PS is right on the mark. I worked in banking for a couple of years, and from what I’ve seen, the banks are not really that different from a individual seller. It depends on the state, but usually the lender is legally required to offer the property to the public prior to taking posession. The banks that I’ve worked with will not typically sell the property for less than FMV at auction unless there are issues with the property. If there are no market value bids from the public, the property becomes an REO. The banks I’ve worked for simply hire a realtor just like you or I would, and they then try to get top dollar for the property. That being said, if the loan balance at the date of foreclosure was significantly less than market value, the bank may budge over time (much like an individual seller who has a lot of equity in the home for sale).

The time to capitalize on a home heading for foreclosure is before the property reaches the point of foreclosure proceedings. If you get to a troubled borrower (who has a lot of equity in a home) just before the foreclosure process begins, you might get a deal.

For example, a house w/ market value of $500k – if the borrower only owes $300k, you can swoop in at the 11th hour and offer them $400k. They might take it if desperate enough. I’ve seen a few situations similar to this. The part I can’t figure out is why the troubled borrow does not wake up and hire a realtor earlier on (like when they get their first couple NODs). It’s not uncommon for the borrower to sit & do nothing until it’s too late. I guess they just get too attached to the home or think some financial miracle will happen. It’s sad really.