Hey, I'm going to be frank with you from the start. Not everyone should buy a foreclosed home, and to be honest? That's fine. I've been helping buyers through foreclosures for years, and I've seen both amazing deals and total disasters. Sometimes both in the same week.
Last Tuesday, I was on the phone with a first-time home buyer who thought buying a foreclosure would be like shopping at Target on clearance. She asked, "How hard can it be?" Three weeks later, after losing two auction bids and finding out that her dream foreclosure needed $60,000 in repairs, she understood why I had tried to slow things down a bit. Foreclosures can be a great opportunity, but you have to think about them in a completely different way than you would when buying a regular home.
According to ATTOM's market reports, there were 187,659 foreclosure filings in the first half of 2025. This is a 5.8% increase from the same time in 2024. That means there are more things in stock. There are real chances. But so are the problems.
When a homeowner stops making mortgage payments, the lender can take the property back through foreclosure. A lien on the property is part of every mortgage. This means that the lender can legally take back the home if the borrower doesn't make payments. Lenders don't want to do it, but when borrowers fall behind, it has to be done. Foreclosures are expensive and take a lot of time for everyone involved.
Usually, the process happens in steps. First, the homeowner gets a notice of default after missing three to six payments in a row. If the problem isn't fixed, the lender files a foreclosure notice, which is made public. If no one buys the property at auction, it either gets sold at auction or becomes part of the lender's real estate owned (REO) inventory.
You should know these stages because each one is a different chance to buy, and each one has its own pros and cons. And this is where things get interesting for people like you who want to buy.
The foreclosure market in 2026 is very different from what it was like during the 2008 financial crisis and even from what it was like two years ago. Let me show you what's really going on out there.
According to ATTOM data, there were 36,128 foreclosure filings in July 2025. This was an 11% increase from June and a 13% increase from the previous year. But don't freak out or get too excited just yet. In 2024, there were 322,103 foreclosures, which is 10% fewer than in 2023 and 89% fewer than the peak in 2010, when there were almost 2.9 million.
Yes, foreclosures are going up from their pandemic lows, but we're not even close to a crisis level. Things are really interesting at the state level. According to ATTOM's Year-End 2024 report, Florida and New Jersey had the highest foreclosure rates in 2024, with one in every 267 housing units filing for foreclosure. Nevada came in third, with one in every 273 housing units.
What is causing this? To be honest, a lot of things. Insurance rates are going up, especially in Florida where companies are leaving left and right. In states like Texas and California, property taxes are going up. And this is the part that no one wants to talk about: adjustable-rate mortgages that reset when interest rates went up. I just helped a couple who bought a house in 2021 get a 5/1 ARM with a 2.75% interest rate. Last year, their rate went up to 7.25%, which added $1,800 to their monthly payment. They couldn't get it to work.
I never thought I'd have to talk about climate change in my mortgage career, but it's becoming a factor. First Street, a company that models risk, says that flooding, wind, fire, and other climate-related events could cause foreclosures in the US to rise by 380% over the next ten years. By 2035, these things could cause as many as 30% of all foreclosures. That's crazy when you think about it.
The timeline for foreclosures has also gotten longer. According to industry data, the average time it took to foreclose in the first quarter of 2025 was 671 days, which is 12% less than in the fourth quarter of 2024. But that average hides a lot of differences. Louisiana had the longest foreclosure timeline at 3,520 days (almost 10 years), while New Hampshire had the shortest at only 165 days. If you're looking at properties in different states, this is important because you need to know what you're getting into.
A pre-foreclosure happens in that sweet spot between when the homeowner gets a notice of default and when the lender finishes the foreclosure process. These homes are listed on the MLS as pre-foreclosure, and a lot of databases keep track of them.
When pre-foreclosures work out, I love them because everyone wins. You get a deal that is below market value, and the homeowner doesn't lose all of their credit. Last year, I helped a buyer buy a house that was about to go into foreclosure for $425,000. Similar homes were selling for $495,000. The seller was three months behind on payments and facing foreclosure. They really wanted to avoid that black mark. We made a deal that let them leave without any problems and gave my buyer equity from the start.
What's the catch? You're still dealing with a homeowner who is usually very stressed. They might not take good care of the property. It might be hard to get in touch with them. And sometimes they hold on to unrealistic price expectations even though they are about to lose everything. A lot of patience and understanding are needed here.
