8 Steps to Buy a Foreclosed Home in Texas (2022 Guide)

Alex Long

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Alex Long

July 22nd, 2022
Updated July 22nd, 2022

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What is 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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Regardless of whether you're an investor, flipper, or regular home buyer, buying a foreclosed home in Texas offers a useful opportunity to acquire 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 rose over 20% between 2020 and 2021 and the supply of available homes can't keep up with the current demand.[1]

That said, you shouldn't assume buying foreclosed homes in Texas automatically means you're getting a deal. Buying foreclosures can be complicated and risky, which is why we strongly recommend working with an experienced agent to help you along the way.

Fortunately, Clever Real Estate can help you find a top local agent that's experienced in foreclosures so you can find the right property and get a great deal.

If you choose to work with a Clever agent, you may even get cash back when you close on your next property!

💰 Find your dream property, get cash back

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.

With Clever:

 ✅ You'll work with a full-service realtor from a top broker

 ✅ You'll earn cash back on qualifying purchases

 ✅ It's free, with zero obligation — you can walk away at any time

Fill out the form below to get started!

What is a foreclosed home?

A foreclosed home is when a homeowner fails to pay their debt, and the party who is owed money takes possession of — or forecloses on — 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.

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 on.

A foreclosure auction takes place when the property has officially been foreclosed on and the lender or government tries to sell the property at an auction to recoup the money they are owed.

An REO foreclosure happens when a property does not successfully sell at the auction. At this point, either the lender or the government will reclaim ownership of the home and sell it on their own.

How to buy a foreclosed home in Texas

1. Get pre-approved for financing

Financing foreclosed homes depends on the stage the foreclosure is in.

Financing is usually not an option at foreclosure auctions, unless you're borrowing from a private investor or hard-money lender. It's more common for people to use cash to buy properties at auction. If you're an experienced real estate investor, you might use a non-traditional lender like Groundfloor for financing the purchase and renovations, and then either sell or refinance down the road.

If you're buying a pre-foreclosure or REO foreclosure, the process will probably be a lot like financing a traditional property. With pre-foreclosures, you need to make sure you're scheduling the sale before the foreclosure deadline. Otherwise, just reach out to your lender and apply for pre-approval to determine what your price range is.

If you're a first-time buyer, you should consider the Home Sweet Texas or Home for Texas Heroes programs. They offer down payment assistance, even for pre-foreclosures and REOs.

Since foreclosures also often require repairs or renovations, you might look into the Texas Bootstrap Loan Program or a Homebuyer Assistance with New Construction or Rehabilitation (HANC) loan, both of which are geared towards homes that require some kind of work to be done.

» MORE: Learn first-time home buyer programs in Texas

2. Hire a top Texas realtor with foreclosure expertise

Homebuying is complicated enough, but buying foreclosures can be even more so. Knowing how to find foreclosed homes, make an offer, and work within specific timeframes are just some of the many reasons working with an experienced agent is so important. They can help you navigate the additional processes involved in buying a foreclosed home that you may not be familiar with.

It's also possible that your agent will have a relationship with REO departments of local lenders or other entities who deal with foreclosed homes. Having the inside track could be the difference between you getting your dream home or not.

Talk to a Clever agent today to see what they can do to help you find a great property at a reasonable price.

3. Find foreclosed homes in Texas

Inexperienced buyers should probably focus on pre-foreclosures or REOs because they're more similar to traditional home buying.

Properties in these stages of foreclosure are often listed on the local MLS, which means your agent can alert you to them before they appear on popular real estate sites. You can also find these properties by filtering for foreclosures or auctions on sites like Zillow or RealtyTrac. For government-owned foreclosures, you can go to the HUD home store.

Only consider auctions 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.

You can find auctions listed in the real estate or classifieds section of your local newspapers or on mypublicnotices.com — just search "foreclosure sale" under the category search drop down.

In Texas, HAR.com is another popular site to find properties of all kinds.

» MORE: Trying to scale your real estate portfolio by buying foreclosures? Check out Deal Machine for generating and tracking leads.

4. Tour foreclosures in person

One major benefit to 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.

While you may not have time to order an inspection, 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 will be crucial for figuring out your after repair value (ARV).

» LEARN: About how ARV works

5. Submit offers

Making an offer on a pre-foreclosure is a lot like making offers on conventional homes, except the seller is highly motivated and may be trying to close before a foreclosure deadline. Including fast close dates is probably the best way to make these offers appealing to sellers.

An REO usually has 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 either need to go to the county sheriff's website (e.g., Harris or Dallas) or a site like auction.comfor specific instructions for finding auctions and submitting offers.

6. Conduct due diligence on the property

Arguably the most important thing to do with foreclosures is get the property inspected and conduct a title search. Since foreclosures only exist when bills are not being paid, there is additional risk of claims against the title.

Conducting a title search will ensure that there are no liens against the property, so you can rest assured that the home is yours once you've closed on it.

Inspections will help you avoid major issues in 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 are generally not 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 neighborhood, and preparing to make an offer at the auction.

7. Get the home appraised if you're financing it

When financing a home, lenders want to know that they're not taking on too much risk by lending you more than the home is worth.

