Foreclosure and pre-foreclosure are odd concepts for people who haven’t gone through a mortgage procedure, but these are common processes for real estate agents. They usually are in charge of taking care of foreclosed properties and dealing with potential buyers looking forward to buying the house.
Although this process is stressful for defaulted borrowers, it’s a gold mine for investors looking for short sales or investment properties for a low price. The mortgage crisis that went from 2007 to 2009 is what made foreclosure and pre-foreclosure homes common around the country.
Pre-foreclosures became that common because the previously mentioned crisis caused most people – and the country – to enter a financial recession, which made them unable to pay their debts. That produced a “real estate bubble,” which had a notorious impact on the real estate market.
The country’s not going through a financial crisis anymore, but people still want to find pre-foreclosure homes, short sales, and REO properties. If you are one of those investors looking forward to buying these types of properties, you’ve landed on the right page! Read on to know where to find foreclosure homes.
Why Would You Want to Get a Pre-Foreclosure Property or a Short Sale?
Buying a pre-foreclosure property has many disadvantages, so why would you want to buy one after all? Well, the answer’s that properties on foreclosure listings are considerably more affordable than others on the market. Even if the property’s worth is over your budget, you could be able to afford it if the house is foreclosed.
The reason properties’ prices decrease that much is that foreclosed properties come from mortgage debtors that can’t catch up with their debts before the grace period. Because of that, the lender tries to recover some of the money they are going to lose by selling the property for a lower price.
There are some setbacks that could keep you from going forward with a pre-foreclosure sale, and one of them is the foreclosure proceedings. Buying a foreclosed property lasts way more time than it would with a regular house, so the whole process could last weeks.
However, everything depends on how you deal with the purchase since what takes the most time about the process is negotiating with the bank. Take into account that instead of buying the house from private financial institutions, the bank or the lender is the one selling it to you.
Prospective buyers also need to find those properties, and it’s not that easy for some of them. Regardless of that, you can do it in no time if you already know where to look. This is a tricky process, so some professionals recommend that you talk with a real estate agent before making any moves.
You can also search for foreclosures in local newspapers, so make sure to check them out.
How Does the Foreclosure Process Work?
You need to know how foreclosure works if you want to get foreclosed homes. That makes everything easier since you know what the lenders can and can’t do, as well as the deal-breakers when looking for a foreclosure or pre-foreclosure.
The first thing you need to know to understand the various stages of the foreclosure process is where everything starts, which is the delay on mortgage payments. When the owner of a mortgaged property isn’t able to meet the payment dates, the lender can take action to recover the money they’ve lost.
However, recovering the money you lend is not that easy since, as long as the owner doesn’t pay you back, there’s no money at all for you to take. Because of that, the state allows the lender to classify the property as a foreclosure to sell it below its market value.
The reason lenders sell properties for such a low price is that it helps them get part of their lost investment back. Regardless of that, the previous homeowner has nothing to do with the buying process. That can cause some trouble to future buyers and lenders.
An example of the issues that the previous situation could cause is that the lender doesn’t know anything about the bank, and neither does the bank itself. Because of that, buyers looking for a good deal can find themselves getting a house in poor situations and with tons of structural issues that are not going to be addressed by the bank. Everything starts when the lenders send a lis pendens to the financial institution.
There are also different ways to buy a foreclosure, which leads to different types of foreclosure. The first one of them is pre-foreclosures, which are properties owned by people who are about to start the foreclosure process.
Buyers can consider negotiating with the seller or the homeowners themselves while being in the pre-foreclosure stage, so you can take that opportunity to get a better deal than the lender would typically give you. Many borrowers have been deceived by people with bad intentions, so some states have enacted some laws to prevent that from happening.
Another common term in the real estate world is “Short Sales.” Even if they are not on default yet, borrowers in financial hardship can ask their lenders to sell the house below market price to get off the hook with their debt. The problem with that is that the lender can easily turn down the offer and deny the short sale.
If a house is not sold on auctions, it becomes bank-owned property, which is also known as real estate-owned or REO property. These houses go to the bank’s inventory.
Where to Find Pre-Foreclosure Properties
In 2020, 1.16% of houses across the country were in foreclosure, a pre-foreclosure listing, part of a short sale, or were already bank-owned properties. Even though that’s not a short number, tons of people struggled to find a foreclosed home. That’s a nuisance for investors that see profit potential in foreclosures and other properties on sale. Even if you search for one, it’s difficult to find foreclosures if you don’t know where to look.
Fortunately, once you know where to find pre-foreclosure listings, the process becomes easier. Here are the easiest ways to get a foreclosure or pre-foreclosure home:
Real Estate Agents
Contacting a real estate agent is the easiest way to find foreclosures for people who don’t know much about the process. Real estate agents have access to the Multiple Listing Service (MLS), which is a network only available for realtors. The MLS shows the real estate agent representing you pre-foreclosure listings and all the foreclosure information about the property they choose.
This listing agent comes in handy if you want to see several properties close to you. However, the best part about getting foreclosures this way is that real estate agents have to search for everything and handle all the paperwork for you.
Many websites focus on showing buyers all the available properties for them, including pre-foreclosure listings. The only issue with this method is that, since the process is as easy as getting into a webpage, there are many competing buyers for the same properties. Some of the websites that can help you with this are Fannie Mae and Freddie Mac.
If you want to look for a pre-foreclosure home yourself, you can go into the county recorder’s office and see any short sale or real estate property on public records. The Department of Housing and Urban Development is in charge of adding every registered foreclosed home 0n the public record, so it’s all there.
Negotiations with Homeowners
Foreclosed homes can already be sold by lenders, but pre-foreclosures are not bank-owned properties yet, so you can negotiate with the homeowner to buy the property. Borrowers often do that because foreclosures are bad for their credit history, and some states even require you to go to the county court to deal with the foreclosure.
A property owner can arrange a short sale with you and sell the idea to the lenders to avoid catching up with their mortgage payments. This is a common thing since the outstanding mortgage balance can be even higher than the original loan at times.
Remember you can always search for foreclosures by reading the local newspaper.
Are You Looking for a Pre-Foreclosure Property? Contact a Real Estate Agent Now!
Foreclosures on sale are excellent for investors who search for expensive properties below their market value. However, if you are one of those investors, you need to keep an eye on how everything works before getting the property.
Pay attention to all the things we mentioned on this page if you want to complete the process successfully. We recommend you hire a real estate agent if it’s your first time buying foreclosures. Real estate investors love these houses because they see them as an investment property. You can also get one for that matter if you rationalize the situation.
Regardless of the decision you make, remember to gather as much information as possible so that you ensure a safe and effective buying process.