Buying at an auction is risky but can pay off big.
People who are weak of heart shouldn't go to foreclosure auctions. End of story. When you buy something at auction, you agree to buy it without seeing it first, as-is, and often without an inspection or appraisal. Most auctions only accept cash or cashier's checks, but some let you finance your purchase if you have proof of approval before you bid.
The good thing? Price and speed. Auctions move quickly; you can buy a house in 30 days or less. Lenders who are eager to sell may let properties go for 30–40% less than their market value. I saw a buyer get a house for $315,000 that was worth $485,000 after only a few repairs. You can't find that kind of equity anywhere else in today's market.
But here's my challenge to you: only go to auctions if you have a lot of money saved up and either know how to build things or have a contractor on speed dial. I've seen buyers lose everything at auction. One person bought what looked like a great deal, but then they found out that the plumbing system needed to be replaced ($32,000), the foundation had moved ($45,000), and squatters had been living there for eight months ($12,000 in legal fees and damages). That "great deal" turned out to be a financial disaster.
You are also responsible for fixing any title problems that come up at auction. You will be responsible for all of the liens, unpaid property taxes, and HOA dues. Before you make a bid, talk to a lawyer who specializes in real estate. This is advice you have to follow. If you want to stay safe, you have to do it.
Real estate owned properties, or REOs, are homes that were foreclosed on but didn't sell at auction. The lender now owns them. These are a mix between auctions and regular sales. They are less risky than auctions but more complicated than regular purchases.
When you buy a REO, the lender usually clears the title and makes sure the property is empty before putting it up for sale. You will work with a real estate agent (lenders almost never sell directly to buyers), and you can usually ask for an inspection and negotiate repairs up to a point. Most REO properties still sell as-is, but at least you know what you're getting into.
The prices of REOs are all over the place. Lenders sometimes offer big discounts (15–25% below market value) to get rid of their stock quickly. Lenders sometimes get greedy and charge at or above market value, hoping someone will buy. This happens more often in hot markets. Always do the comps yourself or have your agent do them. Just because something is "bank-owned" doesn't mean it's a good deal.
I've noticed that lenders take a long time to respond to offers on REOs. Like, really slowly. In August, I made an offer for a buyer, but we didn't hear back until mid-October. And this is where it gets interesting: when they finally got back to us, they made a counteroffer that didn't take into account most of what we had suggested. Get ready for a long and frustrating process of negotiating. These sellers aren't emotional and want to get rid of their stuff quickly. These are big companies that handle hundreds of files but don't have any personal ties to the property.
A short sale happens when a homeowner sells their house for less than what they owe on the mortgage, and the lender agrees to accept the difference. The homeowner still owns the property, so you'll work with their listing agent like you would in a normal sale. But every offer needs the lender's approval, which is where things get tricky.
Short sales take a long time. On average, it takes 90 to 120 days, but it can take longer. The lender has to look over your offer, figure out if accepting it makes more financial sense than foreclosing, and then go through a lot of paperwork. In the meantime, you're stuck in limbo, possibly watching other properties slip away while you wait.
If you have time on your side and don't need to sell right away, I usually only suggest short sales. They can lead to good deals because the homeowner wants to sell and the lender wants to avoid foreclosure costs, but the timeline kills a lot of buyers. Last month, a couple who were trying to do a short sale lost their temporary housing while they were waiting for approval. After waiting 11 weeks, they had to back out of the deal.
Okay, enough with the theory. Let me show you the whole process, step by step, with all the details that other guides leave out because they don't want to prepare you for what will happen.
You need to have a lot of money before you even think about looking at foreclosures. I really mean it. Now is not the time to barely qualify or go over your budget.
You need to have all the cash you need to buy something at an auction. No exceptions. Some auctions let you borrow money, but the time frame is so short that you need to get verified approval before you bid. At AmeriSave, we can get you verified approval, which means that your income and assets are checked ahead of time. This gives you the confidence to bid at auction if financing is allowed.
You will need standard mortgage approval for REO properties and short sales, but I suggest getting approved for more than you plan to spend. Here's why: you need extra money to deal with unexpected costs because foreclosures often need repairs. If you get $400,000 and spend $325,000 on the house, you will have $75,000 left over to make repairs or improvements right away.
