How to Buy a Property in Pre-foreclosure
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The Pre-Foreclosure Property Investor's Kit: How to Make Money Buying Distressed Real Estate -- Before the Public Auction
Price: $9.85
List Price: $24.95 |
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Cashing in on Pre-foreclosures and Short Sales: A Real Estate Investor's Guide to Making a Fortune Even in a Down Market
Price: $13.90
List Price: $24.95 |
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Short-Sale Pre-Foreclosure Investing: How to Buy "No-Equity" Properties Directly from the Bank -- at Huge Discounts
Price: $14.77
List Price: $24.95 |
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The Pre-Foreclosure Real Estate Handbook: Insider Secrets to Locating and Purchasing Pre-Foreclosed Properties in Any Market
Price: $12.55
List Price: $21.95 |
For a property investor, the benefit of buying a pre-foreclosure home is the opportunity to pay less than the property may be worth by offering a short sale to the current owner and therefore the chance to avoid foreclosure and possibly save some of the equity in the house.
There are several steps to go through and often a deal will not come to fruition, either because a satisfactory deal cannot be negotiated, the lender may not agree to a short sale (although as foreclosure rates rise, this is becoming less of a problem) or another buyer may beat you to the drop. Having said that, some 80% of short sale negotiations do not get completed. Selling your home through this process means taking a realistic view of the current market value also.
Step One - Finding a suitable property
The first step in the foreclosure process is the lender filing a “Notice of Default.” This becomes a matter of public record, filed at the County Recorder’s Office in the county in which the property sits. There are numerous websites and companies offering listings of these properties, but the information is freely available if you look for it. See Foreclosure listing sites. The best ways to find properties are the County Recorder or a real estate bird dog. (Bird Dogs make a living finding properties for investors and taking a commission on the sale.) I do not believe it is possible to keep an up-to-date national list and companies who claim to have one should be avoided.
Step Two – Contacting the Owner
During the foreclosure process, the owner is still responsible for the property and may sell at any time up to the auction date. Be aware you will not be the only person contacting the owner. There are many companies, scam artists and con men making their living ripping off home owners facing foreclosure. These companies are well prepared, make a great presentation and in some cases are making unrealistic promises to the owner. You will have to convince them you are legitimate
Step Three – Valuing the Property
This is where most would-be investors fall down. The value of the property depends on a lot pf things. Particularly the state of the market. REO properties are on the rise, and at least one national listing site is claiming over a million properties on their books. Pay close attention to prices realized in local auctions and the amount of time properties are sitting on the sales block. Also be aware that many unscrupulous real estate agents are deliberately under pricing pre-foreclosures at prices no lender or owner will accept, to attract attention and interest.
Real Estate Agents
Here are a couple of real estate agents attempting to persuade you they are interested in something other than selling a house. It's rather funny, a little off topic, but show you really need to be carefull what you believe in the real estate market.
Step Four - Making an Offer
You must first come to an arrangement with the owner before approaching the lender. The amount you are prepared to pay must take into consideration the condition of the property and therefore the amount of money needed to be spent, taxes owed, and outstanding mortgage payments overdue. To be attractive to the owner, the offer must allow them to walk away either with equity, or at the very least, free of debt. To be attractive to the lender, the offer should allow them to sell the property to you at a price that means they would lose more money going through the foreclosure process. You must first convince the owner, then approach the lender.
Step Five – Pay for the Property
Another advantage of buying a home in pre-foreclosure rather than at auction is the possibility of raising financing. You may even be able to negotiate a loan from the current lender. Hard cash investors may be willing to invest as much as 70% of the purchase price. If you are unable to get an investor, it’s maybe not such a great deal.
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Complete Guide to Real Estate Tax Liens and Foreclosure Deeds: Learn in 7 Days-Investing Without Losing Series
Price: $15.69
List Price: $24.95 |
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Make Money in Short-Sale Foreclosures: How to Bypass Owners and Buy Directly from Lenders
Price: $6.65
List Price: $29.95 |
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Real Estate Goldmine: How to get Rich Investing in Pre-Foreclosures (Audio Business Course)
Price: $31.03
List Price: $49.95 |
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Trump University Real Estate 101: Building Wealth with Real Estate Investments
Price: $6.97
List Price: $21.95 |
Things to be aware of
Laws vary from state to state and it is important to check the local laws regarding what you may, or may not offer an owner. Due to the massive increase in pre foreclosure and foreclosure scams, some states are introducing new laws to protect the home owner. Buying a home in pre-foreclosure is not as straightforward as many would have you believe. It is very important to do your homework, research the local laws, value the property correctly and avoid the major pitfalls. Donald Trump has made money doing this in the past and has an interesting CD collection. There are also numerous books on the subject for sale. Avoid paying lots of money for seminars and over priced education on the subject. You will learn far more by buying a property and going through the process yourself. Buy an inexpensive book, or Trump’s CDs and spend the money you were going to spend on a seminar on the property instead. There is a link here to the HUD website explaining the process of buying a pre-foreclosure home from them.
Some real estate resources
- Property Investing Abroad
An informative International property investing blog - HUD Pre-Foreclosure
- Where to find Pre-Foreclosure and Foreclosed Homes
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Comments
My pleasure Roger.
Enjoyed reading this, Mark. I was recently involved in an effort to purchase a house but the deal fell through when the seller, who was in foreclosure, couldn't complete the deal.
