Pre Foreclosure – Best Time to Locate Distressed Owners
Pre foreclosure is the very first stage in the foreclosure process. If a homeowner has fallen behind in their loan payments, then the lender will file a notice of default, a document advising the owner that they have to catch up on the mortgage by a certain date, which will officially begin the foreclosure process. During the pre foreclosure period, it’s important to remember that the property may not necessarily be for sale. The homeowner has a certain amount of time to catch up on any missed mortgage payments plus any fees that may have accrued. If that isn’t an option for the homeowner, then they may consider selling the property to pay off the loan.
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A pre foreclosure deal can benefit everyone involved, especially if you’re thinking about investing in a pre foreclosed home. The seller can benefit by being able to sell their unaffordable property without suffering from the credit damage of a foreclosure. The mortgage lender benefits when the loan is acquired by a more financially stable buyer. And as the buyer, you can most often buy a home in pre foreclosure for far below market value. While there are definitely bargains to be found when looking for pre foreclosure homes, it is generally agreed on that this stage of the foreclosure process is the trickiest.
So how do you go about finding information about distressed properties?
While homes in pre foreclosure are a matter of public record (once the filing has been done at the Recorder of Deeds office it becomes public information,) it’s often the case that the owner hasn’t taken the steps necessary to list the home for sale – mostly because they most likely haven’t made the decision to sell yet. There are websites available however, like realtytrac.com, that are dedicated to compiling information on homes within the foreclosure process, or even better you can get this information for free in the public records (each county is different – you can find this information in the local legal paper or via a legal notices database site – ask your Recorder of Deeds office for thier notice method.) This can put more serious investors a step ahead of those who merely wait until a pre foreclosure is listed.
It’s important to keep in mind that the process for buying a pre foreclosure can be a delicate negotiation. If the homeowner has already made the decision to sell, and has listed the property, then you can just contact the listing agent. If the owner is still on the fence about selling, it’s recommended to contact them by a postcard in the mail first or even better via a phone call, letting them know you’re interested in the property. The homeowner may already be feeling overwhelmed, and may be inundated with bank notices and offers from other investors. Doing your best not to overwhelm them further can only make the process easier on both sides. If the owner responds positively and is willing to sell, then the sale can proceed like any other home sale transaction.
While there can be great benefits to investing in a pre foreclosure, there can also be huge drawbacks. Distressed homes are usually sold “as-is,” so the property could potentially be in bad shape and not worth the repairs. If the homeowner is willing, a walk-through of the home could help in telling you what may need to be fixed, and it’s important to do the math beforehand on necessary fixes.
Another drawback could be a pressing time crunch on the sale of the home. The pre foreclosure stage can last anywhere between a few short weeks and several months, depending on what state you are buying in. Meaning that you would have to close the deal on the property before the date stated on the notice of default. If no agreement is made beforehand, the lender puts the property up for auction – which is the traditional form of selling a home that has been through a pre foreclosure – and once the auction takes place the home is then considered foreclosed.