How I bought a foreclosed house

But there's hardly a more motivated home seller than a bank trying to unload a house it had to take over when its owner defaulted on the mortgage. So it seemed as if foreclosed properties might be the best if not the only choice for us. There were plenty of them out there: Half the homes sold in Southern California in September had been foreclosed, and they will probably make up the majority of homes sold in the region for at least the near future.

I began to check foreclosure listings online and signed up for a paid tracking service. RealtyTrac and ForeclosureRadar are among the choices. These services list houses in default -- ones on which owners have missed mortgage payments but that are yet to be repossessed -- as well as properties seized by lenders. They also indicate the dates the homes are to be auctioned.

For a house in the early stages of foreclosure, a potential buyer can send a letter or knock on the door of the homeowner in default and offer to buy the house directly. I tried this with one house we particularly liked, but the owner was too far underwater to sell the house at a price I could pay.

I continued to track the house, which we felt was the perfect size for our family. It was also just a few blocks from my daughter's best friend's house, and close to her school and my office. We called it "the red-door house" because of its crimson front door, and dreamed it might be ours. I soon learned from the websites that the house was headed for auction.

Buying a foreclosed house at a "courthouse steps" auction requires a good amount of knowledge -- and cash. State law requires that foreclosed properties be offered at a public auction, to give buyers a level playing field. Opening bids are typically the amount owed on the house plus an additional sum to cover processing fees.

In today's depressed market, that amount is often more than the house could be sold for on the open market. Consequently, many houses receive no bids at auction, and the lender ends up putting the house on the market through a real estate broker.

If a house is up for auction with an opening bid far below its current market value, it's likely to be snatched up by professionals who regularly attend the auctions, armed with stacks of cashier's checks to pay the full amount. Houses must also generally be taken as is, with no inspection.

For those reasons, I didn't bother going to any courthouse auctions. It would be easiest, I figured, to simply wait for the houses to be listed for sale through brokers.