I've been aggressively studying how to successfully buy, rehab, and flip (aka "redevelop") residential properties, and I'm currently working on my marketing strategy. I've been investigating the idea of looking for off-market pre-foreclosure properties specifically, and I'm wondering if anyone has any tips or stories "from the trenches" regarding how to do this successfully and how to avoid any critical pitfalls.
I'd also like to know about things like:
- How motivated are the sellers typically (especially in comparison to other types of distressed seller situations)?
- How easy is it to find motivated pre-foreclosure sellers (especially in comparison to other types of distressed seller situations)?
- Are there legal complications that can occur?
- How sensitive do you need to be with the timing of the sale, such as when foreclosure proceedings are starting or about to start?
- Are there additional risks that are more common with these types of properties?
- How often are the sellers very emotional and hard to deal with?
Any guidance would be much appreciated.
Pre-foreclosures can be a great niche to go after. I just did one and closed the day before the auction.
You need to have cash on hand ready to close quickly before the house goes to sale.
You need to get full payoff info from the seller and find out if there are any other liens or mortgages on the house.
You will need to do a thorough title search once you have the contract with the seller. Often there are liens and taxes due the seller forgot about it didn’t tell you.
Most sellers are usually more motivated towards the end of the process and many will remain in denial until they get locked out by the Sherrif. Some will vacate right away.
You will need to deal directly with the owner and not the trustee as they typically will not and can not stop the foreclosure proceedings based on a contract.
You are going to see the whole gamut. Pre-foreclosures are certainly an area where deals CAN be found. It is a numbers game and you need to be ruthless with the people. The honest truth is you are trying to get the better end of the deal against a family who needs the money at this point probably much worse than you do. Not everyone can do that.
But what you will find is the vast majority of them are not too motivated to sell, especially in the first several months of pre-FC. They are motivated to stay as long as possible because they don't have the funds to move and they think they can get things back on track. As the auction looms, some get motivated to sell. But that can be a year after going pre-FC depending on your state. Many others are constrained by their mortgage and would have to do a short sale to sell to you are your price, which are fairly difficult. And the reality is that as soon as a house goes into pre-foreclosure, it is on EVERYONE's radar. A homeowner in preFC gets literally dozens of letters and calls from investors. It is very competitive. Once the auction is scheduled it gets more competitive.
So, is it worthwhile? Probably. Is it a layup? Nope.