Using Pre Foreclosure Strategies To Solve Home-Owner's Problems...
Pre foreclosure
investing is another way of finding deals as a real estate investor. In
a preforeclosure situation, the homeowner has stopped making mortgage
payments. The lender will be sending letters to the homeowner that they
need to make payments or else. If the homeowner does not make payments,
the lender will begin the foreclosure process.
How is a preforeclosure situation win-win-win? Here's how:
The homeowner
wins because the investor can help them out of
a bad situation, save their credit, and help the homeowner transition
to a better situation.
The bank
wins because they do not want the property. They just want to be paid
for the loan. When an investor comes in and buys the home, the bank
gets their money without having the time, hassle, and expense of
foreclosing.
The investor
wins because they are able to create a solution for the bank and the
homeowner. In the process of creating this solution, the investor will
be able to make a profit. This is a true example of being paid for
providing a solution to a problem.
When it comes to working with a pre foreclosure,
the main thing that an
investor will want to pay attention to is the equity in the property.
In essence, the equity will end up being part of how the investor will
be making a profit.
When making an offer on a preforeclosure, the way we structure the deal
will depend on the equity. If there is enough equity to make a profit,
then we will make an offer to where we would catch up the loan, pay off
the balance, and take it over for what is owed on the loan. But, in
order to do that, there must be equity in the deal.
If the equity is not in the property, then we would need to create the
equity by doing a short sale. A short sale is still a pre foreclosure
but you are going to ask the lender to take a discount on what is owed
on the mortgage. If the lender does take a discount, then the equity is
going to be created.
So, the equity either needs to be there, or it needs to be created
through the short sale process.
Important note! Many states have enacted legislation where they have made it illegal for someone to reconvey (sell or lease the property back to the homeowner) the property to the owner. If you are going to be involved in pre foreclosures, make it your policy not to sell or lease back to the homeowner. You will avoid a lot of issues by adopting this policy.
There are a lot of ways to find pre foreclosures. You can:
- Look on the Multiple Listing Service(MLS) for them
- Have homeowners in this situation call you from your marketing and advertising
- Subscribe to foreclosure web sites like Realty Trac or Foreclosures.Com
- Take a look at the legal notices for properties that are going to auction. You will still have some time to negotiate with the homeowners in most circumstances
- Go door knocking
