Pre-Foreclosures - the First Phase for Foreclosures
Pre-foreclosures is the first stage in the foreclosure process. During this stage, the homeowner has missed at least a single schedule of payment and is now considered as a delinquent on the loan.
A pre-foreclosure is also known as Notice of Default or Lis Pendens, which means that a formal warning has already been sent to the borrower on a loan with delinquent payments. The Notice of Default and the Lis Pendens are actually the same thing, only that each one signifies whether the loan is secured through a mortgage or a deed of trust. The moment the trustee files a Notice of Default, it automatically becomes a public record.
Understanding Pre-Foreclosure Home Sellers
In order to effectively understand homeowners, it is essential that you understand how they think. Usually, people who are faced with a negative event caused the delay in his mortgage payments. That negative event could be a recent divorce, an illness, a job loss, and so on. These things cause the homeowner to delay his payments, making the situation worse for himself. Only when you fully understand the current situation of the homeowner can you effectively help him to get out of a possible foreclosure.In order to effectively understand homeowners, it is essential that you understand how they think. Usually, people who are faced with a negative event caused the delay in his mortgage payments. That negative event could be a recent divorce, an illness, a job loss, and so on. These things cause the homeowner to delay his payments, making the situation worse for himself. Only when you fully understand the current situation of the homeowner can you effectively help him to get out of a possible foreclosure.
2 Reasons Why Pre-Foreclosure Home Sellers Need You
Since it is unlikely for a distress homeowner to have a good credit background, a foreclosure will ruin his credit history all the more. This will make the purchase of another home or establishing other types of credit very challenging in the future. If you can purhcase their home (quickly and at a discount), you will be able to help the save their credit.
Also, if their property becomes foreclosed, they may lose their equity in their home. However, if you are able to pay the homeowner some amount over their mortgage balance, it may be more than what they will probably receive in an auction. This is because the owner’s equity is often eaten up by the expenses, commissions and the legal fees prior the auction itself. You can help them save this equity buy purchasing their pre-foreclosed home.
Making The Offer
Perhaps the greatest challenge of buying any property in pre-foreclosure is getting the attention and the commitment of the homeowner. And since the Notice of Default is made known to public, other investors could be running after the owner as well. There a lot of investors that send a postcard or write a letter indicating their interest in the property. This can get you the seller’s attention, but you can do even more. For example, after the seller has responded to your letter or postcard, speaking with the owner over the phone or face to face is even better – this is the best way to gain the confidence and trust of the owner, making him decide to your advantage.
In most cases, the best option for an owner is to sell the home and be rid of the hassle altogether. However, there are a lot of property owners who still hang on to their property as long as they can. But with the auction date drawing near, the homeowner will be likely to get motivated to close a sale before the actual auction. So we recommend that you keep your communication with the homeowner – make sure he knows that you will readily buy the house given your terms.
Always be polite and courteous to the homeowner every time you speak. We advise that you take a consultative approach by demonstrating an understanding of the owner’s dilemma with the goal of reaching a mutually beneficial agreement.
Analyzing The Property
It is important that you do your homework before you make any offer on any property. That means that you should have a thorough analysis of the property – have a detailed title search to make sure that the property has a clear title. Also evaluate the loan-to-value ratio of the property. If there is minimal or no owner’s equity, then doing the deal will require more creative solutions. If you are buying the residence to flip and not as a primary residence, make sure that you do the right calculations of all the costs before signing any deals.
Before you finally close the deal, make sure that you check that the property has a clear title. Never give out money until your real estate attorney has made sure that the titles are clean. If all things are good, you will both have to sign a Real Estate Purchase and Sale Agreement. This is the part where you arrange your finances and make sure that the foreclosure process has been stopped. Assuming that everything goes as planned, then you would have just bought a property below its market value and made an enormous profit!