How to purchase a pre-foreclosure property? | All you need to know

Want to learn more before you purchase a pre foreclosure property? In this blog, we explain is what is pre foreclosure, and what it means to buy a house in pre foreclosure.

Pre-foreclosure

Most property buyers take home loans from financial institutions to buy property. Financial institutions or lenders have conditions like how much money needs to be paid every month. If the borrower defaults on three or mortgage payments, the lender issues a notice of default. The property is pre foreclosure, and the lender may reclaim it if the payment trends don’t improve.

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What does pre foreclosure mean?

It is vital to understand what does pre foreclosure mean? Pre foreclosure is the legal proceeding that can conclude in a property being repossessed from default borrower. In pre foreclosure, the lender files a notice of default if the borrower has defaulted on payment for30 to 90 days. The notice informs the borrower owner, that the lender is pursuing legal actions towards foreclosure. The borrower has some options after they receive the notice. The lender may be willing to negotiate with them to avoid moving forward with foreclosure.

Pre foreclosure vs Foreclosure

Pre foreclosure vs foreclosure can be confusing but are very different. The difference between pre foreclosure and foreclosure is as follows. 

Pre foreclosure	Foreclosure
Pre foreclosure means when the owner defaults on their mortgage payments and is at risk of being foreclosured upon.	Foreclosure properties are those which have been reclaimed by financial lenders. Once it is back in the lenders possession it is often listed for sale.
Pre foreclosure properties are listed higher price because the property has still not been foreclosed. Real investors can get a good deal from seller.	Lenders have a vested interest in selling the property quickly. The properties are listed at a lower price.
Pre closure properties are generally better maintained.	Foreclosure properties can be abandoned and may be deteriorating. Foreclosure process may take months and the property will not be inhabited or maintained for months.
Real estate investors interested in buying a pre foreclosure houses look at renting properties or Airbnb investments. Investors will not have to spend on repairs or upgrades.	Real estate investors looking to flip properties often prefer foreclosure properties. Investors purchase the property at low cost and they can use the money saved on repairs.

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Preforeclosure process

Preforeclosure is the first step to the foreclosure process. While the pre foreclosure notice is serious, there are ways to prevent foreclosure of your home. Pre foreclosure process encompasses of a few steps, and begins when the borrower misses their mortgage payment and lender issues a notice of default. The notice means the lender has begun the legal process. 

How do pre foreclosures work?

If you have received a pre foreclosure notice, you may want to know how do pre foreclosures work. The legal requirements may vary depending on where you reside, but preforeclosure process is fairly consistent. The steps are as follows –

• Mortgage default – Pre-foreclosure can begin 90 days after the borrower misses their first mortgage payment, or they have not made three consecutive monthly payments. The borrower is in default on the loan. 
• Notice of default – The pre-foreclosure notice begins after the lender sends the borrower a certified letter that they plan to begin the foreclosure procedure within 30 days.
• Public notice – In several states the lender is required to issue pre-foreclosure notice and the borrower’s name is posted to a public listing of individuals whose properties have been foreclosed.

How long does the foreclosure process take?

A foreclosure occurs when homeowner defaults on a mortgage payment, but how long does the foreclosure process take? The length of the foreclosure process depends on state laws and factors like whether the borrower and lender are negotiating to stop or stall the foreclosure procedure. The entire foreclosure process can take anywhere from 6 months to more than a year.

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Buying pre foreclosures

The easiest way of buying a pre-foreclosure home is to help the seller make up the pending mortgage to the lender and then buy their home. Some sellers are unwilling to sell their homes. If a seller is willing to sell their home, it can be profitable because the seller may be unaware of how much their property is worth. Top tips for buying pre foreclosure property are –

• When you start looking for a preforeclosure home, contact a lender to get a preapproved loan, it will give you an edge in a competitive market. Preapproved loans mean you have got your finances from a vendor. Sellers like seeing preapproved letter because it lends credibility to your offer.
• Earnest money is the deposit you offer along with the purchase and is the easiest way to prove you are earnest. Good faith deposit or earnest money deposit shows you are serious about buying the property. Earnest money is usually 1% to 3% of the purchase price. 
• You should get the property inspected. Having a comprehensive report on the property can help you determine if the property is worth it and do a title search to know if there are potential liens of the property. 
• When you and your agent check everything and are satisfied and the homeowner is willing to sell. You can negotiate terms favorable to both parties, you can purchase the property.