Foreclosures are riskier purchases for lenders, so your credit score matters more in these cases. For conventional loans, you should aim for 620 or higher, but 680 or higher will get you better terms. Don't wait until you've found a house you love to check your credit report.
Not all agents are familiar with foreclosures. In fact, most don't. You need someone who knows how to negotiate with REO agents, how auctions work, and how to deal with the problems that come up with distressed properties.
Find out how many foreclosures they have closed in the last year by asking them. If they hesitate or give vague answers, keep looking. A good foreclosure agent should be able to explain the process to you, tell you about local auction rules, set up inspections, and have connections with REO agents at big banks.
Your agent should also have good relationships with contractors. When you're up against other buyers, it's important to have contractors who can move quickly and give you accurate cost estimates for repairs. The best foreclosure agents I work with have three or four contractors they trust completely to do quick evaluations.
When looking for foreclosures, most people only use Zillow or Realtor.com. Bad move. You don't have most of the stock.
HUD Home Store: Lists homes that HUD owns and is trying to sell. Your agent talks to the listing agent directly. These homes often have special programs for buyers who will live there—you get to bid first before investors.
Fannie Mae HomePath: You can search by address, ZIP code, or MLS number. HomePath homes may help buyers with their down payments by up to 3% of the purchase price if they plan to live in the home.
Freddie Mac HomeSteps: This site is like HomePath and has the same features. Freddie Mac sometimes offers special loans with lower down payments.
Most guides won't tell you this, but the best deals on foreclosures don't usually show up on the main listing sites. You can buy them at county courthouses, on the websites of local banks, or through regional auction companies. Your agent should always be keeping an eye on these sources.
You can also look on your county recorder's office website for notices of default filings. These are pre-foreclosures that may not be on any lists yet. You can find deals before the competition shows up by doing some detective work and comparing addresses with ownership records.
If you can, please get an inspection. I can't stress this enough. I know that auctions don't let it happen, but for REOs, pre-foreclosures, and short sales, an inspection is a must.
Homes that are in foreclosure can sit empty for months or even years. In the first half of 2025, the average foreclosure timeline meant that properties often sat empty for long periods of time before the process was done. Empty houses fall apart quickly. Pipes freeze when it's cold outside. Mold grows when it's hot outside and there's no air conditioning. If you don't keep up with maintenance, small problems can turn into big ones.
Look for cracks in the foundation and structure, floors that aren't level, doors that don't close all the way, and windows that stick. It can cost a lot of money to fix a foundation, like $30,000 to $50,000. One of my buyers found a problem with the foundation during the inspection that would have cost $47,000 to fix. We were able to get the seller to lower the price by $35,000, and we kept the difference after doing the repairs ourselves for less.
Check the heating, air conditioning, and ventilation in your HVAC system. Depending on how big the house is, a full HVAC replacement can cost between $8,000 and $15,000. Check that the inspector runs the system and doesn't just look at it.
Electrical: I've seen it all in foreclosures: old wiring, circuits that are too full, and DIY work that wasn't done by a pro. Problems with electricity are dangerous and costly to fix. Plan on spending between $5,000 and $20,000 on big electrical problems.
Plumbing: Check the water pressure, look for leaks, check the pipes for rust, and make sure the water heater works. The cost of repiping a house ranges from $4,000 to $15,000, depending on the size and type of pipes.
Roof: Look for missing or broken shingles, leaks, and the roof's overall age. Depending on the size and materials, a replacement costs between $8,000 and $25,000.
Termites, rodents, and other pests love empty houses. In the worst cases, fixing termite damage can cost more than $10,000.
Before you make your final offer, get quotes for any repairs that need to be done. It's not about getting the seller to fix everything—most won't—but about knowing exactly how much money you're putting on the line.
Making an offer on a foreclosure is different from making an offer on a regular purchase. You aren't dealing with a seller who is emotionally attached to their home. You're dealing with a lender who wants to lose as little money as possible or an owner who is in trouble and wants to get out of a bad situation.
When it comes to REO properties, know that banks have limits. They've already lost money on the foreclosure process itself, like legal fees, maintenance costs, and property taxes while the house was empty. They want to sell, but they also have a minimum amount they'll take based on how much they think they'll lose. To price your home wisely, your agent needs to look at sales of similar homes and know how the local market works.
