What is a Pre Foreclosure?

Pre-Foreclosures 101

• Related Articles:
  • What is a Foreclosure?
  • Guide to Buying a Foreclosed Home
  • What is a Pre Foreclosure?
  • Fact and Fiction About Foreclosures
  • The Foreclosure Process for Your State
  • Foreclosure: How it Happens and what it Means for Investors
• Back to Articles

If you’re considering buying a distressed property for your family or as a real estate investment, the pre-foreclosure period might be the best time to make your purchase. In pre-foreclosure situations, a prospective buyer works directly with the owner of the distressed property before the home goes up for public auction and after it is declared distressed in Lis Pendens. In many ways, pre-foreclosure purchases are ideal in that the borrower’s credit score remains unaffected, the lender retains a good-standing loan, and the third-party homebuyer can often find a truly affordable diamond in the rough of foreclosed homes.
A number of benefits to a home investor make buying foreclosure homes before auction the most appealing alternative. Chief among these are the investor’s ability to evaluate, inspect, and negotiate. Regardless of whether the home buyer chooses to inhabit the foreclosed home or repair and resell it (also known as “flipping”), the property is a serious investment and is best purchased after consideration of the home’s condition and interaction with the homeowner.

Pre-Foreclosure Investment Benefits:

Evaluate: By buying a foreclosure before auction, a home investor can adopt a more leisurely pace, examining a number of properties more thoroughly. The first step involves monitoring the Lis Pendens notices of what homes have loans in default. Next, determine the potential value of the foreclosure home. This begins by estimating the property’s market value and subtracting the default amount listed in the legal notices. A high gross equity or gross profit potential in the home makes it appealing regardless of whether it will be inhabited or flipped. Once a buyer finds a distressed home with promising potential, he or she begins the process of inspection.

Inspect: The first and potentially most difficult step involves contacting the homeowner to learn the details of the foreclosure situation as well as to examine the condition of the property. Begin with courteous mailings and proceed to polite phone calls as the auction date draws near. A potential home buyer should never interview a homeowner over the phone, but should rather set up a time to meet at the property. A home inspection checklist helps the investor make a thorough assessment of the property and aids him in establishing an accurate estimated cost of repair. In addition to the potential equity in the house, a home investor also needs to understand the condition of the property as well as the level of cooperation with the homeowner. If the investor has interest in purchasing the foreclosed property, he should set up another appointment to present his offer.

Negotiate: In order to prepare an offer, the buyer must not only determine the net equity of the foreclosure home taking into account all potential repair, closing, and lien costs, but should also attempt to negotiate with the lien holder. Only after all of these possible figures are calculated can a home investor determine if the purchase would truly be profitable. If the homeowner agrees to the home buyer’s offer, then they both sign an Equity Purchase or Real Estate Purchase and Sale Agreement. The investor should examine this document carefully to ensure no confusion about the terms and conditions of his purchase. Once all is said and done, a careful and knowledgeable home investor can purchase valuable property far below the real estate market value.

Other Articles on Foreclosures

What is a Foreclosure?

Foreclosure is the legal process by which real estate secured by a mortgage or deed... read more

Guide to Buying a Foreclosed Home

Though the exact timeline of home foreclosure varies state to state, the same... read more

What is a Pre Foreclosure?

If you're considering buying a distressed property for your family or as a real estate investment, the pre-foreclosure period might be the best time to make your purchase read more

Fact and Fiction About Foreclosures

There are a number of misconceptions surrounding foreclosure procedures and foreclosed homes read more

The Foreclosure Process for Your State

Foreclosure proceedings vary in a number of ways from state to state. These... read more

Foreclosure: How it Happens and what it Means for Investors

Surely someone in 2006 came out with a bumper sticker that says 'Foreclosure Happens'; because the year represented one of the greatest surges in foreclosure filings in recent history... read more