Tip 1: Learn about the different types of foreclosure properties and the foreclosure process

There are three basic types of foreclosure properties, representing different stages in the foreclosure process: notice-of-default (NOD) and notice of trustee sale (NTS), which are both pre-foreclosure properties; and real-estate-owned (REO), a foreclosure property which has been re-purchased by the bank.

For most consumers, buying a pre-foreclosure property from a private homeowner is the best option. It's important that both the buyer and the seller see the situation as a win-win situation, in order to ensure a smooth process. In this case, the seller is able to get out from under a mortgage without destroying their credit rating, the lender is saved the time and expense of foreclosing on the property, and the buyer gets a below-market price on a home.

Foreclosure auction sales are typically the domain of the professional investor. These properties are formally in default, and sold to the highest bidder at an auction. Buyers are required to be physically present at the auction, and must pay 100% of the sale price in cash, on the spot. Though foreclosure auctions can offer significant savings, they are not for the faint of heart or the uninformed. Unless the buyer is already familiar with a particular property, there is usually little time to examine it. And the buyer will be competing against professional investors - and sometimes even the lender - at the auction.

Once the lender officially reclaims a home, it becomes a REO. While REO properties typically offer more time for evaluation and a more standard bank-managed transaction, their prices are usually very close to full retail market value.

Stages of the foreclosure process

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