Finding and financing pre-foreclosures
How can you find pre-foreclosures?
There is less competition in buying pre-foreclosures than when buying at foreclosure auctions. Some people do not know how to find pre-foreclosure or probate house opportunities and some people fear dealing and negotiating with lenders.
Lis Pendens (notice showing a legal action is filed and pending) are documents posted in county and city courthouse buildings listing property owners who cannot pay their monthly mortgage installments and taxes.
How much time do you have?
You can find the best buys by contacting property owners before the lender takes over and come to an agreement with the property owners and lenders. Both parties will be satisfied while you get a good deal.
You can act to make an agreement from the listing day until the property is offered for sale at auction. This may take about 90-120 days in different states.
Advantages for all parties
The lender and property owner are motivated to resolve the default situation at pre-foreclosure phase.
- You "quit claim" the property, take over mortgage payments and now own a property at a substantial discount.
- Previous owner is relieved of his debt and stays sound financially.
- Bank is happy to have a new borrower who is in better financial status.
- Find Lis Pendens and locate mortgage loans in default.
- Contact property owner and bank.
- Find out what property owner and bank need and assess their motivation.
- Obtain information on prices of similar houses in the neighborhood to determine viable price to offer after calculating the closing costs and your profit.
Each state has its own foreclosure procedures in which pre-forclosure procedures also take place. Find the foreclosure law applicable in your state to start, and determine whether you are in a judicial or non-judicial state.
It is prudent to be cautious about a pre-foreclosure purchase of the property especially in states where the owner has a right of redemption (see definition in foreclosure glossary).
Contact pre-foreclosure property owner for friendly conversation
Contact the owner of the pre-foreclosure property by direct mail rather than by telephone. You need to reflect your sympathy in your letter to get an appointment.
Negotiation tips to prepare acceptable low-cost offer
Negotiating a pre-foreclosure property purchase is a very delicate matter. First, you need to exercise great caution not to hurt the feelings of the property owner who is already in an adverse financial position.
To do so, you must demonstrate that you are not taking advantage of the situation and but trying to make a reasonable offer by addressing the needs of the property owner.
Inspect pre-foreclosure property with a professional property inspector
Inspecting a pre-foreclosure property is not very different than inspecting a regular property. However, you need to ensure that the owner did not cause any malicious damage to the property prior to vacating.
Arrange financing for pre-foreclosure property purchase
In most cases, you will be dealing with the lender who is having trouble collecting its mortgage installments. You can negotiate a better deal by arranging financing through the same lender unless you can find a better deal or have a pre-approval letter from your own lending institution.