How to Buy Foreclosed Homes in Texas

Written by Alex LongMay 18th, 20229 minute read

how to buy foreclosed homes in Texas

How to buy pre-foreclosures | How to buy properties at auction | How to buy REOs | How to buy HUD homes | Summary | FAQs

Texas foreclosures can be good purchases for investors, flippers, or regular home buyers — especially if you are patient and cautious. They're often more affordable than regular homes, meaning you might be able to score a deal.

The experience of buying a Texas foreclosure varies widely depending on the property and the stage of the foreclosure process. Luckily, we’re here to help!

We recommend working with an experienced team of professionals, especially if you’re new to the process, to ensure you have a positive and profitable experience.

» MORE: Find foreclosure expert agents in Texas, get cash back after closing!

This guide will tell you everything you need to know to get started finding, evaluating, and buying a foreclosure in Texas.

At a glance: State of the Texas foreclosure market

  • February 2022: Texas had the 23rd highest rate of foreclosures in the U.S.
  • 1,588 total foreclosure filings out of almost 11 million housing units[1]
  • Counties with high foreclosure volume: Dallas, Harris, Hidalgo[2]

✍️ Editor’s take: If you’re interested in buying foreclosures, Texas is a reasonable option — it has moderate inventory relative to other states, but it really depends on your area and how far you’re willing to travel for a deal.

Even though the foreclosure rate is the highest in places like Real and Cochran Counties, there aren't a ton of houses there in general. Houston and Dallas offer more possibilities than less populous areas, even if the foreclosure rate is a bit lower.

If you’re a regular home buyer, check out the HUD Home Store first, because you’ll get first dibs over investors. If you’re an investor looking for rentals or flips, foreclosures could be one piece of a broader deal-sourcing strategy, but probably not your primary approach.

How to buy a foreclosure in Texas

“Foreclosure” is a general term that can refer to a variety of property types and/or stages in the foreclosure process:

  • Pre-foreclosures: These are Texas homes that have been issued a Notice of Default and are being listed on the open market to avoid an actual foreclosure.
  • Homes being sold at auction: These are homes that have been advertised publicly for at least three weeks and are being auctioned off by a third-party trustee.
  • Bank-owned foreclosures (REOs): Foreclosures that don’t sell at auction are purchased by the bank and listed on the open market with agents as real estate owned (REO) properties.
  • HUD homes: The Department of Housing and Urban Development (HUD) sells FHA foreclosures via online auction. This is a good option for aspiring homeowners; HUD has plenty of inventory and prioritizes owner-occupant buyers.

In Texas, each type of foreclosure has its own set of unique rules, regulations, and considerations that factor into the purchasing process.

Buying Texas pre-foreclosures

⚡️ Key takeaways

  • Pre-foreclosures are properties under threat of foreclosure that have been listed on the open market.

  • You can find them on Texas MLSs and other listing sites like Zillow or Realtor.com.

  • This is usually the best stage to find deals, because homeowners are highly motivated.

  • You may have the chance to do inspections, appraisals, and title checks if the owner’s allow it.

  • They may qualify for conventional financing, depending on quality, location, and lien status.

Pre-foreclosures are properties whose owners have been notified of foreclosure intent, usually because of delinquent mortgage and/or tax payments.

In Texas, lenders will send a breach letter to borrowers who have fallen one to three months behind on mortgage payments.

If the borrowers don’t catch up on payments in the next 60–120 days, depending on the lender, then a Notice of Default and Intent to Accelerate will be issued to begin the foreclosure process. Many homeowners may try to sell their home during this period to avoid foreclosure.

Where to find Texas pre-foreclosures

Sellers in danger of foreclosure will sometimes list with an agent on their local MLS. You can locate these listings on RealtyTrac, Zillow, and HAR.com with the foreclosure and pre-foreclosure filters — if those filters don’t exist, you can try searching those terms as keywords.

If you work with an agent, they can set up alerts with specific details (i.e. pre-foreclosure, specific price range, desired areas/ZIP codes) to keep you up to date on all the latest properties of interest. Agents also have access to MLS listings before they are posted on sites like Zillow, which allows you to stay on top of your local markets and get the jump on your competition.

