How Do You Buy a House in Pre-Foreclosure?
Pre-foreclosure occurs once a homeowner receives a notice of default, typically after failing to make mortgage payments for anywhere from 3-6 months. It’s technically the first step in the foreclosure process, but there’s still a lot the homeowner can do to keep their property from going to auction.
And, if you’re an investor, pre-foreclosure is arguably the best time to buy. Not only is the seller highly motivated, but also the property hasn’t yet gone to auction. That means there are fewer competitors to drive up the price.
That’s why, in this article, we’ll answer the question, “How do you buy a house in pre-foreclosure?”
5 Steps to Buy Pre-Foreclosure Properties
We’ll start with the first and most important step: How to find properties in pre-foreclosure.
As we mentioned above, buying a home in pre-foreclosure is often the best time for an investor. Naturally, finding pre-foreclosures is going to be the essential step in being able to purchase pre-foreclosures.
(We’re going to go ahead and assume that you already know the area in which you’re thinking about buying properties. If you don’t, then the first step is to research that area and make sure you even want a property there in the first place).
So how do you even find pre-foreclosures? You have several options, including:
- Public records. Search for “Notice of Default,” “Notice of Sale,” and “Lis pendens” in the county recorder’s office. This can give you a solid set of leads.
- Find Real Estate agents who specialize in foreclosures. This one is pretty simple: the agent does the work for you, and since they’ll end up making a commission on the sale, they’re well motivated, too. The only problem is finding a good agent.
- Traditional routes. Some investors like to drive around specific neighborhoods looking for conventional signs of properties in distress: newspapers piling up, deferred maintenance, etc.
- And a myriad of other ways, like signing up for online directories and contacting real estate attorneys.
Research the Particular Property
Check off all the usual boxes.
If you’re looking to rent it out, make sure that you crunch the numbers on the mortgage payment, interest, special assessments, taxes, insurance, maintenance, and so on. If you’re looking to fix and flip, make sure the property has a manageable number of problems for your skills and budget.
Once you’ve crunched the numbers on the property, make sure that you have a solid amount of cash set away before you contact people in pre-foreclosure. This puts another chip in your bargaining basket since you’ll be able (and willing) to make all of the delinquent homeowner’s problems go away in an instant.
Negotiate and Close
Finally, contact the prospective homeowner with an offer.
Again, nothing out of the ordinary here; follow whatever steps the realtor ensures you need to follow to close the deal.
Conclusion: How Do You Buy a House in Pre-Foreclosure?
As you can see, buying a house in pre-foreclosure isn’t all that different from buying a home that isn’t in foreclosure. The biggest problem you’ll run into is finding the property in the first place, and you can accomplish that in several ways, ranging from online directories to public records. Learn more about what a foreclosure is?