Start with a fair offer based on comparable sales, but lower it to account for repairs that need to be made. If the comps say $400,000 but the property needs $30,000 in work, you should offer between $365,000 and $370,000. Write down your repair estimates and send them with your offer. Banks are more likely to respond to numbers that make sense than to random lowballs.
Put down an earnest money deposit of 1% to 3% of the purchase price. This proves that you mean business. And here's something no one tells you: if you back out of a foreclosure purchase after the contingencies expire, you will lose that deposit. I know of buyers who lost $8,000 because they got scared after the inspection period was over. Don't let that happen to you.
Before you bid in an auction, find out what your maximum bid is and stick to it. There is such a thing as auction fever. I've seen bidders get so caught up in the competition that they paid more than the market value for homes that needed a lot of work. Set your limit based on how much the house will be worth after repairs, how much the repairs will cost, and how much money you have. Leave when you reach that limit. There will be more properties.
Your financing starts to run out once your offer is accepted. This looks pretty normal for regular purchases: your lender orders an appraisal, processes your paperwork, and works toward closing.
But appraising foreclosures is a different story. Finding comparable sales is harder for appraisers when they look at distressed properties. If the foreclosure needs a lot of work, it might not be worth as much as it is now for traditional financing. FHA loans require that the property meet certain minimum standards, such as having working utilities, no peeling paint, and no safety risks. FHA won't approve the loan if the foreclosure doesn't meet these standards.
This is where cash purchases or loans for home improvements come in. When you get a conventional renovation loan, they look at the value of the property after repairs, not its current condition. The lender keeps money in escrow for repairs, and the money is released as the work is done. It's harder than a regular mortgage, but it lets people buy homes that most people can't.
Be ready for delays from lenders when buying REO. It could take the bank weeks to answer simple questions or send you the paperwork you need. Add some extra time to your closing schedule. Instead of the usual 30–45 days, plan for 60–75 days.
There can be problems with closing on a foreclosure right up until the end. I've had closings pushed back because the lender couldn't find the paperwork, squatters wouldn't leave (more on that in a minute), or because title problems came up at the last minute.
Do a final walkthrough 48 to 72 hours before closing, not the morning of closing. If you find problems, you need time to fix them. I have had buyers find interiors that were completely wrecked during the final walkthrough. Angry former owners had taken out appliances, punched holes in walls, and poured concrete down drains. More often than you might think, this happens.
Check that your title company does a full title search. Unpaid HOA dues, contractor bills, or second mortgages can leave liens on homes that are being foreclosed on. Your title insurance should cover these, but it's better to find them before closing than to deal with them after.
If you're buying at auction or in a state where major problems can be passed on to buyers, have your lawyer look over all the closing papers. Even if the closing agent is pushing you, don't sign anything you don't understand.
It sounds great to buy a foreclosure for 20% less than the market value, but you have to think about everything else. Let me explain the real costs, because knowing this ahead of time will help you avoid buyer's remorse later.
Immediate Repairs: If a foreclosure needs work, plan on spending at least $15,000 to $50,000. This includes fixing broken systems, taking care of safety issues, and doing any maintenance that was put off. It can cost $100,000 to $150,000 to fix up a property that needs a lot of work.
If someone is living in your newly bought foreclosure, you will have to legally evict them. Depending on your state, this process can take anywhere from 30 to 90 days and cost between $2,000 and $8,000 in legal fees, court costs, and possible damage to your property. Some states have laws about adverse possession that give squatters certain rights after living there for a long time. It's a big mess.
Higher Insurance Premiums: Homes that are empty or being fixed up cost more to insure. During the renovation phase, you should expect to pay 50–100% more for insurance than you would for regular homeowner's insurance.
Costs of carrying: While you're fixing up your home, you still have to pay property taxes, HOA dues, utilities, and insurance. If the repairs take six months, add these costs to your total. That's an extra $18,000 for your renovation budget if you have to pay $3,000 a month to carry it.
Permit and Inspection Fees: Most places require permits for major repairs. Depending on how much work you need to do, plan on spending $1,000 to $5,000 on permits and inspections.
