The phrase “buying a foreclosed home ” can be a little misleading. Are you talking about a bank-owned home? A property going through foreclosure? A short sale? Or maybe even a bankruptcy sale? No matter the scenario, you’re likely referring to a distressed property.
There are many ways a home, or rather a homeowner, comes under distress. Here are a few common situations:
- The homeowner must sell but can’t cover the full cost of the sale.
- Needed repairs have become prohibitively expensive—particularly as they pertain to structural issues.
- The homeowner defaults on a loan secured by the property.
- An estate is beyond repair and auctioned off.
- Property taxes have increased and are no longer manageable.
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Market Snapshot: Distressed Homes in Colorado Springs
Back in 2010, during the height of the recession, Colorado Springs had over 500 distressed properties. By May 2019? Only 9. Why? Rising home values and strong demand have made short sales rare. These days, traditional flippers have been replaced by long-term investors and short-term rental owners who can afford to hold onto properties.
Types of Distressed Properties.
Short Sale
This happens when a homeowner sells for less than what’s owed on the mortgage. It became common after the 2008 housing crisis and still occurs when buyers overpay and then need to sell quickly due to job changes, divorce, or other life events.
If you’ve bought with little or no down payment, keep in mind—you’re vulnerable. If the market dips or you need to move suddenly, will you be able to hold onto your home or rent it out? The ability to wait out a slow market can make all the difference.
Important: Even though a short sale is listed by a real estate agent, it may only become a short sale after it’s clear that offers won’t cover loan payoff and fees. Short sales are marked clearly in the MLS.
Related Reading: Home Buying Mistakes
Public Auction at the County Public Trustees office
In Colorado, the foreclosure process is non-judicial and starts with a Notice of Election and Demand (NED). Once filed, the home appears on the El Paso County Public Trustee website. You can subscribe to receive weekly updates on upcoming auctions.
- Previewing the property? Not possible.
- Auction Day: You must register, bring cash or certified funds, and pay in full at the time of the auction.
- After the redemption period, the Certificate of Purchase will be recorded with the County Clerk.
Note: Even though the bank is owed money, it must place a bid like everyone else. If no one bids higher, the bank wins the property.
Bank-Owned Properties (REOs)
When a property isn’t sold at auction, it becomes bank-owned. These are listed through the bank’s chosen platforms and contractors. Surprisingly, not all REOs are listed for sale—why banks hold some back remains a mystery.
Related Reading: Home Buyer Frequently Asked Questions
Where can I find distressed homes?
- Local Trustee Website
You can go directly to the El Paso County Trustees website and look for all the homes for which a Notice of Election and Demand has been filed. You’ll see when homes are scheduled for auction.
- Local MLS
As described earlier, not all distressed homes are initially listed as such. That can happen as the sales process continues and it is revealed that the debt cannot be repaid from the proceeds of the home sale. Contact us and we’ll be happy to set you up with listing notifications of these properties
- Online Auctions
Some lenders will auction off homes or land. Auctions are generally a quicker and potentially cheaper way for lenders to sell a home. They might only have the home listed on a website, or they may choose to also list the auctioned home on the MLS (Multiple Listing Service) to attract more buyers.
Be cautious if you’re planning to buy a home via online auction. Read all of the fine print and familiarize yourself with the process. You can hire a real estate to represent you, but you are basically still on your own. Make sure you understand if an agent is being paid by the site and which fees you are responsible for. Sometimes the buyer has to pay a buyer’s fee after the auction. You will definitely want to add the buyer’s fee into your buying cost and calculate it into the price offer.
Listings for Fannie Mae guaranteed properties. These are also simultaneously listed in the MLS.
Listings of foreclosed homes previously secured by an FHA loan. Simultaneously listed in the MLS.
VA-owned homes, including those available under VA Vendee financing.
Note: Sometimes listings on official websites and the MLS don’t sync, so check both.
Quick Tips for Buying a Distressed Home
- The earlier you find a potential distressed property, the better for all parties.
- Inventory is low (thank goodness), so be ready to compete.
- HUD and HomePath prioritize owner-occupants before investors.
- Short sales can take 3 to 9+ months—not ideal if you’re on a deadline.
- Cost savings can be real—but only if you plan for repair expenses.
- The bank will have their own contracts and addenda.
- You will have a new timeline and requirements to fulfill.
- You are able to inspect the home and terminate the contract, but you are basically buying the home “As Is.”
- Have an experienced real estate pro by your side to guide you through this process.
Now What?
Navigating distressed properties can be complex—but it’s doable with the right guidance. The CO-RE Group is here to help you find, evaluate, and purchase foreclosed or distressed homes in Colorado Springs. Reach out any time and we’ll help you at any stage of your home journey!
