What is a foreclosed home? | How to buy a foreclosed home | Pros and cons | Stages of foreclosure in Texas | Texas foreclosure laws | Should I buy a Texas foreclosure? | FAQs
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Whether you're an investor, flipper, or regular home buyer, buying a foreclosed home in Texas can be a good opportunity to get a property for less than market value — if you know what you're doing.
This is particularly true in Texas, where mid-priced home values have risen significantly in recent years and the supply of available homes can't keep up with the current demand.[1]
How to buy a foreclosed home in Texas
1. Get pre-approved for financing
Your options for financing a foreclosed home depend on the stage of the foreclosure. At a foreclosure auction, you usually need cash to buy a property. But you can purchase a pre-foreclosure or REO using a traditional home loan.
If you don't have the cash reserves to purchase a foreclosed home outright, you'll need to show that you have financing from another source. So before you make an offer on a property, you'll want to get a pre-approval letter from a lender.
A pre-approval letter shows how much you're qualified to borrow based on a lender's preliminary review of your credit score and finances. Sellers aren't likely to take your offer seriously without one.
You can jump-start the pre-approval process using Quicken Loans' free automated tool. Answer a few basic financial questions, and in under five minutes, you'll have a professional opinion of how much you're qualified to borrow. You can also see if you're eligible for down payment assistance programs in your area.
While a pre-approval letter doesn't require you to work with a specific lender, it offers sellers a snapshot of your financial strength as a borrower. In a competitive offer situation, this proof of funding can make the difference between securing the winning bid or not.
If you're a first-time home buyer in Texas, you can look into the Home Sweet Texas and Home for Texas Heroes programs. Both programs offer down payment assistance, even for pre-foreclosures and REOs.
Since foreclosures often require repairs or renovations, you might also look into the Texas Bootstrap Loan Program or a Homebuyer Assistance with New Construction or Rehabilitation (HANC) loan, both of which are geared toward homes that require some kind of work.
2. Hire a top Texas realtor with foreclosure expertise
Buying foreclosures can be even more complicated than traditional home buying. If you're unfamiliar with the process, find an agent with experience handling foreclosures. An experienced agent can help you navigate the extra paperwork and tricky negotiations for a pre-foreclosure or REO. They might also give you the inside scoop on local foreclosure properties before they hit the market.
If you're looking for a Texas realtor with foreclosure expertise, Clever's team can connect you. Through our free agent-matching service, you get your pick of top-performing agents in your area, plus cash back for eligible purchases.
When you request an agent match from Clever's network, there's zero cost and no pressure to commit. Simply fill out the form below to compare agent recommendations!
Finding a great local realtor is the first step in making your home buying dreams a reality. Our free service matches you with top agents from trusted brands like Keller Williams and RE/MAX.
Enter your zip code to request hand-picked agent matches in minutes. Compare your options until you find the perfect fit, or walk away with no obligation. Try Clever's free service today!
3. Find foreclosed homes in Texas
If you're new to buying foreclosures, you should probably get your feet wet with pre-foreclosures or REOs. Unlike foreclosure auctions, which often require you to pay cash sight unseen, homes in the other stages of foreclosure allow you to secure traditional funding and conduct your due diligence through inspections and appraisals.
The foreclosure market is tight, and you'll likely face competition. If you're serious about purchasing a foreclosure, consider signing up for a service like Foreclosure.com.
As the internet's largest and most up-to-date foreclosure database, Foreclosure.com offers direct access to local foreclosure listings — often before they hit the mass market. Its free trial lets you access listings for seven days before purchasing a monthly subscription.
Local MLS
Bank-owned properties and pre-foreclosures are often listed on the local MLS, where they're syndicated to other popular real estate sites. In Texas, HAR.com is another popular site to find properties of all kinds.
Government-owned foreclosures
To find government-owned foreclosures, search the HUD home store.
Local auctions
Auctions are listed in local newspapers in the real estate section or classifieds. You can also find them by searching for "foreclosure sale" on mypublicnotices.com.
Consider auctions only if you're experienced in real estate, have substantial cash reserves, and are willing to take the risk of buying a home you haven't seen.
4. Tour foreclosures in person
One major benefit of buying pre-foreclosures or REOs is that you can tour the property before making an offer (this isn't usually possible with auctions). If you're not experienced in renovating and rehabbing properties, you should always try to see a property in person before submitting an offer.
You might not have time to order an inspection, but you can bring a contractor with you to get an initial sense of any major flaws with the property — and what they'll cost to fix. If your goal is to flip the house, this step is crucial for figuring out your after repair value (ARV).
» LEARN: How ARV works
5. Submit offers
Making an offer on a pre-foreclosure is a lot like making an offer on a conventional home, except the seller is highly motivated and may be trying to close before a foreclosure deadline. Making an offer that includes a fast close date is a good way to appeal to the seller.