» FIND: Connect with top Texas agents, set up instant MLS alerts

How to buy Texas pre-foreclosures

The process for buying pre-foreclosures in Texas is similar to buying conventional homes. Most importantly, you'll want to be aware of how much time you have until the foreclosure auction.

The trick to pre-foreclosures is getting involved after notice of intent to foreclose but before the auction. The window can be tight, so time is of the essence.

If the seller listed the day they received the Notice of Default and Intent to Accelerate, for example, then you would only have about 20 days to close.

That said, just because you need to move fast doesn’t mean you need to be rude — sellers are distressed, so be kind and respectful.

⚠️ Short sales: Sometimes, sellers in pre-foreclosure owe more on their mortgage than the home is worth — this is called a short sale. In these circumstances, you may have to be prequalified by and negotiate directly with their bank. Your agent will be able to guide you through this process.

✅ A few more helpful tips

  • Consider including a letter in your offer explaining your situation and why the seller should work with you.
  • If the foreclosure deadline is approaching, a fast close makes your offer more appealing.
  • Work with an experienced agent to find good properties and negotiate mutually beneficial deals.
  • You’ll also want a good attorney to run a thorough title check and ensure you don’t run into any nasty legal surprises down the road.
  • Keep in mind, this seller is losing their home – so be compassionate!

Buying homes at Texas foreclosure auctions

⚡️ Key takeaways

  • Texas foreclosures go to public auction before being repossessed by the bank or U.S. government.

  • Auctions are held by third-party trustees, usually the first Tuesday of the month between 10 a.m. and 4 p.m. at the county courthouse.

  • They're usually all-cash purchases only — bring a cashier’s check for the down payment.

  • You probably won’t be able to see or inspect the property, so the risk level is high.

If the borrower doesn’t sell or catch up on payments in two to four months, the property goes to auction.

Auctions are held the first Tuesday of every month from 10 a.m. to 4 p.m., usually at the county courthouse, and anyone can bid.

If no one buys at the auction, the bank or government takes ownership and sells it themselves.

Where to find Texas foreclosure auctions

All Texas auctions must be advertised at least three weeks in advance. They are posted on the bulletin board in the courthouse and listed in the Real Estate or Classifieds sections of the local newspapers.

You can also visit mypublicnotices.com to conduct a wider search for advertised auctions in Texas.

Auctions are also listed online through private or government websites. Private websites include RealtyTrac, Foreclosure.com, and RealtyBid.com.

County sheriff offices usually have their own website dedicated to listing and advertising auctions, but the sites vary from county to county, and some of them are a bit clunky. Regardless, here are the links to some of the more high-volume foreclosure areas:

How to purchase a Texas foreclosure at auction

First, you’ll need to prepare your funding. Auctions are all-cash affairs, so you either need to compile the necessary funds from your own assets, or you need to borrow the cash from a friend, family member, private investor, or hard money lender.

Once you have the funds ready, you should contact the trustee for important details regarding the auction, such as:

  • Bid increments
  • Date of auction
  • Down payment amount
  • Minimum bid
  • Payment timeline
  • Payment type accepted

👉 Before you bid:

  • See if you can inspect the property: If you contact the trustee in advance, they might agree to let you do an inspection (more often, they won’t). Just know that all auctions are as-is sales.
  • Have an attorney run a title check: You should run a title check in advance to avoid any issues with title transfers (also consider purchasing title insurance!).
  • Decide maximum bid: Competition and emotions are dangerous forces in auctions, so determine the maximum bid you’re comfortable with in advance.

You should attend auctions in person, but some counties do allow you to bid online.

Bid in the predetermined increments until you win the auction or reach your maximum bid. If you win, pay the down payment right away and the total payment within the required time frame — usually 30 days.

⚠️ Be aware of Texas’ redemption period: Texas allows tax-delinquent homeowners to redeem their property — that is, pay their overdue taxes plus fees — to regain possession of their residential or agricultural property up to two years after the sale (all other properties have just a 180-day period). BUT, this only applies to property tax foreclosures. That means, if a home was foreclosed on by a lender for failure to make mortgage payments, the redemption period doesn't apply after a sale is complete.

