Pre-Foreclosure is the term used for homes that have been scheduled for a foreclosure sale but have not yet gone to auction or been sold off. Often times this period of time can range from anywhere from a month to a year, depending on the customs and laws of the state or county. Just because they have not yet been sold off does not mean they cannot be purchased, as many home owners look to sell their home before a foreclosure sale takes place.
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| Before a home goes to Foreclosure, there is a Pre-Forclosure Opportunity for a Buyer |
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What is Pre-Foreclosure
Pre-Foreclosure is the time between the receipt of a notice of default of the delinquent homeowner and the scheduling of foreclosure sale. It is during this time when the homeowner decides to sell his distressed property in order to avoid the trouble of going into foreclosure and ruining his credit standing.
You often can get a good deal during the pre-foreclosure period because you get to negotiate directly with a homeowner who is desperate enough to sell his property immediately to avoid foreclosures. This means that the homeowner might consider any reasonable offer that will be made for his property.
Before making an offer, make sure that you have put your finances in order. Having a pre-approved loan would be to your advantage when negotiating with the homeowner.
Make sure that you inspect the property thoroughly before closing the deal. Some homeowners would not reveal to you the real conditions of the property, especially if it has major hidden structural problems, for fear that you might walk away from the deal.
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How Pre-Foreclosures Begin
The process of foreclosure begins when a homeowner defaults on his loan. Generally when this occurs, the lender involved will issue the homeowner a notice of default, and for all intents and purposes this begins the pre-foreclosure period.
From here on out many things may happen — the homeowner may raise the money to pay off his default debt to the bank or lender and stay in his home, the lender issues a Notice of Sale and arranges to put the property up for sale at a later date, or the homeowner finds someone willing to buy his home and avoids a foreclosure sale. This last option is becoming increasingly common, as investors and home buyers alike often look to find great homes for sale at extremely low prices through the pre-foreclosure market.
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Low Prices on Pre-foreclosure Homes
Buying or investing in pre-foreclosure homes can be extremely lucrative, because often times a homeowner will be willing to sell off real estate in danger of foreclosure for very low prices simply to avoid a foreclosure sale. Many buyers end up finding deals of anywhere up to 40% off the true market value of a property.
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Finding the Right Pre-Foreclosures
Since real estate sold by agents and brokers dominate the market, it can be hard to find properties available through this means. One idea is to consult a pre-foreclosure list to find property available in your area, as well as information on how to go about purchasing these valuable properties direct from the homeowner.
A better idea might be to employ the services of an Exclusive Buyer Broker to work for you, rather than for the sellers of such properties, and assign him the task of locating the types of pre-foreclosure properties you might consider.
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A Guide to Buying Pre-Foreclosure Homes
Buying pre-foreclosure homes is one way for you to obtain financial security through foreclosure real estate investing. Pre-foreclosure homes happen when homeowners have missed a payment or two, have received a notice of default, but the properties have not been sold yet to auctions.
Pre-foreclosure is considered as a grace period. In this stage, a distressed homeowner may sell his home to avoid the trouble of foreclosure proceedings and ruining his credit record. Most savvy investors prefer to buy during pre-foreclosure period because they get to negotiate with homeowners who are eager to consider any reasonable offer to avoid foreclosure.
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How to Buy Pre-Foreclosure Homes
As soon as you have narrowed down the number of properties that interest you, have your Exclusive Buyer Broker make arrangements for you to inspect the properties.
It would be to your advantage to have already secured your finances before making an offer to purchase. A pre-purchase mortgage approval in your pocket would give you leverage in negotiating with the homeowner.
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Making an Offer
Take time to research the history of the property that you want to purchase. Make sure that there are no hidden liens, back taxes, or other encumberances that were not disclosed.
Furthermore, make sure that you are armed with information on the property's ownership, loan and deed. Keep in mind that if you purchase the property, you may be responsible for paying the arrears and any accrued costs of foreclosures unless you negotiated these in your Contract to Purchase.
That is why it is a must that there are no hidden financial obligations attached on the property when you take title, as it would lessen the profit that you stand to gain if you decide to sell the property in the future.
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Inspect the Property
Some homeowners, in their desperation to avoid foreclosure, may intentionally withhold any information about the true condition of the property so as not to jeopardize the chance of making a sale. Hire a professional home inspector to help you decide if the property you want to buy is worth its cost.
Buying pre-foreclosure homes can be a good investment decision as long as you are aware of the risks so that you can minimize the chances of committing costly mistakes.
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Pre-Foreclosure: Why Is It a Good Purchase?
Foreclosure investing is a great way for you to earn huge profits. And one way to buy cheap properties is during pre-foreclosure. But first, you must understand the pre-foreclosure market and how foreclosure happens in order for you to learn from the mistakes of others and help you deal effectively with distressed homeowners.
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What Causes Foreclosures?
Foreclosure could happen to anyone. A homeowner might lose his job and his source of income which would lead to missing his monthly mortgage payments. Or homeowners could be experiencing some unfortunate events in their lives, such as divorce, medical problems, or death in the family, which strained their finances and may lead them to miss mortgage payments.
Other reasons that may cause homeowners to default are their not having enough resources to cover the costs that come with owning houses, exorbitant loan-to-value ratios and low interest rates which tempt buyers to buy more houses than they can afford to pay.
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What are the Benefits of Pre-Foreclosure Purchasing?
What are the reasons that make pre-foreclosure homes attractive to investors and homebuyers? For starters, you can buy pre-foreclosures at very a low price. Remember, your Exclusive Buyer Broker may be dealing directly with the homeowner who is desperate to sell his property immediately to avoid foreclosure and protect his credit background.
Pre-foreclosures give you an opportunity to purchase houses at below-market value and sell them at a higher price. Another advantage of a pre-foreclosure deal is that you can structure it in such a way that you can legally use other people's money to fund your purchases.
Pre-foreclosure home buying also allows you to inspect the properties. Inspecting the property before closing a sale is a must since not all homeowners would be forthcoming about the real conditions of the houses. There is no doubt that pre-foreclosure properties can be good investments and should offer many benefits to a careful investor.
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Be a Smart Pre-foreclosure Short Sales Investor
For astute investors, the best time to purchase a property is during pre-foreclosure short sales. But as with any major investment, pre-foreclosure short sales buying has its own risks. And, if you do not do some research and exercise due diligence, you will end up having a liability on your hands instead of a profitable investment. So take down a few notes and start your foreclosure education now.
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What is a Short Sale
A short sale involves the homeowner’s selling the property at a lower price than the total mortgage he owes to his mortgagor. This pre-foreclosure short sales method requires the lender's full cooperation before a sale can push through.
Lenders would have to agree to accept the sale price as settlement for the total mortgage owed by the troubled homeowner. Sometimes, the Lender declines or ignores the request.
Pre-foreclosure short sales offer benefits to all parties involved. The homeowner will get to sell his property and avoid foreclosures. The lender gets to avoid the trouble and expense of acquiring and then reselling the property, and the buyer gets a good deal.
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