What Is a Pre-Foreclosure Home?
You hear talk all the time about foreclosure. But a little lesser known subject is pre-foreclosure. So what exactly is pre-foreclosure? It’s exactly what it implies.
A pre-foreclosure property has a past-due mortgage payment and the homeowner is at immediate risk of losing his/her home due to the foreclosure process. The property will soon be reclaimed by the lender in order to satisfy the debt.
It could be in the the owner’s best interest to find buyers to make the purchase of the home in order to save their credit until their financial situation becomes more stable once again. The owner should be expecting to take a loss because the home would be sold in as-is condition. The owner should also take into consideration their circumstances, as the buyer will be doing them a service by saving their credit score.
The buyer should be able to obtain a pre-foreclosure for 30-40% less than the home’s actual market value. Of course this will depend on the cash payoff at the time of the pre-foreclosure filing. The process would be much quicker than a foreclosure as the buyer would be closing in cash. Although competition for the home may be considerable buyers will walk away if there’s too much demand and they can not get a fair discounted price.
What are the real benefits of a pre-foreclosure deal? In my own opinion everybody benefits from pre-foreclosure deal. The seller is able to forgo the foreclosure process and sell a property that they could no longer afford without suffering damage to their credit, damage because of a foreclosure. The buyer will get a drastically reduced price on a property that they may make a nice profit if they decide to flip or cash flow. And the lender is not stuck with a property and gets the loan satisfied.
Lesser benefits from buying a pre-foreclosure is that the buyer will more than likely have an opportunity to inspect the property before making an offer. This generally does not apply at foreclosure auctions. Many buyers have had to rely solely on looking through windows if possible and considerably affects their bid price.
Buying a pre-foreclosed property may take a little longer than buying a home the traditional way but usually only if you are purchasing with some form of financing. If you are not paying in cash, then the lender’s approval may be necessary in order to get the ball rolling. One thing to be very wary of is that pre-foreclosed homes may come with liens and unpaid taxes, which will become the new owners responsibility after the sell. A simple title search will reveal any liens or encumbrances against the property.
Pre-foreclosed homes may be in poor condition. As a matter of fact you can just about count on it. If you couldn’t afford to stay current on the loan then more than likely you couldn’t afford to keep up the maintenance. So, before purchasing a pre-foreclosed home, consider the cost in order to make the home marketable again. If you intend to quickly resell the house for a profit and you plan to make the necessary upgrades and improvements, how much it will cost? Expensive repairs will quickly diminish your profit.
There is a ton of potential in purchasing a pre-foreclosure if a buyer possesses basic home repair skills and can negotiate an inexpensive purchase price. They can then fix it up rather quickly and resell the home for a nice profit. Don’t rule the house out if it is not in bad shape. It doesn’t need to be. Just by adding desirable amenities and of course curb appeal to a decent pre-foreclosure home, the buyer can increase the home’s value and resell it at above market value in a nice neighborhood. Pre-foreclosure sales are better for lenders than foreclosures, so they want to close on the deal quickly. It is possible for a buyer to negotiate much lower closing costs, down payments and mortgage rates on a pre-foreclosure property, but keep in mind, cash is king.
By now we have a pretty good idea of what a pre-foreclosure is, but let’s just define it here. A pre-foreclosure is a loan against a property held by a mortgage that is in default. The defaulted loan has been recorded in public records, starting the pre-foreclosure process. Depending on the state in which the proceeding is taking place the process could last from 90 days to many years and generally ends with a courthouse auction or some kind of trustee sale. The pre-foreclosure period passes quickly and the seller should be motivated to sell. The seller must sell the property for the full cash payoff before the foreclosure process is complete or they will lose control and possession of the property. A pre-foreclosure deal occurs between a buyer and a seller, but generally the lender must approve the buyer’s offer. This ensures the lender gets what’s coming to them, their money back.