✅ A few more helpful tips

  • Most auctioned properties are bought sight-unseen, so plan to bid cautiously.
  • Many of these homes have been neglected or vacant for extended periods of time, so budget for repairs.
  • Don’t assume you’ll have access to the property right away — it could be months before you get in.
  • Find out if there are tenants in the property. Investors generally must honor the lease from the previous owner, and owner-occupants must allow tenants at least 90 days to vacate the property.
  • Know if this is a tax foreclosure or a mortgage foreclosure — and avoid tax foreclosures unless you want to wait two years to be sure you own the property.

Buying bank-owned foreclosures in Texas (REOs)

⚡️ Key takeaways

  • Texas mortgage foreclosures that don’t sell at auction get repossessed by the bank.

  • These are commonly called real estate-owned (REO) foreclosures.

  • REOs are usually sold on the open market with real estate agents.

  • You may be able to use conventional financing — especially if you get a mortgage from the bank selling the property.

  • Getting a good deal is possible, but not always easy: Banks are eager to get REOs off their books – but are also looking to minimize losses.

In Texas, banks take ownership of properties that don't sell at auction and then attempt to sell them on the marketplace like a conventional home — these are REO properties.

The biggest difference for buyers is you’re buying from a bank, not a person, and that bank may have very specific protocols for making offers and negotiating.

That said, you may still be able to get something under market value, especially if the bank has been holding it for months.

How to find Texas REOs

Fortunately, finding REO properties is relatively easy. Banks list their foreclosure properties on the open market with agents, so REOs will show up in all the usual places: local MLSs like HAR.com, Zillow, and so on. You can locate these listings by filtering with terms like "sold as-is," "foreclosure," or "lender owned."

That said, the ease of finding these properties means other interested buyers can find them as well — and more competition usually means higher prices.

To get a competitive edge, find a good real estate agent who can set up MLS alerts that notify you the instant a new REO hits the market in your target ZIP code(s).

💡 Quick tip: A good way to get the inside track on bank-owned properties is to establish a relationship with the REO department of local lenders. Banks are eager to get REOs off their books, so if you establish yourself as a credible, repeat buyer, they might come to you first before they list on the MLS.

How to buy REO foreclosures in Texas

Once you identify the REOs you want to buy, the process is similar to any other home purchase: You and your agent will submit an offer, do an inspection, and negotiate terms.

You may or may not be allowed to use conventional financing, depending on the property’s condition. Sometimes you can get more flexibility or better terms financing through the bank listing the REO.

Standard closing fees are still required, and sometimes closing can take longer than usual, so avoid these properties if you are pressed for time.

⚠️ Consider an attorney and owner’s title insurance

Sometimes lenders will only issue special warranty deeds for REO properties, as opposed to the general warranty deeds that are more common in conventional sales. Special warranty deeds only assure buyers that no encumbrances — that is, unpaid debts against the property — were acquired during the time the lender owned the property, but they do nothing to protect you from encumbrances from earlier.

We recommend you consult an experienced attorney to protect you against issues with title if you are new to the process.

✅ A few more helpful tips

  • Be sure you have a letter of pre-approval before getting started, as lenders aren’t interested in wasting time on buyers who can’t pay.
  • REOs probably aren't going to be the cheapest deal because lenders aren’t desperate to offload a property and want to recoup their investment.
  • REO lenders have carrying costs, so the longer the property has been on the market, the more likely they'll negotiate with you.
  • Avoid end-of-month closings because closing agents are super busy at this time.
  • Work with an experienced agent and attorney to ensure your offer is submitted correctly to be seriously considered.

Buying HUD foreclosures in Texas

⚡️Key takeaways

  • FHA loan foreclosures are sold online through the HUD Home Store.

  • You can only submit offers through licensed agents registered in HUD’s system.

  • HUD has its own (relatively rigid) bidding and purchasing process and protocols.

  • HUD homes are the best opportunity for homeowners because HUD prioritizes owner-occupant buyers.

