It is the same thing that draws million of people to EBay on a daily basis. "It" is the allure of a great deal or easy money. And in this case, "it" is the process of purchasing a home out of foreclosure. And no matter what anyone tries to tell you, this process is not for "dummies".

So how do you purchase a foreclosed home? There are three primary ways ...

The Sheriff Sale

The first option that usually comes to mind, when you talk about buying foreclosed homes is the Sheriff Sale. And while it holds the "promise" of buying your dream home for only 2/3 of its appraised value those promises are often quickly broken. Who wouldn't want to buy that $300,000 home for only $201,000? However, the reality is that many foreclosed homes sell for at or above their market value. Why? Well it is pretty simple; the lending institution has to bid the amount that is owed on the home to satisfy their insurance company. Go to one of these auctions and the "bank" is pretty easy to pick out - it's the person that bids $294,323.54 for your $300,000 dream home. No messing around, no dealing. Now, in some cases there are deals to be found, but most of the time - especially in this era of zero down lending - this sale is a formality and not a deal opportunity.

If you are looking to purchase a home at a Sheriff Sale, the FIRST thing you need to do is contact a local title agency. For ~$250 they will conduct a preliminary title report. Why is this important? The Sheriff will issue a quit claim deed, which means that while they were in possession of the property there were no liens placed against the home. Well that's great, but it wasn't the Sheriff that led to the home being sold at auction now was it? So, you can assume that there will be liens against the home - and who has to pay those liens if you buy the home at auction? See, you're no dummy.

• Benefits: It gets you out of work on a Wednesday morning. It is possible that a deal could be found, though it is rare.
• Weakness: You are bidding against the bank that holds the note. You are required to put 10 percent down the day of the sale. The original owners maintain the right of reclamation until your deed is recorded, so even as high bidder you could still lose the home.
• Usual Results: The bank calls the initial bid for what is owed on the house and the Sheriff waits three seconds and says "sold".

Post Repossession Purchases

The second most common form of repossession purchases arises after the lending institution has re-purchased the home. The majority of the institutions will list their homes with real estate agents in the "area" (and I use area loosely, as the Central Ohio area, or Southeast Ohio area...) that will then put the home on the local MLS service. There are a lot of different ways to find out about foreclosed homes and repossessed homes. However, you don't need to PAY for the list. HUD, by far the largest seller of these homes, has a listing on its Web site and each of the lending institutions has their own way of getting rid of these houses. By paying for a foreclosure list, all you're doing is "giving away potential profit" unless you are too busy to find the free information on your own.

Once you've found the home, this is where you have a lot of options. The bank has a level of insurance in low-or-no down payment homes (PMI), which covers the purchase price if the owner defauilts. Hence, in the post-repossession market, they are usually willing to sell the home for less, especially once it gets to the 90 days on market range. This is really where the possibility for a deal comes into the equation. Be staunch and battle with the lendor to get the best deal - remember it is a corporation; they are usually looking at the bottom line.

Now when you go to buy these homes there are several of the institutions that will require you to be represented by a real estate agent. This is a complex process and I would strongly recommend having an agent that you can trust in these transactions. Remember how you treated that last rental car; now figure that the former owners have probably treated this home like a rental the past 6-8 months. Still, think that 3 percent of the purchase price isn't worth the piece of mind? If you do go alone, make sure to get all the inspections completed and to have a good title agent - and be willing to pony up the extra cash for the Alpha 98 insurance, it could save you a bunch in the long run.

• Benefits: There are deals to be found here. Especially in the current market, the bank doesn't want to have too many homes on inventory
• Weakness: The house was basically a "rental", so have EVERYTHING inspected and make sure the title is clear of all liens.
• Usual Results: The bank doesn't like sitting on houses, so make a low-but-fair offer on the home and be prepared for a lot of negotiations - and a slow sale.

Pre-Repossession Purchases

Probably the last one that people usually think of, though maybe the most lucrative, is the pre-repossession purchase - sometimes referred to as a short-sale. It costs the average lender $50,000 to foreclose on a home. So if you can find a home that is in the very early stages of foreclosure - you have the leverage and the chance for a great deal. The bank doesn't want to foreclose - that looks bad on their books and they have to pay out $50,000 - and the owner doesn't want a foreclosure on their record. The keywords to finding short sales in home listing are "offers subject to bank approval". Why?" Well, the process goes something like this. The home owner (or their representative) will go to every lien holder against the property and ask what they would take to satisfy the lien. Then, they'll add all those values up and there is your basic value for the home. The home owner will not make a dime in this deal, but it allows them to escape without the embarrassment of having their name splattered throughout the papers as being in foreclosure.

• Benefits: You can get a nice deal, and not have to worry as much about the bank and homes sitting empty.
• Weakness: There is a time factor here. Hit them too early and the home owner will still be in denial; hit them too late and the bank will have spent enough that the deal becomes less.
• Usual Results: There is a time factor so these deals, so they move quicker than post-repossession deals. The banks have final say, so every offer is looked at financially and weighed by the banks.

So happy hunting on the foreclosure home trail!

Please note that these scenarios are valid only in Ohio; please consult with a licensed sales agent in your state for the rules and such are different in each state.

Toby Boyce, MBA, is a Realtor with Disbennett Real Estate Company in Delaware, Ohio. He specializes in the buying and selling of real estate in the greater Central Ohio area. Prior to becoming a Realtor he spent 15 years as a professional writer with several daily newspapers and colleges. He can be reached via e-mail, or by visiting his Web site or Blog.

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