Buying a foreclosed property in Maryland is a great way to find a home under market value in a hot housing market. Home prices in Maryland have gone from around $300,000 in 2018 to over $406,000 in November 2022, but foreclosures often sell for less.
However, the truth about buying a foreclosure in Maryland is that it can be a long, complicated process. Under certain circumstances, the previous owner can even have the foreclosure reversed, sometimes years later.
Whether you’re looking to buy a starter home at a deep discount or you’re an investor looking for your fourth rental property, the best way to begin your foreclosure purchase is to partner with an experienced local real estate agent who can guide you through the market.
Agents that focus on foreclosures will know exactly where to look for good deals — and they may even have ties with local lenders. If you need help finding an agent that focuses on foreclosures, Clever Real Estate is an agent-matching service that can connect you with the top foreclosure experts in your area — no strings attached.
Finding foreclosures is hard enough — let us help simplify the agent-finding process. Get free local agent matches now!
What is a foreclosed home?
In most cases, a foreclosed home is a dwelling that is seized by the lender or government after an owner fails to keep up with their mortgage payments or taxes. The foreclosing party then sells the home to try and recoup the money still owed to them.
Lender-owned properties are called real estate owned (REO). Learn more about the different types of foreclosures.
How to buy foreclosures in Maryland
1. Get preapproved for financing
The first step in how to buy a foreclosed home is to get a preapproval letter. Having a preapproval letter signals you’re a qualified buyer, and sellers will take you more seriously.
To get preapproved, you'll need to provide your lender with your financial information. It'll use this to see how much it's willing to lend you.
If you’re curious how much you can get preapproved for, our friends at Rocket Mortgage can send you an estimate right away. Answer a few simple questions to see what you can afford!
You might be able to get a conventional loan if the home is in livable condition. Or, if you qualify, you can even use federally backed FHA, USDA, or VA loans that come with very low interest rates and down payment requirements.
Another option for buyers is a 203(k) FHA loan, which allows the buyer to finance the price of the property plus the cost of repairs with a single mortgage.
2. Hire a top Maryland realtor with foreclosure expertise
Finding a Maryland realtor who has experience with foreclosed properties can make the process of getting that perfect foreclosure much smoother.
Agents who specialize in foreclosures often have relationships with lenders. This helps them find out about foreclosed properties before they officially hit the market. They’ll understand the dynamics of the local foreclosure market and may even have insight into claims on specific properties.
Finally, their experience with the complicated foreclosure process can be an important source of assurance for the buyer.
Need help finding a Maryland agent with foreclosure expertise? Clever is here to help. We have a large network of agents that work for brokerages like Century 21, Keller Williams, and more. They offer the expertise you need to beat the competition and come out ahead with your offers.
3. Find foreclosed homes in Maryland
Foreclosed homes can be difficult to track down. We highly recommend starting your search with a tool that does the searching for you, like Foreclosure.com. Simply search by state and county to see a list of foreclosed homes near you.
Other search options exist when buying a Maryland foreclosure. Some good places to start are:
- The Maryland Department of Housing and Community Development
- The Department of the Treasury
- The U.S. Department of Housing and Urban Development
- Fannie Mae’s HomePath website
- Banks like Bank of America and Wells Fargo
For buyers interested in bidding on foreclosures at auction, resources include:
Auctions are generally for investors or buyers with a lot of cash on hand, as you’ll be expected to pay the purchase price in full if you win the auction. Most auctions also require you to put a sizable deposit down just to bid that will either be refunded or put toward your purchase.
For those reasons, conventional buyers using mortgages to purchase are better off finding homes in pre-foreclosure or buying an REO property, even though it will take a lot longer.
4. Tour foreclosures in person
Buyers should always try to visit the property and check it out for themselves — even an exterior walkaround can yield a lot of information, and neighbors can often tell you if the property has been neglected or vandalized.
Usually, banks that own REO properties let buyers go in before the sale. However, if a foreclosed property is still occupied, the people living there may not agree to let potential buyers tour the home.
Many foreclosed properties are also inaccessible because of neglect or damage, as occupants are often evicted without having a chance to clean up.
5. Submit offers
How much to offer on a bank-owned property varies. One common misconception about REO properties is that the bank is eager to get the property off its books and will take a lowball offer. Banks are usually savvier than that. Typically, they’ve done their own price research and have a good idea of what the property is worth.
Make your offer stronger by including your own price research on comparable properties, your mortgage preapproval, and a big deposit.
Once you’ve made your offer, be patient. Banks often move slowly through this process and may come back at you with a counteroffer. This is when working with an agent who’s experienced with negotiating foreclosures can pay big dividends!
6. Conduct due diligence on the property
After going under contract, the due diligence period starts.
During the due diligence period, you’ll want to have the title cleared by a real estate attorney or title company. They will look for any competing liens or claims and determine clear ownership. You'll also want title insurance to protect you from any claims that pop up in the future.
This is also when you’ll want to have a thorough inspection done to uncover any hidden problems.
7. Get the home appraised if you're financing it
Lenders generally require a home appraisal to make sure the home you’re buying is worth what they’re loaning you.
Why are appraisals so important for foreclosures? Lenders who own foreclosed properties often hire outside agents unfamiliar with the local market to sell these properties, and they may misprice the property. Then when the home appraisal comes in under the sale price, the lender could get cold feet.
So what happens if your foreclosure appraisal comes in lower than the sale price? You have several options:
- Ask for a price reduction that's closer to the appraised value.
- Dispute the appraised value by getting your own appraisal.
- Pay the difference if you really want the house.
