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Pre-Foreclosures: A Complete Guide To Buying Them

Jan 10, 2008
There are many advantages to buying homes from homeowners that are in "default" and on the verge of losing their home, however only the individual investor can measure the risk and rewards of each one. Some investors do not see a high enough reward in foreclosures, and think that they are too risky. Others think that the moral issues of buying from individuals that are in a runt of bad luck or misfortune. Unfortunately, these types of investments are what the "American capitalist" live to do, without this type of situation, there is not a lot of room to prosper quickly and get your piece of the 'American Dream".

Homeowners and lenders lose in a home foreclosure auction. Neither party wants it to happen, so both sides are motivated to resolve the situation as quickly as possible. Without motivated parties, investors are not likely to look at the property; motivation is the key to a fast solution.

The window of opportunity opens up as soon the notice of legal action is filed on a property. That window closes the day that the property id sold at auction. The investors work in between these two times with the homeowner and the lender. The investor works together with the bank and the homeowner to create a "workout strategy" or to purchase the property directly from the homeowner prior to the sale date.

The amount of time that the investor has to work with depends entirely on the state and local laws, as well as the cooperation of the homeowner. Some states sell properties within 90-120 days from the first notice of default. Some state such as New York may take in excess of a year to complete the process.

The moral question for some investors is that you are dealing with a homeowner that is on the verge of losing their home; you must convince them that you are there to help them. Part of helping them also helps the area in which the property is located, maintaining the value of the property and the surrounding property as well. As long as there is sufficient equity in the property, the making an arrangement that will satisfy all parties involved while still allowing for a substantial profit to the investor is what pre-foreclosure investing is all about then ultimately selling the property later for a profit.

Here is a set of basic guidelines that investors follow to ensure a successful purchase and sale of a pre-foreclosure property:

Find the loans that are in default
Research and weigh the choices, then narrow the selections
Get in touch with the homeowner
Property inspection and review loan docs
Evaluate the homeowner's needs
Analyze your selling price and evaluate the potential profits
Lender negotiations and research other possible owners and lien holders
Seal the deal, renovations and sell the property

Investing in real estate is not difficult if you have the right tools and knowledge. Make sure to consult with your attorneys, financial planner, spouse and everyone else that you feel may need to be involved in the decision. While you read all the information out there and have, thinking that this is a way to get rich quick, is a serious mistake and can cost you a lot of money you may never recover. There are serious risks involved in real estate investing and you should not undertake the risk if you are not fully prepared.
About the Author
Thomas Bladecki is the author and can provide additional information about foreclosure listings and the current real estate markets visit Home Foreclosure Help. You should also see his Foreclosure Blog for all the latest information about the real estate foreclosure market.
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