Finding a Pre-Foreclosure Property

Pre-foreclosure is a crucial time in the foreclosure process because as an investor, you stand to make the largest profit and negotiate a favorable deal for both the owner and the bank.

Here are some things to keep in mind:

1) Confirm Pre-Foreclosure Status
When a property enters pre-foreclosure status, the owner usually has only 2-3 months to reinstate the property by paying the defaulted amount. If the owner pays off the debt, the reinstatement stops the foreclosure process so it is very important to double-check the property prior to proceeding. The best way is to call the trustee or attorney assigned, although the trustee cannot answer additional questions about the property other than telling you whether the property is still in foreclosure or not.

2) Find and File Properties
Develop a system to keep track of all the properties that are of interest. It is important to receive new updated pre-foreclosure information and act quickly. Develop a system to keep track of interested properties since most buyers pursue properties over several months. Once you like a property, drive by it to get a better idea of the property’s condition and neighborhood.

3) Check Potential Bargain
Research the estimated market value of the value, as much as you can. Find out how much is owed on the property and if the owner has any liens against the property. Since this is all public information with the county recorder.

4) Negotiate A Purchase Agreement
After you have made contact with the owner, you should meet in person to discuss the property and as part of the meeting, arrange a walk through of the property to see if it meets you criteria. You will probably have to buy the property “as is” but you will want to keep tabs on the estimated repair costs and subtract it from the purchase offer.

If you and the seller both agree on the terms, you will need to involve the foreclosing lender in which a real estate agent can be a valuable resource during this negotiating process.

You may be able to pay off the amount of the default and take over the payments under the current terms of the loan, if the current outstanding loan is small enough. If not, you will need to pay off the full amount of the loan and you should double-check that all liens are cleared prior to the purchase. Usually, homeowners would be more willing to work with you are also flexible.

5) Contact the Owner in Default
You or a real estate agent should contact the owner to express interest in the property, but make sure you are fully prepared to buy it. If the buyer has listed the property for sale, you can contact the listing agent. Once a property has been listed, there may not be as much bargaining room but you could probably negotiate a good deal since the owner has a limited time to sell before the bank decides to repossess the property or sell it on public auction.

Usually the owner hasn’t listed the property and you will need to initiate the contact. The owner may be tough, but because there is no agent commission, there is a larger bargaining potential.

Try contacting the owner by mail to start and tell them that you are interested in buying the property and will work out a purchase agreement to benefit both parties. If you send a postcard, do not mention the word “foreclosure” as it could be embarrassing to the owner if anyone saw it.

Don’t be surprised if the owner does not contact you immediately. The owner has several months between the initial foreclosure notice and public auction. Usually they are considering a variety of options available like refinancing or selling. If nothing works out for them, they will usually try to sell.

If the owner rejects all contact attempts, you may have a chance to purchase it at public auction if the owner doesn’t sell or pay off the amount owed.

6) Close the Deal
After you have arrived at an agreement with the defaulted owner, the foreclosing lender and other lien holders, you can put the agreement in writing. Contact a real estate agent or real estate attorney if you are not familiar with purchase agreements. Any purchase agreement should make the closing deal contingent on a full title search conducted by the title company or attorney and include a professional inspection of the property before closing the deal.

The escrow company, acts like a third party member, manages the transfer of money and property ownership.