Pre Foreclosure Sale Guide

Buying a House Before the Foreclosure

What is a pre foreclosure sale and why is it one of the best ways to invest in rental property? A foreclosure typically happens at the Courthouse steps when the owners options have run out and the property goes up for sale. At that point the owner has no say in what happens to the property. As a buyer at the foreclosure auction, you typically have no idea of the condition of the property

A pre foreclosure sale is a sale of real estate that takes place sometime after the property owner has been served a lis pendens and the foreclosure sale auction.

Each State has different laws regarding foreclosures. Some State treat investors that try to buy from homeowners going through foreclosure as predators. So check out your State Foreclosure laws.

There are a number of advantages of buying property in preforeclosure:

• You typically have fewer competitors bidding against you for the property



• You have access to the property, so you can see its condition (not possible at an auction)



• You are able to negotiate directly with the owner and can become the sole spokesperson when dealing with the lender

There are many entrepreneurs that offer pre foreclosure listings to you for a fee. I found one through my local Real Estate Investment Club that emailed me a list of lis pendens every week. Speed is of the essence in a pre-foreclosure situation. You need to be the first one to convince the homeowner that you can help them. If you don't have this type of service in your area you will need to trek the the local Courthouse every week and look for lis pendens or "Substitution of Trustee" notices.

Once you have names and addresses of owners that the bank is taking action against, you need to contact them. Mass mailings of pre-printed postcards will not do the trick. It is important that you take a personal approach. If you have the gumption, knock on their door. If not, put a hand written note in the door. Or if you want to do large mailings, at least hand address the envelopes.

The main pitch to the homeowner should be that you can save (what's left of) their credit rating. Let them know that you have cash and can close quickly. It's much better to have late payments show up on their credit report than a foreclosure. It's important that you be upfront and honest with people. Many States now have harsh laws aimed at predatory pre-foreclosure scams. You should consult a real estate attorney about your local laws and the types of agreements you can make with homeowners in foreclosure.

Once you have the homeowners interest, meet with them. Have them show you their home and inspect it carefully just as you would any house you were going to purchase.

You will need to find out what liens are against the property in a pre foreclosure sale. Ask the homeowner to tell you about the loans attached to the house and the status of each loan. I had one homeowner that was defaulting on a first and second mortgage but paying the third. When I tried to negotiate with the third lien holder, they had no interest because the loan was current.

The next step in a pre foreclosure sale is getting the homeowners permission to negotiate for you. Basically, make up an authorization form indicating the date, loan number, homeowners name and address and a statement with your name giving you permission to deal with the lender.

Once I have the permission form, I contact the bank until I get a phone number for the loss mitigation department. I contact the loss mitigation department and find out where to send my purchase and sales agreement.

I will fax a cover letter including the authorization form to the loss mitigation department. Make sure you know the name of the loss mitigation manager before faxing the information.

It may take several days or weeks for the bank to get back to you or you may have to call repeatedly to get an answer. Sometimes, the bank will make a counter-offer.

If there are multiple loans on the property the banks that are in second or third position will usually take pennies on the dollar since they rarely bid at the foreclosure auction.

Once you get an offer accepted, settlement can be quite quick. Banks will want a HUD-1 statement and you will sometimes have to be creative to get it right. Buying a house with a pre foreclosure sale can be quite exciting if you get a great deal.

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