These might be a stupid questions but here i go. I see a lot of pre foreclosures all over. What qualifies a home for pre foreclosure? Does it necessarily mean the house will be in foreclosure some time in the near future or can this be a long drawn out process? Is it worth Mailing letters to houses in pre foreclosure? And last does anyone have a good source for finding foreclosures?
@Jason Potter , "preforeclosure" v "forecloure" is one of those areas where people get sort of confused. The confusion stems from different people having different definitions for these terms. So, who uses these terms correctly? Or more to the point, who should I listen to?
OK, so a lot of folks might argue with me on this, but so what, this is it. Fundamentally foreclosure is action of a lender accelerating the term of a loan, calling the note due early. It is the result of a borrower no living up to the terms of their promissory note. The owner broke his promise to pay on time, so the lender elects to take title to the collateral (like the owner's home) from the owner is lieu of repayment. BUT, this is often where the owner lives and it's usually quite valuable to the owner, so the lienholder can't just show up one day and kick that delinquent owner to the curb. That's just mean.
To make sure there's ample opportunity for the owner to protect his castle, there is a process that must be followed to assure that every effort was made to notify the owner of the pending action and allow sufficient time for the owner to take steps to remediate the problem. This is "preforeclosure". Generally, it is the entire period between the initial notification and the auction in which the collateral is sold to someone else. The selling of the property at auction is the culmination of "foreclosure".
During preforeclosure the owner, despite being in default, has the right to remediate the default by whatever means he can, including disposing of the collateral to repay the debt (mortgage). Sometimes a smart owner will work with an investor in this stage to cut his losses, perhaps walk away with a few bucks still in his pocket and move on with his life. That might include selling the property for a bit more than is owed, short selling or even partnering with an investor who will put money up to cure the arrears in exchange for a share of the equity in the collateral. Often the investor is creating a win-win scenario with the owner.
Failing that the investor may simply bid at the auction. The winning bidder is said to have purchased the property in foreclosure. Of course, the loan was in foreclosure for quite some time by then, but this is the act of buying a "foreclosure".
And then there are REO's. This is property that was taken back by the lienholder that did not sell at auction. These are the "foreclosed" properties. Whether the property is a preforeclosure, foreclosure or REO is just a label for where they are in the foreclosure process and it doen't much matter what you call it as long as you make a good deal for yourself, the owner and the lienholder (in that order).
Every state has their own rules for processing foreclosures, so check for the specifics of the state where your subject property is located, but rest assured that the process in every state generally follows this process.
In some states the foreclosure process is long and tedious. In others it can be quick and efficient, but they all take some time. That time eventually runs out, so jump on a foreclosure that interests you as soon as you become aware of it, even earlier if you can. I can assure you that 100 other investor will be doing the same thing, so don't procrastinate. Reach out to the homeowner any way you can. The more personal the contact the better. Be ready to do business when you do reach them. And, remember they are in a stressful situation and may not be in a very good mood. Be polite, respectful and don't promise more than you can deliver. You're messing with another human's life here, so tread gently.
If the owner is delusional (this happen a lot) or just recalcitrant (this happens when they are exhausted from all the investor pounding on them to sell) and you find that you're getting nowhere, you might consider other options. You could just wait for the auction and bid with everyone else. You could talk to the lender about purchasing the nonperforming note or perhaps a junior lien, then foreclose on the owner yourself. You could wait for the property to become an REO, then make an offer to the bank. You have lots of choices.
With all this being said, we have only scratched the surface of the possibilities and the pitfalls. If you're just getting started (and it sounds like you may be), you might be better served to look for someone in your area of
interest that has significant experience that would be willing to work with you before you worry about where to find foreclosure listings.
However, if you're feeling pretty froggy and have sufficiently bold and intrepid investor personality, you may want to start by making friends with a title agent or a real estate broker who can pull title for you. Notices of default are public records, but that does not mean they are quick and easy to put your hands on. A title agent can usually pull a list of properties in minutes electronically. They may be willing to do that for you for little or nothing if you'll use them when you need title work done. Don't be stingy, pay the man whatever he asks, it's worth it.
If you look around in your area, you'll probably find a foreclosure listing service. Some are terrific, some aren't and they all cost something to use. Be wary. I still think you'd be better of to find someone local to you that already invests in foreclosure and find out what works for that fellow, then take him out for steak and lobster with a fine wine and dessert at a very nice restaurant. (Or whatever makes him happy!)
This isn't intended to cover every aspect of foreclosure investing. I deliberately left a lot of stuff out, but I hope this much helps answer you questions. Let me know if you have any other questions.
Happy New Year!!!
@Tom Mole That was a lot of very helpful information. Thank you for all of the details. I will definitely try and find someone near me that has experience.
I have had my eye on a property recently. I actually reached out to the listing agent several times with no luck, she finally responded vie email but then disappeared again. I just went on Zillow again yesterday and found the property has been taken off the market and is listed in "Pre Forclosure". That being said what do heck does it mean? I am still interested in the property for a "Buy and Hold" rental investment.