Properties in foreclosure present excellent opportunities to buy properties for much less than their market value. What many property investors don't know is that there are actually three (3) main opportunities to profit from foreclosed properties, based on the stage of the foreclosure process.

The three stages of foreclosure are based on when the foreclosed home or property is for sale. They are: pre-foreclosure, auction or trustee sale, and repossessed or real estate owned (REO).

1. Pre-Foreclosure

A property is in pre-foreclosure when the property owner has failed to meet their mortgage repayments and the bank (or other lender) sends them formal notification that it will repossess the property if they don't repay the outstanding debt by a certain date.

Since banks make their money by charging interest on the loans they provide, they generally view repossession as a last resort. If they believe that the home owner is likely to repay the owed amounts, they may even renegotiate the terms of the loan. However, with more and more people facing "reset" interest rates they can't afford and consequently defaulting on their repayments, banks are unlikely to be particularly accommodating.

Of course, if you can spot a property in pre-foreclosure, then, as an investor, you have the chance to step in and offer to help the home owner by purchasing their home. This will actually stop the foreclosure process and is a great opportunity for you, as you can buy the property without much risk, possibly no liability, and perhaps even without the need for a down payment or loan. You just need to be aware of the mortgage(s), liens and any judgments that attach to the property when you buy it.

The other great advantage of buying a pre-foreclosed home is that if you identify one early enough, you may not have as much competition for the deal as in, for example, the next stage of the foreclosure process...

And the next stage is... when the property goes up for auction.

2. Public Auction / Trustee Sale

Basically, unless the foreclosed home has been sold during pre-foreclosure, it will be sold to the highest bidder at a public auction (or trustee sale). The bank wants to get the property off its books and is generally keen to sell the home and recover its money. So, again, if you're familiar with market values, this is a chance to buy a home at a deep discount to its market value. Just be aware that if you buy a property at a public auction you'll be getting it at whatever condition it's in.

3. Real Estate Owned

If there are no bids on a foreclosed home at auction, the bank is forced to buy the property. This is known as the real estate owned (REO) or repossession ("repo") stage. Now, if you want to buy the home, you need to negotiate a deal with the bank, typically through a realtor. Although the bank is more likely to drive a harder bargain at this point, it will still be keen to get the property off its books. Therefore, you can still negotiate a good deal for yourself.

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