Pre-foreclosure is the phase when repossessed homes are still on the hands of the original homeowner. The advantage of buying repo homes during pre-foreclosures depend largely on individual investors. While some believe buying properties from homeowners in default can be too risky, others feel there is not enough profit from them. Most investors are troubled by moral issues and debate if they are helping a desperate homeowner or taking advantage of other’s misfortune.
In reality, the homeowner and lender both lose during a foreclosure action because neither party wants to lose the home. As such, they are both motivated to resolve the situation by selling.
The investment opportunity opens upon the filing of the Lis Pendens, a notice that legal action is pending. You can access these notices at a reliable foreclosure list provider, country courthouse or your local newspapers. The foreclosure procedure ends when immediately after the property is sold at the auction.
In between these two stages, the lender and homeowner work closely to create a strategy before the sale. This way, they could receive a deal that could benefit both the lender and the former homeowner. The auction period depends on several factors, such as local and state laws, behavior of property owner, decision of lender and other unplanned situations. Selling foreclosure properties range from 90 to 120 days, starting from the first notice of default. Some states like New York could take up to a year or more for the auction to close.
Once you have listed down legal notices from different properties, you can now evaluate these properties and determine their market value. By subtracting the default property’s amount from the estimated market value, you can determine the gross equity and gross profit potential of the repo home. If you discovered that the amount of debt and market value has little or no difference, then you can move on to another property. However, if there is a big difference, there is a greater chance that it could give you a sizeable profit.
If you have chosen a property, it is now time for the hard part – contacting the homeowner. Since you need to negotiate with the homeowner in order to fulfill his or her requirements, inspect the property and loan documents, determine the homeowner’s needs and prepare your offer, you need to have a face-to-face conversation with the property owner to clarify every details of the purchase.
Although scheduling a meeting with the homeowner is easier said than done, you have to be patient and understand that he or she is having a hard time with the foreclosure action. Eventually, the homeowner will have to entertain buyers in order to save the property’s value.
After calculating the selling price and profits, you can get an idea if the purchase is worth the investment. It is now time to negotiate with the homeowner, lender and lien holders by preparing your offer based from the computed expenses and estimated profits.
Once the owner decides to sell the foreclosed home, all parties involved in the mortgage contract needs to sign a Real Estate Purchase and Sale Agreement. It is best to check with an attorney before signing any contract.
Upon closing the deal, you can now have full rights in repairing all necessary parts of the property and selling it to a higher price. If all goes well, buying a pre-foreclosed home may just be a real estate deal well below market value.