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What Are Pre Foreclosures?

Updated on April 29, 2016


When a person makes a loan for a house with a bank, the bank will require that person to put up the house as collateral. This means that if the person is unable to make payments on the house over time, the bank will repossess the house. This process is known as foreclosure. But it takes time for foreclosures to actually happen (the sheriff needs to be notified and then a date set sometime in the future for the property to be put up at auction). The time before the auction is known as pre foreclosure and it is the biggest opportunity for profiting.

Shopping for a Foreclosed Home

The Homeowner Still Owns the House

In the pre foreclosure stage, the homeowner still owns the house and is probably still living in it. Many homeowners are put in a position of not knowing what to do. They don't realize that they can still save their credit rating at this stage if they make the right moves. Often, a homeowner will do nothing due to a lack of knowledge. This is where you can help.

Preforeclosure Video

Seasoning is Not Just For Food!

In the real estate world, there is a term for how long a homeowner has owned the house and that term is seasoning.  It's the single most factor to consider when contemplating making an offer to the homeowner.  The more seasoned the home is the more you have the potential to make.  A bank can only foreclose on the amount that is owed.  They are not legally allowed to profit on foreclosures.  If you find a house that is pretty well seasoned, you can offer the homeowner the amount of the loan (or a bit more) and this will be a substantial discount to how much the market will pay.

The Homeowner is Running Out of Time

There is not much time between the time a bank notifies the homeowner that the property is being foreclosed and the auction itself. This means that the homeowner is desperate for a solution. If you find a homeowner in this situation, you will need to impress upon them that you can help them save their credit rating but let them know there isn't much time. This puts the bargaining power in your hands.

Now you may at first not feel right about the fact that the homeowner is going to lose their house but consider this: you are actually helping them because they won't take a hit on their credit rating. This is huge as a bad credit rating will cost them thousands more (if they can even get a loan) any time they try to get a loan. You can even structure the deal so that the homeowner gets extra money to help with moving costs.

It's actually a win-win for all parties. The homeowner avoids bad credit. The bank gets its full amount. And you get a property that is deeply discounted and you can turn around and sell it.


Do You Feel Comfortable Purchasing a Foreclosed Home?

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