Buying a Pre-Foreclosure Property

While pre-foreclosure can offer some great bargains, most experts agree that it is the most difficult stage to buy a distressed property.

Be aware that a property in pre-foreclosure is not always available for sale. The pre-foreclosure phase is the time between the time a Notice or Lis Pendens (in judicial foreclosure) is issued to the homeowner, and the time when the property is sold at a foreclosure sale.

The owner might be trying to resolve the default or may be looking for a pre-qualified cash buyer in order to avoid foreclosure.

Here’s 10 Tips to help you with the purchase and search for a pre-foreclosure property:

1. Start the hunt

Finding properties to buy during this stage is the most difficult part of buying property. Because some of these houses aren’t yet on the market. Start your search on Zillow to find pre-foreclosures. Register for a free account to get this information. You can also check your local newspaper to find foreclosure notices. You might also want to advertise yourself online with signs, fliers, or postcards that include a message like “Willingly pay CASH for your house .”

2. Drive by

Once you have found a property you like, you should go and see it. This will give you a better understanding of its condition and location. This could allow you to meet the owner or your next-door neighbor. Be mindful that the owner may still be living in the house so be careful.

3. Get a status update

It’s not unusual for homeowners to solve their financial problems. However, you should do your homework to verify if the property is still in default. This information should be provided by the trustee who filed the paperwork to start the foreclosure. You can also contact a local foreclosure specialist for assistance.

4. Learn the

values

Check public records to determine outstanding loan balances and liens on your home. Also, consult local real estate agents. Zillow also offers two data points that can help determine value:

• The Foreclosure Estimate is the price we believe a property will sell for if it is listed as a foreclosure (bank-owned or real estate-owned property).
• The Below Zestimate Value, which is a number representing the difference between two estimated market prices as calculated by Zillow. It is the Zestimate home valuation or the Foreclosure Estimate. The Zestimate does not include foreclosure data, but the Foreclosure Estimate does.

5. Do some math

Add the costs you will face as a buyer (loan balances, liens, insurance) to the estimated property value. This figure can be used as your breakeven amount if you are in negotiations with the owner.

6. Reach out

Now it’s time for you to reach out to the homeowner and let them know you are interested in their property. It is important to remember that homeowners facing foreclosure are often in distress. This is why you need to be very tactful. Arrange a meeting to get a better view of the property and possibly discuss a sale.

7. Take a look at

If the owner is available, take a tour. Calculate how much you would need to repair the property and subtract that amount from your breakeven figure. You might consider inviting your contractor along to the tour if you aren’t confident in estimating repair costs. Just remember to take into account the owner’s circumstances.

8. Negotiate

Many factors will influence your offer, including the appreciation of regional real estate and the potential for rising value. Your offer should be 20 percent lower than your breakeven amount. Be creative. You might find an owner more open to negotiating a lower price if they are allowed to stay on the property from 30 to 45 day while they search for a new home.

9. It should be written

Once a deal is reached, you will need to create a purchase agreement. If this is beyond your expertise, you can turn to a real estate agent that specializes in foreclosures or an experienced attorney for assistance. The agreement should stipulate that the title company conducts a thorough title search and professional inspection of the property.

10. It should be official

An escrow company acts as a third-party to manage the transfer of property and money. Some homeowners may not be open to your interest in their preforeclosure property. That’s okay. Others will see that selling at this stage can help them to save some equity and reduce credit card debt.