HUD homes are sort of like REOs in the sense that they didn't sell at auction and were repossessed by a lender. But, since HUD home mortgages were backed by the government, the government takes possession after foreclosure instead of a bank.

Since the HUD process doesn’t vary much by state, we won’t go into detail here (full guide coming soon!)

How to buy Texas HUD foreclosures

To find HUD properties, search on the HUD Home Store. You must use an agent registered to use HUD to submit bids, so be sure to verify your agent is approved.

HUD only cares about price: It evaluates bids on a rolling basis, and will always accept the highest bid at the end of a given day that meets the minimum purchase price for that property.

🏡 HUD prioritizes owner-occupant buyers: All HUD properties are initially only available to owner-occupant buyers for a set period before bidding is opened up to investors. This makes it a good option for retail buyers looking for an affordable home. On the flipside, the properties that make it to investor bidding are often fixer-uppers.

Summary: How to buy foreclosure in Texas

In Texas, whether you’re buying a pre-foreclosure, foreclosure at auction, REO, or HUD home, there are a few things you need to do:

  • Step 1: Determine your financing — If you want to buy a pre-foreclosure, REO, or HUD home in Texas, traditional financing may be an option depending on the condition of the property. If you want to bid at auctions, you’ll probably need the cash on hand — whether it’s yours or a private investor’s is up to you.
  • Step 2: Search for your property Check sites like Zillow or large Texas MLSs like HAR.com for pre-foreclosures and REOs. You'll likely find auction homes on your county sheriff's website, while HUD homes are on the HUD Home Store.
  • Step 3: Do due diligence — Conduct a title search to ensure there are no outstanding liens or issues with the property. If possible, get an inspection and appraisal. While not required in Texas, working with an experienced attorney and/or agent will be invaluable here.
  • Step 4: Make an offer or bid In the pre-foreclosure stage, be respectful of the people you’re dealing with. For an REO or HUD home, be sure you’re carefully following the specific instructions for that kind of home.
  • Step 5: Close on property If you acquired the property at auction, remember not to assume the deal is complete until the sale has been confirmed and the redemption period is over — in Texas, that can be up to two years.
  • Step 6: Move or rent! Congratulations! Move in and enjoy your new property — unless there’s a tenant in place. Then you need to give them at least 90 days to move out. If you’re a landlord, you need to honor the terms of their lease.

If you’re ready to find your next real estate deal, find an agent with foreclosure experience who can start finding you deals now!

FAQs about buying foreclosures in Texas

</p><p>To <a href="#foreclosure" onclick="globalTOCClick('#foreclosure');" data-link-type="jump-link">buy a foreclosure in Texas</a>, you need to either contact the owner and purchase the property before auction, submit a winning bid at auction, or negotiate a sale with the owner of an REO. Conventional financing will only apply to pre-foreclosures and REOs — auctions will require cash.</p><p>

</p><p>According to ATTOM, Texas had a <a href="#state-of-market" onclick="globalTOCClick('#state-of-market');" data-link-type="jump-link">foreclosure rate</a> of 1 in every 6,887 housing units in early 2022, giving it the 23rd highest foreclosure rate in the U.S. Most of the foreclosures are in or near major metropolitan areas like Houston, Dallas, and San Antonio. Houston is actually among the cities with the most foreclosures in the nation.</p><p>

</p><p>Federal law applies in Texas, which states that a borrower must be at least 120 days delinquent on their mortgage loan before the <a href="#pre-foreclosures" onclick="globalTOCClick('#pre-foreclosures');" data-link-type="jump-link">foreclosure process can begin</a>. How soon a specific lender issues a letter of breach and eventually a notice of default is up to the lender, but then borrowers will have three weeks or more to pay their debts before a foreclosure auction.</p><p>

ARTICLE SOURCES
[1]

Sofi.com. "Foreclosure Rates for All 50 States in February 2022." Accessed May 12, 2022. Updated March 22, 2022.

[2]

RealtyTrac.com. "Foreclosures in Texas." Accessed May 13, 2022. Updated May 13, 2022.