What is Pre Foreclosure?

What is pre foreclosure? This can mean several things. However, it normally refers to the homeowner being "behind" on payments and is facing foreclosure.

Depending on what stage of the foreclosure process is in effect, it can be a good investment or a nightmare for a buyer.

If the homeowner has only received a letter requesting getting current on the loan, then the process should be rather simple. As long as you immediately negotiate with the lender in writing. Otherwise they can legally pursue foreclosure. It is VERY important to note, you must negotiate with the lender, not just the homeowner. And everything must be in writing.

This is a common scenerio of a pre-foreclosure:

The homeowner began trying to sell his home 8 months ago for $130,000. After being on the market for 3 months, he lost his job. So, he reduced the listing price to $120,000 which is $5000 below market value. 2 months ago (6months on the market) he ran out of money and quit paying is mortgage payments. He again reduced the price to $105,000, 4 weeks ago. It still has not sold and he is now 2 months behind on his mortgage. The lender has sent him a letter saying he has 21 days to come current with his loan or they will pursue foreclosure proceedings. He owes $75,000 on the balance of his loan.

This is where he begins looking for an investor. An investor could offer him $90,000 (maybe a little less if lucky) and the homeowner would still walk away with $15,000. And the investor can then sell the property or rent it until the market improves.

The only catch is that the buyer must close on the loan within the 21 day period or foreclosure would start. Again, important to get everything in writing from the lender.

Most pre-foreclosure sales are cash sales, due to the need to close rapidly.

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