Buying a home facing foreclosure, a.k.a. “pre-foreclosure,” is often thought of as a great way to get an incredible deal on a property that may otherwise be much more expensive. This can be true to an extent, but it can also be a tedious process to move through, not to mention complete.
When a homeowner is in default of several mortgage payments, the property is often referred to as a pre-foreclosure. This means that the homeowner is at risk of the lender foreclosing on the property (taking the property). Pre-foreclosures are typically not listed for sale and may not be formally recorded with the county’s office unless the lender chooses to do so.
How Does a Pre-Foreclosure Work?
The lender typically sends written notice to a homeowner that they are in default at which time, the owner can make restitution by bringing the payments current. If he continues to remain in default, the property eventually becomes a foreclosure and is seized by the lender. In terms of the rules regarding pre-foreclosure and foreclosure, each state is different, so it is imperative to seek professional advice regarding state laws.
Buying a Pre-Foreclosure
Ideally, the plan of buying a pre-foreclosure is to find a homeowner in default of his loan and make an offer. The plan revolves around helping the seller become current on his loan and establishing a contract to transfer the property to the buyer for a specific price. This is not as easy as it sounds, however, because, as we stated, every state is different in that they have laws to protect vulnerable sellers from being ripped off by unscrupulous buyers.
On top of this, sellers may not want to sell if they can avoid it; instead, they simply want to be current on their payments and not in jeopardy of losing their homes. This can be achieved by attempting to work with their lenders to establish a plan to do so.
Successful buyers and investors of pre-foreclosures usually buy homes for cash. They can also close quickly to help sellers pay off their loans.
The trick IS in finding pre-foreclosures. For the most part, there are two avenues to get to the proverbial pot of gold. First of all, buyers can look on real estate websites that pick up feeds from other sites listing pre-foreclosures (or subscribe to the feeds themselves). The other is to go through county records to find written notices of default in mortgages. As we said, it is not required to file a notice of default for a pre-foreclosure (check with your state to confirm) even though many lenders tend to do so.
Keep in mind, either way, to search for pre-foreclosures is a tedious process. It is most advantageous to get properties before they are listed as a short sale which widens the pool of potential buyers.
Other Considerations to Keep in Mind
Pre-foreclosures, just like their foreclosure cousins, are bought as-is. Sellers are not going to be able to make repairs on issues that may be found in an inspection. While it is recommended that buyers get an inspection, it is simply for the purpose of knowing if there are any major or structural issues lurking behind the walls. This is another reason buyers of pre-foreclosures buy homes for cash.
Additionally, first time home buyers should avoid pre-foreclosures since this process takes buyers skilled at this type of real estate transaction. It is important for first-time buyers to "get their feet wet” via traditional real estate transactions or already foreclosed properties.
Lastly, please keep in mind, it is important to seek the advice of a real estate attorney or licensed real estate agent familiar with state laws and regulations regarding pre-foreclosures. This is especially important for sellers to protect their interests.
Are you at risk of a foreclosure on your home?
If you are behind in your mortgage payments and at risk of foreclosures, contact New Again Houses®. We buy homes for cash and we can close in as little as 7 days.
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