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How To Buy Foreclosures

Pre Foreclosure, Foreclosure & Foreclosed Homes Explained

Zillow- Pre Foreclosure, Foreclosure & Foreclosed Homes Explained

Sign of the times - Foreclosure
Sign of the times – Foreclosure (Photo credit: Wikipedia)

What Is Pre Foreclosure? Understanding the Pre Foreclosure Process

By Cata Shark

In order to understand what pre foreclosure is, we need to define the foreclosure process. By definition, foreclosure is the process in which a property is being repossessed because its owner failed to pay its mortgage. Therefore, an auction needs to be held in order for the lender (the bank) to be able to recover as much money from the investment as possible. Pre foreclosure is the time period that immediately precedes foreclosure, just before the property enters the latter stage.

Essentially, pre foreclosure is a grace period, that spans from the moment a notice of default or a lis pendens is filed until the property is sold at auction. The amount of time until the auction actually takes place can vary from one month to more than a year. This is regulated at state or even county level. However, this does not mean in any way that the respective property can not be purchased. On the contrary, many home owners prefer to sell their houses before they enter the foreclosure stage.

Process Breakdown

In order for the foreclosure process to begin, the owner of the property must miss three consecutive mortgage payments. When this happens, the lender issues either a notice of default or a lis pendens. The former is used in non judicial states, while the latter is used in states that follow judicial foreclosure laws. This moment is basically the moment when the property enters the pre foreclosure stage.

Possible Outcomes

This is a period when nothing is really set in stone. One possibility is for the owner to raise the needed money and pay the debt, as to be able to continue living in the respective home. Another potential outcome is the owner finding a buyer for the property in order for the foreclosure sale to be avoided. Finally, the lender can issue a Notice of Sale, so the property can be sold at a later time.

Advantages for Buyers

Real estate investors have obvious incentives to buy properties that are in pre foreclosures. For one, home owners will try to avoid foreclosures at all costs, because of the most obvious reason: fear of losing their homes and potential lifetime investments. Secondly, a foreclosure will ruin their credit scores and make future attempts of purchasing a property much more difficult. These are also the reasons why buyers can find properties that are much cheaper than their true market values when they are in the pre foreclosure phase.

How to Find Pre Foreclosures?

There are a lot of online resources that have subscription based services that offer access to pre foreclosure listings, and some of them have free trials. The best leads usually come from paid sites, since these are the ones that have the most comprehensive and up-to-date databases of listings. Investing in real estate can be very lucrative but poses risks as well. This is why access to quality property data and reliable information is the key to succeed as an investor.

Try this property search engine for comprehensive property reports. Find pre foreclosure listings and search properties by address or owner in the city, state or zip code of your choice.

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