When financial difficulties strike a homeowner, they often bring with them the possibility of foreclosure. Homeowners who fall behind in their monthly house payments will be contacted by the banks holding their mortgages and given notice that they are in default; they will usually be given a period of time during which they can catch up on their late payments. This period is known a "pre foreclosure."

If the homeowner is unable to clear the default during the pre foreclosure period, the bank will usually institute full foreclosure proceeding so that it can take possession of the home and sell it through a realtor or at public auction.

Because of the financial troubles which forced the homeowners to start missing payments, pre foreclosure may be offered to them at an already stressful time. They may be contending with job losses, medical bills, or other problems and are now faced with the loss of their homes. Pre foreclosure is designed to give them a chance to find the money they need to keep their homes or to find alternatives which will not result in full foreclosure.

The Real Estate Investor's Best Friend Pre foreclosures are an open invitation to real estate investors. Knowing that the owners of homes in pre foreclosure are already in financial trouble, the real estate investors may approach them privately to arrange a sale before the lender starts foreclosure proceedings, and the homeowners may agree just to avid the stigma of foreclosure. Because the owners are anxious to sell, the investors may get their properties for discounts as high as twenty to forty percent off the fair market value. Many investors, in a good market will then sell the properties for a quick profit; in a slow market, they may live in the homes or use them as rental properties.

There is an entire industry of workshops and publications devoted to teaching people how to make money on pre foreclosures. One thing they all advise is that anyone intending to invest in a pre foreclosures has a title search performed to uncover any lines which may be attached to it.

Investors trying to locate properties in pre foreclosure may go through realtors who handle foreclosures on a regular basis; and they need to exercise patience when trying to contact the homeowners, who are already facing a highly difficult situation.

Homeowners who choose to sell their homes in pre foreclosure may come out ahead by getting some of their equity back; they will definitely benefit by keeping a foreclosure off their credit history.

The practice of buying properties for a quick turnaround became more and more common when the US real estate market was in a long-term uptrend, and interest rates were at record lows. But the market has collapsed; interest rates have been climbing for over three years, and the opportunities for fast profits have become the domain of those who have the assets to pick up properties cheaply in pre foreclosure or in foreclosure, and wait until the market is more favorable before reselling them.