Preforeclosures & Preforeclosure Real Estate

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preforeclosure.jpgAs you probably know, a foreclosure is a legal proceeding in which a bank or lender sells a repossessed piece of real estate due to the owner's inability to make scheduled payments on the mortgage or deed of trust. Banks and other lenders typically consider a mortgage to be in default when several months have gone by without payments having been made. Now despite being a dreaded word, a foreclosure can actually be extremely fortuitous for those looking to invest in real estate or just to buy a house to live in at discount. The foreclosure process is a sophisticated process that is comprised of three main stages, each presenting a bargain buying opportunity. This article specifically discusses the first stage of foreclosure known as the pre-foreclosure stage, considered by many real estate investors and other professionals to be the best time to buy a foreclosure.

The pre-foreclosure period is the time between the bank/lender's notice to the borrower (homeowner) of the borrowers default on the mortgage payments and the time when the property will be sold at a foreclosure auction. During the pre-foreclosure stage, the bank has now told the homeowner that he/she is in default and that if the default is not cured within a specified period of time (determined by state law), the property will be sold at auction to the highest bidder. During this pre-foreclosure grace period, the borrower must reinstate the loan by paying off the default amount. Naturally, this allows for the borrower in default to sell his/her home and use the net sale proceeds to satisfy the mortgage debt (even when these proceeds might sometimes be less than the amount owed). Although the borrower could end up losing money or equity on this type of sale, it is a much better alternative than having the property go into foreclosure. Not satisfying the loan obligation by letting the house go into foreclosure will pretty much result in borrower totally losing all interest in the house. Moreover, a foreclosure would almost completely ruin the borrower’s credit history. Finally, if the foreclosure auction does not fetch enough of a price, the bank may go after the borrower for a deficiency judgment. And all this, while sad, provides weighty bargaining leverage that you can bring to bear on the homeowner in a negotiation to buy his/her house at a discount.

Buying a property in pre-foreclosure is not a very simple process. It involves approaching the borrower and offering to buy the property outright. The borrower can potentially walk away with something to show for the property and ultimately avoid a bad mark on his or her credit history. If you are interested in buying a pre-foreclosed property, the very first step would be to contact the owner by mail. The goal of this message to communicate to the owner that you're interested in buying the property and you want to work out a purchase agreement that benefits both parties. Now while this sounds great for the investor, it is not uncommon that the owner does not respond to the mail immediately. In most states, the owner has several months between the initial foreclosure notice and the public auction. During this time the owner will consider all the options available, including refinancing or other means. Typically, an owner's first reaction is not to sell, but if no other options work out, selling at a discount is a much better option than losing the property at public auction and having the owner’s credit ruined.

Once the investor has made contact with the owner, the parties should agree to meet for further discussion about the property. When they finally meet and both choose to proceed with the sale, a Terms of Purchase must be negotiated. These negotiations will involve the investor, the owner and the bank/lender. A real estate agent can also be a valuable resource during the negotiating process. Once the investor has arrived at an agreement with the owner in default, the bank/lender and any other lien holders, the investor should put the agreement into writing. If you are not familiar with how to draw up a purchase agreement (and most lay people are not), I recommended that you have a local real estate agent or real estate attorney present.

As discussed, the buying at a pre-foreclosure stage is not a simple process. Furthermore, it is tough to find the actual properties themselves. But you are serious about looking into invest in pre-foreclosure real estate, some websites out there that specialize in providing information on these types of listings. One really comprehensive website that really caught my eye was GovernmentAuctions.org. I was truly blown away by just how many pre-foreclosure listings they had within their online database. The great thing about this site is that you can browse properties from all 50 states and narrow your search by zip code radius and county.

About the Author: Mark Moyo

For the most up-to-date information on pre-foreclosures, GovernmentAuctions.org is definitely a site worth joining.

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This page contains a single entry by the boozwatt team published on January 4, 2008 12:39 PM.

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