All About Pre-Foreclosures
All About Pre-Foreclosures
All About Pre-Foreclosures
Pre-foreclosure is the period between the default of the first mortgage installment and the confiscating of the home by the mortgager. It is a critical time in the foreclosure process. If you're an investor, this period offers you an opportunity to make substantial profits while giving both the bank and the home owner a good bargain.
Pre-Foreclosure for the Potential Investor
If you're an investor the first thing you need to do is check the pre-foreclosure status. Once the estate enters pre-foreclosure, the owner is generally given a couple of months or so during which he can repay the default amount and hold on to the property. So check with the trustee assigned to the foreclosure and confirm whether the property is still in foreclosure or has been reinstated.
Start keeping track of properties that appeal to you. Once you find a suitable property, try visiting the neighborhood or even chancing a casual meeting with the owner of the property. Next, gather all the information you possibly can about the property that you have your eye on. Get a fair idea about the market value of the property and also other financial aspects like the amount owed on the property and any other claims on it.
Make contact with the owner and take a good look at the property bearing in mind the repairs that it will require. Once, a mutual agreement is reached, the terms and conditions of purchase have to be laid down. All the parties to the transaction have to be present: the homeowner, the foreclosing lender and you. As a potential investor you can explore many options:
Pay off the default amount and then continue paying the balance monthly installments.
Pay off the entire loan amount.
If there are other claims on the property, ensure that those are cleared in full.
Contact the lender and others with lien on the property and try negotiating to clear the installments at a lower rate.
The last thing to do before closing the deal is to draw up a formal purchase agreement. If you have no idea how to go about this you could have a real estate agent or attorney draw up one for you.
The benefit you as an investor would gain from investing in a pre-foreclosed property would be to get one 20-25% below normal market value.
Pre-Foreclosure for the Home-owner
If the defaulting home-owner acts with prudence and wisdom, he can use the pre-foreclosure period to his advantage. If you're a home-owner and have failed to pay your monthly installments you might want to put your home up for sale before foreclosure. You can sell your property and use the sale proceeds to pay off the mortgage loan. If you price your property correctly, you may also end up making a profit.
Benefits of pre-foreclosure sale to the home-owner:
The home-owner can prevent the effect that a foreclosure will have on his credit history. The investor then takes responsibility for paying off the mortgage.
The homeowner also gets relieved from the burden of paying future installments.
Sometimes the homeowner can also work out a deal with the investor to allow him to use the property for a rental price until he finds alternate lodgings.
Pre-foreclosure sales can be a win-win situation all around. As a potential investor you should do your homework carefully and look into all aspects of the transaction. As a home-owner, even though you may initially be in denial, a pre-foreclosure sale may save you from stress and tension. Moreover, it will have minimal effect on your credit record whereas a foreclosure will destroy your credit rating.
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