Unexpected Problems: Always plan for 20% more than you think your repairs will cost, just in case. You will find them. That strange smell? Mold behind the walls (remediation costs $8,000).
What about those "small" cracks in the foundation? A big structural problem that will cost $40,000 to fix. The surprises are always bad.
Here's an example of real costs in action:
The price of the foreclosure was $280,000.
The estimated cost of repairs is $35,000.
$2,500 for inspections and permits
$1,200 for a 6-month increase in insurance
Costs of carrying (for six months): $12,000
$7,000 for surprise problems (20% buffer)
Evicting a squatter costs $4,500 in legal fees.
The total amount invested is $342,200.
You would have paid $375,000 for a turnkey comp in the area. Your "savings" are now $32,800 instead of $95,000. Still a good deal, but not as shocking as the sticker price made it seem.
Listen, I'm not here to talk you into or out of buying a home that is in foreclosure. But after years of helping people buy things, I can tell you pretty quickly if it's right for someone.
You have a lot of extra cash on hand besides your down payment and closing costs. After closing, I suggest having at least $30,000 to $50,000 in cash savings to cover repairs and other unexpected costs.
You are patient and able to adapt. Foreclosures take longer, are more complicated, and require you to be okay with not knowing what's going to happen. If you have to move in by a certain date for work or school, this isn't the way to go.
You either know how to build things or have a contractor you can trust. Being able to do things yourself is very helpful. If you hire everything out, your savings will go down quickly.
You can deal with stress and problems. You will be tested by foreclosures. Deals don't work out. Inspections show terrible things. Timelines get longer. Buy something else if that will keep you up at night.
You're ready to compete. In many markets, investors who are willing to pay cash for foreclosures are very interested in them. You need to be ready to move quickly and fight hard.
You're buying your first home and don't have much money saved up. Buying your first home is already stressful enough without having to deal with foreclosure problems. Try out a traditional purchase first.
You need to be ready to move in. Most foreclosures need some work to be done. This isn't for you if you can't handle renovations while living somewhere else.
You have feelings for certain places or features. You need to be flexible with the things on your wishlist when you have to foreclose. The right financial opportunity might not look good on paper.
You have a short amount of time. Foreclosures don't close quickly very often because lenders take a long time to respond, there are problems with the inspection, and there are problems with the title.
Your market doesn't have a lot of inventory. If there aren't many foreclosures in your area, you'll waste time looking for too few chances. Put your energy where there is inventory.
I wish more people knew this: the amount of money you can save on a foreclosure depends a lot on the state of the market. In a hot market with few homes for sale and many buyers fighting for each listing, foreclosure "deals" get a lot smaller.
I can see this right now. In the first weekend, six people make offers on a property that is listed for $425,000, which is about 10% less than similar sales. Three are cash offers, two have escalation clauses, and the winning bid is now $445,000. The buyer just paid more than the house was worth on the market. That's not a good deal. That's a sign of desperation.
In markets that are cooling down and have more inventory, foreclosure discounts are real. Having less competition gives you more power to negotiate. You can take your time with inspections, talk about repairs, and leave if the numbers don't work without worrying that you'll never get another chance.
Do a lot of research on your local market. Check out how long REO homes stay on the market. Check to see how many people are going to the auction. Ask agents about how much competition there is. These signals let you know if foreclosures in your area are really priced below market value or if demand has brought them up to fair value.
What is the bottom line? There are real chances in the foreclosure market in 2026, but you have to be smart about how you go about it and be aware of what you're doing.
First, be honest about your budget and savings. Can you handle the costs of owning a foreclosed home, like surprise repairs and carrying costs? If so, get preapproved by a lender who knows how to help with foreclosure financing. We often work with people who buy foreclosures at AmeriSave, and we can help you with the special needs of these buyers.
Look into the foreclosures that are available in your area. Check out auction sites, HUD listings, and bank websites for REO properties. Get a sense of how prices compare to those of traditional listings and how many other listings there are. This study stops you from wasting time looking for deals that aren't available in your area.
Get your team together before you need them. Get contractor recommendations, find an experienced foreclosure agent, and get to know a real estate lawyer. When you need to act fast on an opportunity, these connections are important.