Thanks William. Most of them fall through for one reason or another.
Good explanation of forclosure for people like me that do not understand it.
Icould not do that because I would feel sorry for the person losing their house or home. Thanks for sharing that
My pleasure. But you could actually be doing them a service. It is better to short sell and get out free and clear than to go through foreclosure - they are going to lose their house anyway.
:) attaching to the upthumb so you know I've been through.
Hehe. You are crazier than I am :D
that would be a safe bet :p
thanks so much for the info! My family plans to relocate across the US and this will be a great help in finding the perfect new home. Keep up the good work.
I've bought numerous pre-foreclosure homes and provided hard money for several properties as well. You've given a very good overview of the pre-foreclosure buying process. Good job!
Good information here. Thank you. I assumed the information refer to US. Its bad to read how people make money at expense of citizens' home. The government should provide special and stable interest rates to home owners/buyers.
Mark -
This is a very good, informative overview and I'm glad you've written it!
Washington State has just passed a distressed property law to protect homeowners from the scam artists. Myself also being in the real estate industry, I and my clients are now subjected to revisions to contract froms and new addenda as a result of this law.
So far, I've completed one short sale transaction on behalf of a buyer and it went very smoothly. I'm currently representing another buyer and have submitted another contract on a short sale listing and man, do I feel sorry for the listing agent on this one! I feel he's already earned his commission and I hope it does result in a successful closing for him, whether it be w/ me and my client or someone else! The interesting part - contrasting both deals (this one not even being in escrow yet!) - the lien holder is WAMU and the experiences are night and day. My client offering the asking price I'm sure contributed to the difference with the first already successfully closed deal. This second one, we are $9,000 below what the appraisal came in at, so that's part of the reason for the hold up w/ this offer getting accepted. This property WAS scheduled to go to auction a couple weeks ago with a starting bid of aprox $50,000 under our offer. Seems pretty crazy!
I just read on your 'good bye hubpages' piece, you will be participating here less often since you have a new writing job, blogging on luxury homes. That's very cool and I wish you all the best! I figured I may as well leave my comment here since there are sooooo many already left on your other hub - what a popular guy you are! I like your writing style and can see why someone would want you on board! Even though I've only read a small fraction of what you've written, in addition to it being evident you are a popular guy, I can see you are also smart and funny.
I can see we'd have disagreements when it comes to spiritual perspectives, but that's ok. We all have things to offer one another and our differences contribute to making the world an interesting place.
Again, all the best!
And if you come across any investors who want to buy near the Seattle area, don't hesitate to let me know!
Thanks Christine _ I won't hold your religious beliefs against you :)
Drop me a line any time.
Mark
Great step by step plan ..I normally build new, rent it, keep and hold.. but have discovered the fortune hidding in the foreclosure market. You guys in America have maybe some more chances to grab a bargain but firesales coming up here ...otherone pain, our gain ...
Cheers Thomas
Check out my website:
You have some great information here. :) I'm glad to have found your site!
Nice info. Will check out the links too. I was wondering what do you think is the forecloseure/auction scenario houses in seattle, WA.
God HUB Mark,.. short sales are good deals too nowadays when they are marked down to current market value. But, there will be lots of competition even if you have 800 credit score and assets.
My kid likes the bird dogs and straw men better. It sounds like stuff right out of the wizard of oz.
Good article. I like the way you laid out the steps. This is the time to buy and the foreclosures are up everywhere.
In this market you can save someone's credit and get a great buy!
Ok maybe this question could also suggest I am not ready to proceed but I am curious. If a place has 500k debt on it- and they are trying to sell it for 250k in a pre foreclosure deal- what happens to the remaining debt? does the bank just let it go?
Lurker - Yes, this is crucial. You must negotiate with the bank and get them to agree to write off the difference.
Are there any rules on doing this from a foreign country?
Just ensure you are using a reputable agnt.
Can you really belive the websites that list local foreclosures and bank owned properties with prices as low as $1200? If these prices are for real (or not) would that be the money owed on the property?, taxes? and can you really buy that low?
Some of them are kosher = do your research - you may find that a property that will sell for 1200 bucks may be somewhere you do not want to live -
I put an offer on a house that is in Pre-Foreclosure. It was listed for 6 months at $289k and didn't sell. He then was summoned by the bank. He now owes $193k and it is probably worth $270. I offered $200k and he countered with $280k. The highest I'll pay is $238k. Any advice on what to counter? Thanks!
Hard to say - It depends where it is and the condition. If he only owes 193 and it is worth 270, you are not in a very strong position. I would wait until the market value goes down another 40% - which it will - and then make a lower offer.
Indeed buying a pre-foreclosure does allow people to pay less, something that should be on everyone's mind given the economic pinch we're all feeling. Concisely written guide you have here. I'm into real estate myself and I appreciate your perspective.
"But you could actually be doing them a service. It is better to short sell and get out free and clear than to go through foreclosure - they are going to lose their house anyway." Good point. As someone into property auctions, it pains me to sometimes have to know the financial sad times of the home owners. But these things do happen. Good hub.
Wow! Nice article Mark. You really know what you are talking about.
Great paga, I love it. Going on the good work. Visit me back and let's keep in touch, thank you. Have a nice day!
rogerbeta says:
2 years ago
Mark,
I like your page very much, and reminded me of A. Ginsberg doing this type of business in a big way using eBay for it.
You just motivated me to write an article about Real Estate, thanks