Buying Foreclosures

In General people are interested in foreclosures because they sound cool, interesting, and like a possible deal. In reality, it's tough to get a good deal. Property tax foreclosures and "county courthouse steps" foreclosures are real options, but very few buyers will actually consider it. (There is a small # of investors in town who do this as a full time job.) In general, foreclosure opportunities that buyers will consider are those that are listed on the MLS.

We luckily don't have to deal w/ foreclosures much in Austin because properties appreciate at a rate that sellers have decent equity after a few years.. :) However, buyers do find listings on Zillow (and elsewhere) that are tagged as a potential foreclosure. Here's how everything works:

Borrower stops paying
Bank starts foreclosure process
Property is auctioned on the first Tuesday of the month downtown. The buyer literally has to bring cash equivalent - generally cashier's checks in $5k & $10k increments (there's some small amount that they let them pay by personal check, so they get to the exact amount with that.) No option, due diligence, etc. Title is now clear when it's auctioned off.
1. Some buyers are curious about buying at the county steps. It's something that most (almost all) buyers are not comfortable with.
99% of the time, the first lien holder buys the property to protect their position. This means that the bank now owns it.
For whatever reason, it takes the bank a long time to list the property. Usually 6-12 months after the auction. The bank will not talk to anyone about selling it to them before listing it on the MLS.
Once it's on the MLS, it's somewhat similar to a "normal" listing. There are some differences - you send the offer to the agent, agent communicates w/ the bank, then gets back to you. Generally a 24-48 hour lag in communication.

Property Tax Foreclosures

There are also auctions for properties that haven't paid taxes. This is similar to the "county courthouse steps" in that you have to show up and pay cash. It sounds crazy, but after you've bought the property, the old owner has 6 months (if they were an investor) to buy the property back w/ interest and someone w/ a homestead exemption has 2 years to do so.