REOs usually have more specific rules for submitting offers. Each lender treats this a bit differently, but you'll want a letter of pre-approval, and you should always follow their instructions for submitting offers. A good agent can help you through this process.
Auctions have their own set of rules for submitting offers. In Texas, auctions are usually held on the first Tuesday of every month between 10 a.m. and 4 p.m. at the county courthouse. These sales usually require cash deposits right away and payment in full shortly after.
You'll need to go to either the county sheriff's website (e.g., Harris or Dallas) or a site like auction.com for specific instructions on finding auctions and submitting offers.
6. Conduct due diligence on the property
Conducting a title search and getting the property inspected are arguably the most important things to do before making an offer on a foreclosure.
Since foreclosures only exist when bills aren't paid, there's an additional risk of claims against the title. Conducting a title search ensures that there aren't liens against the property, so you can rest assured that the home is yours once you close.
Inspections help you avoid major issues with the property that may be hard to see with a simple walk-through.
» LEARN: How inspections work and what happens after
With auctions, inspections and property viewings aren't generally allowed. Your due diligence will be mostly limited to checking for a clear title, driving by the property to assess the condition of the outside and the neighborhood, and preparing to make an offer at the auction.
7. Get the home appraised if you're financing it
If you're financing the home, you'll need to get the property appraised to determine its fair market value. Lenders use the appraisal to ensure they don't lend you more than the home is worth. They usually have appraisers they work with, so you just need to contact them, schedule a visit to the property, and notify the seller.
» MORE: Find out what appraisals are and if you need one
If the appraisal comes in low, you'll need to come out of pocket for the difference. For example, if you offer $200,000 for a home and it appraises at $190,000, then the lender will finance only $190,000. You'll need to cover the remaining $10,000 or renegotiate the sale price.
8. Close on the purchase
For an auction, you'll need a cashier's check ready for the down payment the day of the auction. The trustee of the sale will give you the information you need to pay the remaining amount by the deadline — usually no longer than 30 days after the sale. At that point, you'll receive the deed to the property.
For pre-foreclosures and REOs, the closing process is similar to closing on conventional homes: you go to a title company, fill out the paperwork, and pay the seller for the property.
The title company will tell you in advance what's expected from you, but it helps to have an expert on your side to guide you. If you use an agent recommended by Clever, you'll have peace of mind knowing an experienced agent has your back — and you could even get cash back at closing!
What is a foreclosed home?
A home is foreclosed when a homeowner fails to pay their debt and the party who is owed money takes possession of the property.
The term "foreclosure" is often used more generally to apply to a property in any stage of the foreclosure process. There are three main types of Texas foreclosures: pre-foreclosures, auctions, and real estate owned (REO) foreclosures.
Pre-foreclosure
A pre-foreclosure is when a lender or the government issues notice to a homeowner that they must repay their debt or have their house foreclosed.
Foreclosure auction
A foreclosure auction takes place when the property has officially been foreclosed and the lender or government tries to sell the property at an auction to recoup the money they're owed.
REO foreclosure
A property becomes an REO foreclosure when it doesn't successfully sell at an auction. At this point, either the lender or the government reclaims ownership of the home and sells it on their own.
Pros and cons of buying a Texas foreclosure
The primary benefit of buying a foreclosed home in Texas is the likely discounted price. Buyers also appreciate the increased inventory to choose from and the possibility of quickly gaining equity by renovating the property.
The risks include damage to the property, title issues, and other legal issues.
Pros
✅ Lower purchase price
Buying a foreclosed home could mean getting a home below market value. Most sellers are in a tight place financially, so savvy buyers can leverage that to negotiate lower sale prices.
✅ Increased inventory
In a state like Texas where housing demand is consistently outpacing supply, any opportunity to add homes to your search increases the chances of finding the right property. Considering foreclosures is a good way to expand your search.
✅ Room to build equity
Since many foreclosures have issues or have been neglected in some way, there's often an opportunity to build equity by renovating or repairing the home.
For example, you might buy a foreclosure for $150,000 and spend $25,000 renovating it, and it could be worth $190,000 after all the work is done. That's $15,000 of equity you just created!
Cons
🚫 Damaged property
Many foreclosures have been vacant or neglected for an extended period, so they may have substantial damage that needs repair. Sometimes distressed sellers intentionally damage property on the way out because they're angry about being forcefully removed from their home.
🚫 Redemption period
In Texas, owners of tax-foreclosed properties have up to two years to redeem their property after foreclosure. This means you could close on a foreclosure, own it for over a year, and then be forced to give it back to its previous owner who caught up on their taxes.
🚫 Title issues
For a property to be foreclosed, a homeowner must fail to repay a debt for which the property is acting as collateral. This can apply to more than one kind of debt.
For example, a homeowner could fail to pay their taxes as well as their mortgage to their lender. In this case, both the government and the lender have a claim to the property — also known as a lien.
When buying foreclosures, always run a title check to see who has a lien on the property and to ensure the title is clean.
