Foreclosed Homes: Get An Edge With Preforeclosures

Generally, when an individual purchases a residential home, he or she makes a down payment obtains a home mortgage for the balance of the purchase price. The home serves as collateral for the loan. If the borrower fails to make the monthly mortgage payment, the bank can file foreclosure in order to recovery the debt.

For real estate investor looking for an edge in the marketplace, preforeclosures may be the method for you. This strategy works different from routine real estate purchase or buying foreclosed homes.

Understanding pre-foreclosures

The foreclosure allows the mortgage holder, which can be a bank or person, to foreclose on the property, become the legal owner of record and resell the home to recover the debt. The bank can also recover costs associated with the foreclosure activities. The exact method of foreclosing on a home varies from state to state, but in some cases the owner may be able to regain the property up to the time of the foreclosure auction.

As it relates to pre-foreclosure, the term refers to the time between when the bank file the Initial Notice of Foreclosure up to the foreclosure auction–the homeowner still has legal title to the property and can sell it to avoid outright losing  the property.

Borrowers motivated to sell

Some investors may be somewhat uneasy about approaching homeowners who are experiencing difficulties and taking advantage of the person’s misfortune. However, believe or not, many people who are in the process of losing their home to foreclosure will end up in a much better predicament compared to losing any accumulated equity and having a foreclosure on their credit record.

Here are the three benefits to the homeowner:

  • Protect credit score – Stopping the foreclosure process can stop the reporting of negative information to credit bureaus and provide the opportunity to rebuild their credit profile.
  • Protect home equity – If the homeowner has built up equity, it may be possible to receive some of the equity in the form of cash from an investor.
  • Get started on rebuilding their life – Many people look forward to getting out from under the strain of a possible foreclosure and get on with other aspects of their lives.

As you can see, focusing on pre-foreclosures can not only provide you with potential profit opportunities, but you will be helping people to limit the financial damage of this very personal matter and move forward with their lives.

Profiting from pre-foreclosures

Similar to investing in foreclosures and other properties, you will need to perform all the necessary due diligence to make sure that you can earn a profit on the transaction. When speaking to the seller, be honest with them, especially about your intention to make a profit off the deal. This ensures that you will establish trust with the homeowners.

Here are three ways to can profit from pre-foreclosures

  • Purchase the home at a significant discount
  • Assume the loan and pay the arrearage
  • Short sale

The great thing about specializing in pre-foreclosure has to do with eliminating a lot of potential competition from investors that tend to overlook this aspect of real estate investing.

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