This means you'll need to get the property appraised to determine its fair market value. Lenders will generally 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 only finance $190,000. You'll need to cover the remaining $10,000 or renegotiate the sale price.

8. Close on the purchase

With 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 for you to pay the remaining amount by the deadline — usually no longer than 30 days after the sale. At that point, you will receive the deed to the property.

The closing process for pre-foreclosures and REOs 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 the peace of mind knowing an experienced agent has your back — and you could even get up to 0.5% cash back at closing!

Pros and cons of buying a Texas foreclosure

The primary benefit of buying a foreclosed home at any stage is the discounted price you expect to get. Buyers also appreciate the increased inventory to choose from and the possibility of quickly gaining equity by renovating the property.

The major risks are damage to the property or title issues, but there are also some legal issues buyers should be wary of.

Pros

✅ Lower purchase price

The major benefit of buying a foreclosed home is the possibility of getting it for below market value. Most sellers are in a tight place financially, so savvy buyers can leverage that situation 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 possibilities.

✅ Room to build in equity

Since many foreclosures have issues or have been neglected in some way, there's often an opportunity to build in equity by renovating or repairing the home.

For example, you might buy a foreclosure for $150,000, 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 to be repaired. There are also occasions when 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. That means you could close on a foreclosure, own it for well 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 on, a homeowner must fail to repay a debt for which the property is acting as collateral. However, there can be more than one kind of debt this applies to.

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 bank- or government-owned foreclosures (REOs), as auctions can be risky, and tax-delinquent owners have a redemption period that can last up to two years.

Pre-foreclosure

The pre-foreclosure process begins after a homeowner has failed to make payments to the lender for 1–3 months and receives a breach letter from their lender.

If the borrower fails to catch up on payments or respond for another 60–120 days, they'll receive a Notice of Default and Intent to Accelerate. At this point, they'll only have a few weeks until the house goes to auction.

Any sale that occurs between the breach letter and the foreclosure auction is considered a pre-foreclosure.

Foreclosure auction

Properties not sold in pre-foreclosure go to foreclosure auction. In Texas, these properties must be publicly advertised in local newspapers for at least three weeks in advance of the auction.

Auctions occur the first Tuesday of every month, usually at the county courthouse or another publicly owned building.

If you wish 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 accepted.

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 the property — these 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 here is to recoup lost revenue.

That said, 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 law. It's mostly non-judicial, which means that most foreclosures don't need to be filed with the court or ruled on by a judge. That also means that the process goes faster than judicial states, which can take months or even years to complete the foreclosure process.[2]

Deficiency judgements are allowed in Texas, which means a house can be sold for less than what's owed on it — this is also called a short sale.[3] This opens up the possibility of getting a good sale price because sellers aren't required by law to get enough money to fully cover their debts. That said, 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 — also called owner occupying — you need to allow any current 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 tenant.

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. We recommend avoiding buying foreclosures at an auction unless you're an experienced real estate investor or flipper.

The ability to inspect a property and have it appraised is paramount to avoiding major pitfalls for anyone who isn't experienced with real estate, and those are usually only options in the pre-foreclosure or REO stages of foreclosure.

If you do decide to buy a foreclosure, we also recommend working with an experienced agent that can help you get the first crack at great opportunities and avoid money pits.

Consider talking to one of Clever's recommended agents to see how they can help you find your next home purchase.

💰 Find your dream home, get cash back

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.

With Clever:

 ✅ You'll work with a full-service realtor from a top broker

 ✅ You'll earn cash back on qualifying purchases

 ✅ It's free, with zero obligation — you can walk away at any time

Fill out the form below to get started!

FAQs about buying a foreclosed house in Texas

There are three main stages to 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 for it.

You can find foreclosures and pre-foreclosures on sites like Foreclosure.com, RealtyTrac, and Zillow, as well as on the MLS. Searching with foreclosure or pre-foreclosure filters will help you find them on real estate websites.

Texas foreclosure auctions are also required by law to be publicly advertised for at least three weeks in the local newspaper.

For many buyers, feeling like they're profiting from someone else's misfortune makes buying foreclosures not worth it, particularly since they 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 to come along.

Pre-foreclosures can be purchased about as quickly as a conventional home (usually around 45 days). REOs are similar, but can take slightly longer if the lender has difficulty scheduling a convenient time to close. Foreclosure auctions can be completed in a matter of days after the auction.

Why trust us?

Clever always tries to provide the most up-to-date, accurate, and useful information available for our readers. We have done extensive research to verify this information, and we 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.

Related links

ARTICLE SOURCES
[1]

Roofstock.com. "The Texas real estate market: Stats and trends for 2022." Accessed June 17, 2022. Updated Dec 13, 2021.

[2]

Nolo.com. "Key Aspects of State Foreclosure Law: 50-State Chart." Accessed June 17, 2022.

[3]

Texas.gov. "Property Tax Code, Chapter 34." Accessed June 17, 2022.

[4]

NLIHC.org. "Protecting Tenants at Foreclosure." Page(s) 26-27. Accessed June 17, 2022.

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