Stages of a foreclosure in Texas
The basic stages of foreclosure in Texas are pre-foreclosure, auction, and REO property. We recommend that you stick to pre-foreclosures and REOs, since auctions can be risky and tax-delinquent owners have a redemption period of up to two years.
Pre-foreclosure
Any sale that occurs between the breach letter and the foreclosure auction is considered a pre-foreclosure.
A homeowner receives a breach letter from their lender after they fail to make payments for one to three months.
If the borrower fails to catch up on payments or respond to the letter for another 60 to 120 days, they'll receive a Notice of Default and Intent to Accelerate. At this point, they'll have only a few weeks until the house goes to auction.
Foreclosure auction
Properties that don't sell in pre-foreclosure go to foreclosure auction. In Texas, these properties must be publicly advertised in local newspapers for at least three weeks before the auction.
Auctions occur the first Tuesday of every month, usually at the county courthouse or another publicly owned building.
If you want to participate, contact the county sheriff's office for instructions on how to register and bid. Ask about specific requirements such as minimum bids, bid increments, and payment types.
Here are links to some of the highest-volume counties in Texas:
Real estate owned (REO) foreclosures
If a property doesn't sell at auction, the lender or government takes possession of it. These properties are called REOs.
At this point, the lender or government won't be super flexible with negotiations, because they aren't as motivated to offload the property as a distressed seller. Their main goal is to recoup lost revenue.
Traditional financing is usually available for these properties, and they're generally priced at or slightly below market value.
Texas foreclosure laws for buyers
Texas is a moderately complex state when it comes to foreclosure laws. The state is mostly non-judicial, which means that most foreclosures don't need to be filed with the court or ruled on by a judge. This also means that the process to buy a foreclosure goes faster than the process in judicial states, which can take months or even years to complete.[2]
Deficiency judgements (also called short sales) are allowed in Texas, which means a house can be sold for less than what's owed on it.[3] You could get a good price on a short sale since sellers aren't required by law to get enough money to fully cover their debts. But you'll probably have to deal with the lender directly if you intend to buy a house as a short sale.
Texas also has a relatively long redemption period for tax-delinquent foreclosures, which can last up to two years. During that time, prior owners can pay off their delinquent taxes to regain possession of their property, regardless of any improvements you may have made to it.
Finally, Texas foreclosure buyers should keep tenant protection laws in mind. If you intend to live in the property, you need to give tenants 90 days to vacate the property.[4] If you intend to rent out the property, you must honor the terms of the lease for the current tenants.
Should I buy a foreclosed home in Texas?
Buyers looking for an affordable home that may need some work should consider buying a pre-foreclosure or REO in Texas. Generally, you should consider foreclosure auctions only if you're an experienced real estate investor or flipper.
For anyone who isn't experienced with real estate, inspecting a property and having it appraised are paramount to avoiding major pitfalls. Usually these aren't options when buying at an auction.
If you decide to buy a foreclosure, we recommend working with an experienced agent who can help you find great opportunities and avoid money pits.
Browse Clever's agent network to find the right realtor to guide you through the process.
Why leave extra money on the table? Clever can connect you with one of the top real estate agents in your area, plus put cash back in your pocket.
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FAQs about buying a foreclosed house in Texas
How does buying a foreclosed home work in Texas?
There are three main stages of foreclosure in Texas: pre-foreclosure, foreclosure auctions, and real estate owned (REO) foreclosures.
Buying pre-foreclosures or REOs is a lot like buying conventional homes. You find a property, make a written offer, negotiate terms and price, and then close.
Buying foreclosures at auctions requires registering on the county sheriff's website, attending the auction, bidding on a property, and paying in cash.
How do you find foreclosures in Texas?
You can find Texas foreclosures and pre-foreclosures on Foreclosure.com or by asking your realtor to set up a search on the local MLS.
Your local classifieds are also a good place to look, since Texas laws require foreclosure auctions to be publicly advertised for at least three weeks before bidding starts.
Are foreclosures worth buying in Texas?
For many buyers, feeling like they're profiting from someone's misfortune makes buying a foreclosure not worth it, particularly since the home may need additional work and end up not being much cheaper than conventional homes.
That said, foreclosures can result in below market sale prices and opportunities for sweat equity, so they can be worth it to patient buyers who wait for the right property.
How long does it take to buy a foreclosed home in Texas?
If you're buying a pre-foreclosure or REO in Texas, you'll typically need about 30 to 45 days to complete inspections, financing, and appraisals. Short sales, when a seller owes more on their property than its worth, can take two to three times longer, since you'll have to negotiate the details with the seller's lender.
When you buy a home through a foreclosure auction, you can close in a matter of days.
Why trust us?
Clever strives to provide the most up-to-date, accurate, and useful information available for our readers. We've done extensive research to verify this information, and we've consulted one of our top agents with experience buying foreclosures.
The author, Alex Long, has been investing in residential real estate since 2016 and has bought homes in various states across the U.S.
