How to Invest in Pre-Foreclosures Ethically

Pre-foreclosures happen every day in every city in every state. Most of these homeowners will ruin their credit for up to 10 years and go through financial hardship for the next two to three years. But… there is a way to help these people avoid the financial struggle and credit embarrassment. Not only will I show you how you can help people pre-foreclosure, you’ll learn how to make a fortune in the process. This business in NOT about taking advantage of people. I will show you to do it ethically!!!

What is a Foreclosure?

Foreclosure is the legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds being applied to the mortgage debt.

Some of the basic stages of the foreclosure process include pre-foreclosure, auction and bank owned (REO). The homeowner has up to the auction date to either bring their loan current or make a plan with their bank. It is very rare that an owner will do this and is where you come in. But, if the property goes to auction, the bank makes the first bid which is the starting minimum bid. If nobody outbids the bank, the bank wins the property and now becomes bank owned (REO).

Sometimes a bank will offer the property for sale prior to auction, asking less than what is owed which is called a short sale. If the property is sold through a short sale, the homeowners credit will be ruined for up to two years. The homeowner will lose the house and they may not even pass a rental application for another home. If they weren’t making their payments to the bank, why would someone ever rent their home to them? As you can see, this can be detrimental for the homeowner. Our goal as real estate investors is to work with the homeowner prior to the auction date and is the only way to actually HELP the owner, otherwise their credit will be ruined.

What is the Actual Strategy Used when Working with People Foreclosure?

There’s only one strategy you would use when working with people behind on payments and facing foreclosure, and that would be Seller Financing. The question is why? It’s simple. Any time you will need to make up back payments, pay for closing costs, potentially pay the seller to move and other costs associated with taking ownership of the property, you’ll want to own it. You wouldn’t want to put money into a property and not own it. Seller financing is the only strategy where you receive the deed that shows ownership. You can however purchase the property straight out traditionally by receiving financing through a lender or using your own cash. It is however more expensive to do it this way and lowers your cash reserves, this is why seller financing would be the best strategy.

How do You Get Started Working with Pre-Foreclosures?

Pre-foreclosures make great investment deals and are a constant business you should be working. Follow the basic steps below and get started working the pre-foreclosure business.

Research Pre-foreclosure leads using the REIPro software. The homes in pre-foreclosure that have an auction date scheduled will need to be worked sooner, rather than later. Any auction date within 1 week should be avoided, as this will not leave us enough time to work.

You should filter the leads that have at least 20% LTV (Loan to value) as these leads have equity in them.

Sending direct mail letters or postcards is the best way to make contact with the owner since calling them will be difficult. REIPro software provides every letter and postcard you’ll need. Most pre-foreclosure sellers are screening their calls, which makes it hard to contact them by phone. Having them call you from either a letter or post card is the best way.

Once you receive calls, go through step 2 in the software and ask the following questions.

Some of the most important questions to ask are:

• Find out their situation?
• How much are they behind in payments?
• Loan balance?
• Current Monthly Payment?
• After Repaired Value?
• Does the home need repairs?
• Are the taxes current?
• Do they still live in the home? Is it vacant?

Once you have this information, you’ll need to research the potential value of the home using REIPro and running comps. Schedule a time to look at the property!

You can learn more about this strategy and how to connect all the dots by attending our live event in Los Angeles on December 10th and 11th.

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