Buying a house that is already or about to be foreclosed on can be a fiscally smart purchase for someone looking for an affordable home. A foreclosure is when a homeowner can no longer pay a mortgage on their house. After a few non-payments, the bank that issued the mortgage can repossess or “foreclose” on the property, taking the property in lieu of the balance of payments.

I recently had the pleasure of reading an article, “How to Buy a Foreclosed Home” by Les Christie. This article mentions 3 stages of foreclosure sales: pre-foreclosure, Sheriff sales, and post foreclosure. I want to focus on the first step, buying a pre-foreclosed home.

In the first sale, pre foreclosure, an interested buyer can look through notices that lenders file with county courthouses known as delinquency notices. Then, they can go to the house and try to make the homeowner an offer on the house worth less than the outstanding mortgage. If the homeowner agrees, and the lender approves, then the house changes hands and the outstanding debt is forgiven.

The act of making a low ball offer on a house before it is foreclosed on is called a short sale. Lenders were once hesitant to approve these types of deals, as they ultimately would lose money. However with foreclosures becoming increasingly common, lenders realize that short sales will save them the hassle of repossessing and then marketing the house.

As the author notes however, “Cold calling and making low-ball offers on people’s homes can be difficult: Some owners are emotional, even angry. Many are trying to hold onto their houses and don’t appreciate what they consider scavengers sniffing around.” Indeed, a potential buyer may have to make several attempts before finding a seller who is willing to work with the buyer. But once the buyer has found someone willing to work with them, the potential to save money is very great.

Disclaimer: I am not a lawyer, nor a broker, and the above is not meant to be construed as legal advice.