreclosure process. 


Types of Foreclosure Properties

From the buyer’s perspective, there are three types of foreclosed properties that can be purchased.

Short Sale

In a short sale, you can purchase a home from the owner for less than what they owe on the mortgage. The lender will receive all the proceeds from the sale and will either forgive the difference or get a deficiency judgment against the previous owner. To learn more about this process check out What is a Short Sale in Real Estate?


If the buyer is unable to sell or make their outstanding payments, the home will be repossessed to sell at auction. The lender will not profit from the sale so the bidding will typically start at the outstanding balance of the mortgage to encourage bidding.


If the auction is unsuccessful, the ownership of the property will either revert to the bank or the government, depending on the type of loan that was used to purchase the home.

Pros and Cons of Buying a Foreclosed Home

Each step of the foreclosure process offers unique advantages and disadvantages for the buyer.



The biggest benefit of purchasing a foreclosed property is that the price is typically lower than market value. In some cases, the bank may also accept offers that are lower than what you would have paid if you were to buy it directly from the owner. The main goal for the bank is to earn back their investment. If they can do that and there are no higher bids for the property, they are typically glad to let go of the property and get it off their books.

Title Insurance

If you’re purchasing a foreclosed home from a real estate broker and there is a standard escrow, you can still receive a title search and title insurance to guarantee that the title is free and clear of any defects.

Financing Flexibility

Like other real estate transactions, you can still use FHA, VA, or other conventional mortgage financing options to purchase the property. The only difference in purchasing a foreclosure is that you are dealing directly with a bank rather than a person.

Opportunities for Investors

For investors willing to put the time and money into upgrading or repairing the property, foreclosures are a fantastic opportunity to invest in a potentially profitable home. Foreclosures have allowed many investors to slowly build up their portfolio of homes by purchasing low-cost foreclosures and having them repaired.


Closing Timeline

The closing timeline on a foreclosure can differ depending on the reason that the home went into foreclosure. This may be a downside for those who are looking to make the move sooner rather than later.

As-is Condition

Since foreclosed homes are seized from their previous owners, the bank is not required to provide the buyer with many of the disclosures that you would get from a typical sale. Foreclosed homes are sold in as-is condition, meaning that the buyer will be responsible for fixing whatever issues occur.


Is a Foreclosed Home Right for You? The Choice is Yours

With any large purchase, it is important to look at the whole picture to determine if it is worth the time, money, and effort. One thing that you can do to get all your questions answered is to rely on the team at Metropolitan Title. As real estate and title insurance experts, we are here to provide home buyers with the knowledge and advice that they need at any step in the process for any type of home. Need help with your purchase? Contact our team!