Pre Fourclosures

Pre-fourclosures is the art of buying before sale. The advantage in buying properties from homeowners in default is that it can only be measured by the individual investor. Some do not see enough reward, some think it's too risky, while others are plagued by moral issues. Are you helping the troubled homeowner or taking advantage of his misfortune? Both the lender and the homeowner lose in a fourclosure action. Neither want it to happen. Both parties are motivated to resolve the situation. Motivated parties are key to the process.

The window closes the day the property is sold at auction. The time between these two events enables an investor to work with the homeowner and lender to create a workout strategy or a purchase of the property from the homeowner before the sale date. The amount of time the window remains open depends solely on state and local laws, as well as the behavior of the property owner.

Some states sell properties within 90-120 days from the first notice of default. In New York, the process can take a year or more. As for the moral question, keep in mind that by dealing with a homeowner in default, you not only help him, you generally rescue the loan and maintain the value of the property (and surrounding properties) as well. If there is enough equity in the property, there is the potential to work out an arrangement that satisfies all parties and allows for a handsome profit. That's what pre-fourclosure investing is all about: buying the equity in the property, working out an arrangement with the lender and the homeowner, then selling the property for a profit.

This web site can help you get started by providing you with the listings of pre-fourclosed homes. If you negotiated a good deal on a pre-fourclosure property, you may have substantial discount compared to retail market value.

Pre-fourclosures

The availability of pre-foreclosures depends largely upon the type of debt instrument recorded against property titles in each state, mortgages or deeds of trust (also called trust deeds or TDs). TDs contain a "power of sale" clause that basically allows lenders to exercise their right to repossess collateral (in this case, real estate) for a loan in default WITHOUT having to file a lawsuit; mortgages do not.

Generally speaking, we prefer mortgages because TD foreclosures move too quickly (whereas lawsuits are slow and cumbersome) and provide limited visibility (mortgages have more public records associated with them, therefore they're easier for us to find). To make it confusing, some states require lawsuits for ANY foreclosure, regardless of the debt instrument recorded; that's okay- -it's the suit itself that gives us time to be able to work with the property owner, so those statutes actually work in our favor.

You'll probably want to do some due diligence just to make sure you're not wasting your time trying to go down an avenue that turns out to be a dead end. To find out if pre-foreclosure is an option for you, call the County Recorder (or Recorder of Deeds) and ask them what type of debt instrument is recorded against a property's title when someone takes out a loan to make a real estate purchase. If the answer is "a mortgage," you're on your way; if the answer is "a deed of trust" or if you don't get a clear answer, you'll need to do some additional research into state laws to find out what the foreclosure process is.

Pre-fourclosure

When the property is in default and debt is not paid to lender, it will be going on foreclosure auction sale. Depending on which type of foreclosure the property falls in to, duration of process between it becomes in default and goes to auction, can differ from 3month to 1year. Property before it goes to foreclosure auction is called pre-foreclosure property. At this point, the property owner hasn't paid monthly mortgage payments and the owner is given notice that the house will be foreclosed by financial lender. If they don't want house to go into foreclosure, they will pay up the debt.

But if they are facing financial difficulty, they won't be able to take such action. Sometimes, people neglect, deny or not care for their property being foreclosed. Investor can negotiate with the owner to sell the property so that owner can get some cash instead of property just being foreclosed and get nothing. The investor profits by purchasing a house in discount. As an investor, you should always calculate possible profit before taking the deal.

The bigger gap between the default amount and market value of the property, the more profit you will gain. Property with a lot of equity is far better than little equity in the house. Also, it is important to inspect the property to see if there is any unknown damages. Title search is also advised for any unpaid lien to any other financial institution, unpaid taxes, condo fees etc. If owner accepts your offer, they can transfer the title to you and you can directly negotiate and make arrangement with the financial lender. If you negotiated a good deal on a pre-foreclosure property, you may have substantial discount compared to retail market value.