And here's my challenge to you: if you decide to go through with a foreclosure, do it for the right reasons. Buy because the numbers make sense and the chance fits your needs, not because you want to "beat the system" or find a quick way to get rich. People who buy foreclosures successfully are those who know they're giving up convenience and certainty in exchange for money. You should only make that trade if you are ready for the reality of owning a foreclosure.
Yes, but the property must meet FHA's minimum property standards, which include having working utilities, no safety hazards, and no major flaws. A lot of foreclosures won't be able to be sold as they are now. You can buy a home and fix it up at the same time with an FHA 203(k) renovation loan, but the process is more complicated than regular FHA loans. Even for the 203(k) program, the property still needs to meet basic habitability standards.
No. Many foreclosures offer discounts of 15–30% off the market value, but this depends on where you are and how many other foreclosures are available. In hot markets, foreclosures may sell for or even more than their market value if there are a lot of buyers who are very interested. Look into your specific market to find out what prices are fair. Also, keep in mind that "below market value" needs to include the cost of repairs. A property that is listed at 20% below market value but needs $60,000 in repairs might not actually save you money.
This depends on what kind of purchase it is. Auctions can end in 30 days or less, REO properties take an average of 45 to 90 days, and short sales can take 90 to 120 days or longer. Add extra time for inspections, getting a loan, and any delays that lenders might cause. From what I've seen, buyers should plan for the longest timeline and be pleasantly surprised if things go faster. They shouldn't plan for speed and get upset when things take longer.
You will have to go through your local court system to legally get them out. Depending on the laws in your state, this process usually takes 30 to 90 days and costs between $2,000 and $8,000 in legal fees. Some of the people living there are former owners, while others are squatters or tenants who weren't given the right notice. Don't try to get rid of them yourself; use the legal system to protect yourself from being held responsible. Write down the state of the property right away and take pictures of everything before the eviction in case there is damage.
Not often with REO properties, since lenders usually sell them as-is. You can, however, use the results of the inspection to get the price lowered instead of having repairs done. With pre-foreclosures and short sales, there is sometimes room for negotiation, depending on the seller's situation and the lender's willingness to give repair credits. Don't expect to be able to negotiate repairs like you would with a regular seller. Instead, include the cost of repairs in your first offer price.
Yes, most of the time, foreclosure auctions are open to anyone who is qualified to bid. But you usually have to sign up ahead of time, bring a cashier's check or proof of funds, and agree to the auction rules. Some auction houses want you to prequalify or put down a deposit. Do your homework on the specific requirements of the auction house well before the auction date. If you don't, you won't be able to bid even if you have the money.
Judicial foreclosures need to be watched over by a court and take longer (usually 180–360 days or more). The lender has to show a judge that the homeowner didn't pay. Non-judicial foreclosures don't need the court's help and go faster, usually taking 90 to 180 days. In states where the mortgage documents have a "power of sale" clause, they are allowed. In states like Texas that don't use the courts, the average time to finish a foreclosure was only 135 days. In states like Louisiana that do use the courts, the average time was 3,612 days. This has a big effect on your timeline as a buyer and the number of homes for sale in your area.
Before you buy, ask a title company to do a title search. This shows any liens, judgments, or other claims on the property. When you buy something at auction, you usually have to do title research before you bid. The lender usually clears the title on REO properties before listing them, but you should check this yourself. Always buy title insurance to protect yourself from problems you don't know about. I can't stress this enough: never assume that the title is clear without having a professional check it.
If you included an appraisal contingency, you'll have to renegotiate the price, bring more money to closing, or walk away if you're financing the purchase. A low appraisal kills deals because lenders won't lend more than the appraised value. You have to make up the difference. This happens a lot with foreclosures that are in bad shape. One way to solve this is to add an appraisal contingency to your offer. This way, if the value is low, you can back out. Some REO lenders will change the terms of the loan if the appraisal shows that they charged too much for the property.
Yes. You can buy and fix up a home with an FHA 203(k) loan, a Fannie Mae HomeStyle loan, or a Freddie Mac CHOICERenovation loan. The lender looks at the value of the property after repairs, not its current state. The money for the renovations is kept in an escrow account and released as work is finished. These loans are harder to get than regular mortgages. You should expect to have to fill out more paperwork, get contractor bids, and have inspections done during the process. But they're very helpful for people who can't afford to buy a foreclosure and pay for repairs at the same time.
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