- Walk away from the sale — just know you may lose your deposit if you didn't have an appraisal contingency.
8. Close on the purchase
If you’re paying cash for a foreclosure, with no contingencies in the deal, closing should be fast and easy.
If you’re financing the purchase, the closing process will be similar to a conventional sale’s closing, but you'll likely need to pay all closing costs on your own or try to negotiate otherwise.
One factor that can complicate closing is that many REO properties are owned by banks without a presence in Maryland. In these cases, required paperwork has to be sent to them, make its way through the bank bureaucracy to be signed and approved, and mailed back — a process that can take weeks.
Because closing on a foreclosed property can be complex, we suggest working with an experienced real estate agent who can guide you through the process and review all the relevant documentation.
When you use Clever to find an agent, not only will you get a highly experienced professional, but you could also qualify for cash back. Eligible buyers can receive cash back after closing. This free money could be a great way to get started on renovating your foreclosure purchase.
Pros and cons of buying a Maryland foreclosure
✅ Low price
The top reason to buy a foreclosure in Maryland (or any other state) is that you might be able to get it for significantly below market value. In many instances, the lender’s top priority just is to recoup whatever they’re owed on the home and not necessarily get the highest possible sale price.
✅ Title clean and clear
If you’re buying an REO property, the bank has likely already solved the various claims and liens associated with the property. That means you won’t have to shell out any cash to resolve claims from unknown creditors down the line.
🚫 As-is condition
Nearly all foreclosures are either distressed or sold in as-is condition. Even if you’re able to have the property inspected before you put in an offer, you’ll likely have a lot of work ahead of you once you get the keys.
🚫 Brisk competition
There are a lot of other people trying to buy foreclosures for the very same reason you are. Some of those competitors may be investors with deep pockets, and their all-cash, zero-contingency offers could trump yours.
🚫 Accelerated timeline
Because the Maryland foreclosure market is so competitive, you may have to move fast with an offer. You might not have time to have the home inspected or see it in person.
Stages of a foreclosure in Maryland
How do foreclosures work? The first step is pre-foreclosure — the period after the owner falls behind on their mortgage payments but before the property is officially foreclosed.
Once the owner has gone three months without making a payment, the lender generally gives them 45 days to bring the mortgage current. If they don’t, the lender issues a notice of default and initiates formal foreclosure proceedings after 120 days.
Buying a property in pre-foreclosure can be very advantageous. Sellers are under time pressure to sell before foreclosure devastates their credit rating.
A foreclosure auction takes place after the lender repossesses the property. The property is auctioned off so the lender can recover some of the money still owed to them.
In a foreclosure auction, the property is sold to the highest bidder. Generally, those bidders are investors or deep-pocketed buyers who are paying all cash, so this isn’t a great place for individual buyers to snag a bargain.
Bank-owned or real-estate-owned (REO)
If a foreclosed property doesn’t sell at auction, it becomes a bank-owned or real estate-owned (REO) property. These properties are managed by the institution’s REO department, meaning the selling process often involves navigating several layers of bureaucracy.
Buying an REO property can be unpredictable. Sometimes, the bank just wants to recover its investment and will sell the property at a significant discount. At other times, it may demand a price closer to market value. A good real estate agent who specializes in foreclosures can help you figure out how to handle your REO purchase!
Maryland foreclosure laws for buyers
Maryland condominium and HOA foreclosure law
There are three areas of Maryland state law that govern how homeowners associations and condominium owners associations can foreclose on properties that fall behind on their HOA and COA obligations:
In Maryland, the law states that HOAs can foreclose once the homeowner falls 90 days behind on their dues or other fees. In some other states, the lender has first claim on the foreclosure sale proceeds, but in Maryland, the HOA claims are settled first — meaning that HOA foreclosures are relatively common in Maryland.
Protections for military servicemembers
The Servicemembers Civil Relief Act (SCRA) allows members of the military to challenge or even reverse foreclosure sales years later, as long as they file a claim within 90 days of leaving the service. Buyers should be wary of purchasing foreclosed properties that were owned by military servicemembers, as there could be complications.
FAQs about buying a foreclosed house in Maryland
Buying a foreclosed home in Maryland depends on the stage of foreclosure. If it’s in pre-foreclosure, the buying process is like buying a standard home. If it’s at auction, it’s a simple “highest bidder wins” process. And if it’s a bank-owned property, you’ll purchase it directly from the bank. Learn more about the pros and cons of buying a bank-owned foreclosure.
For pre-foreclosures, check popular real estate websites like Redfin or Zillow — search for “pre-foreclosure.” For auctions, look at sites like auction.com or foreclosure.com. For bank-owned properties, each bank has a directory of REO properties. Check out our list of the best foreclosure websites to find more resources.
Yes! Maryland foreclosures can offer exceptional value for the savvy buyer. However, it may take patience, a tolerance for risk, cash up front, and the guidance of an experienced realtor who specializes in foreclosures to get your deal across the finish line. Learn more about how to decide if buying a foreclosed home is right for you.
If you’re paying cash, the foreclosure sale could go very quickly. If you’re using a mortgage, it may take longer. Generally, pre-foreclosures and auctions are fast, while sales of bank-owned homes could take months. See more about how long it might take you to close on your home.
Why trust us?
Clever Real Estate has spent hundreds of hours researching foreclosure law and interviewing licensed agents with experience buying foreclosures to create this guide. We utilized authoritative sources including the Maryland Department of Housing and Community Development and the Maryland Office of Real Estate and Economic Development.
The author, Lindsay Stefan, has over eight years of experience writing, editing, and copywriting for various websites, publications, and advertisements.