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How to find homes in pre foreclosure?

Pre foreclosure investing is become popular. Buying pre foreclosure can be tricky but rewarding if you do your research well. How to find homes in pre foreclosure? There are many options you can explore, and the strategy you use will depend on the time you are ready to invest. The best places to find homes in pre foreclosure are –

• Online Directories are the best place for foreclosure leads. You get the listings of several properties in one place containing descriptions and photographs. Real estates websites such as Zillow, Trulia, Realtor.com, Homes.com, Movoto, and LoopNet list preforeclosure properties. You may have to pay a small fee to use the services.
• Accredited real estate agents can access multiple listing services (a database for homes for sale). Your real estate agent can access the MLS to find a pre-foreclosure listing. Agents can help you get appointments with property owners and negotiate deals on your behalf. They can research properties and find information such as property tax, property prices in the area, and the previous sale price.
• The county record office maintains pre foreclosure listing. In the public record section, you can look for Notice for Sale, Lis Pendens, or Notice of Default.
• Local newspapers provide pre foreclosure leads.
• Real estate attorneys represent people whose property is in pre-foreclosure and can provide leads. Some attorneys charge you a referral fee for every pre foreclosure lead.

How to negotiate a pre foreclosure?

Owners prefer pre foreclosure sales to prevent their property from going into foreclosure. They prefer pre-foreclosure sales to protect their credit ratings. Their ratings would be severely affected if their property is foreclosed. How to negotiate a pre foreclosure? Under pre foreclosure sale the owner usually accepts less than the remaining balance on the property. Investors prefer negotiating directly with the seller.

We recommend you consult an attorney before making an offer. Factors like – the condition of the home and present property prices in the area affect the property price. It is advisable to get it professionally inspected to know any underlying problems with the property.

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Preforeclosures listings – where to find them

Investors can preforeclosure listing through online directories, real estate agents, public records, local newspapers, attorneys, and real estate wholesalers. The top 5 places to find pre foreclosure listings are –

• Online Directories provide preforeclosure and foreclosure listings along with property details like the condition of property and pictures.
• Real estate agents help you find preforeclosure deals. 
• County record sections maintain public records of pre-foreclosed properties in the area.
• Local newspapers publish the address of homes at different stages in the foreclosure process.

How to find out if a home is in foreclosure?

As a new investor, you may want to invest in a foreclosed property, but you are unsure where to begin. There are unverified websites that maintain inaccurate or outdated records. Here are some resources you can use to find if a home is in foreclosure. 

• Foreclosure real estate agents specialize in foreclosed properties. 
• Visit your local county’s record office. They have information on all homes in the community. You can search for the property with the owner’s name, and the records may be in print or digital form.
• Check the public auction listing are available online or in newspapers and your county’s record office. 
• Websites like MLS or online real estate databases like Zillow have accurate listings. 
• Bank websites often maintain an inventory of foreclosed properties on their website. 
• Tour neighbourhoods you like and look for signs similar to real estate signs, and you may see some properties marked foreclosure or bank repo.

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Should I buy a foreclosed home?

As an investor, you may be wondering should I buy a foreclosed home. The biggest advantage to buying a foreclosed home is that most foreclosures are at a sizeable discount lower than market value. You can make additional savings in reduced down payments, lower interest rates, or elimination of appraisal fees and certain closing costs.

There are some risks of buying foreclosed homes. 

• The homes are sold in as-is condition, and the property condition can be grim. 
• You may need to spend on repairs and maintenance to make the property livable. 
• Auctioned properties often have back taxes and liens attached to them. 
• Foreclosed properties are complicated may mean extra paperwork. 
• Other interested parties may increase the price of the property.

Common questions on Preforeclosure

Preforeclosure gives the homeowners some options to stay in their homes before a foreclosure. As a homeowner, the jeopardy of losing your home can be devastating. Understanding what is a preforeclosure, and a foreclosure is vital. Real estate owners can get a great deal in preforeclosure property. In this section, we answer common questions on preforeclosure.

What is a pre foreclosure auction?

Many new real estate developers ask What is a pre foreclosure auction? And what is a pre foreclosure sale? When the defaulting borrower and lender cannot work out a repayment plan, the lender may allow a short sale as a last resort.

Foreclosures are expensive, and the lender agrees on a short sale, or pre foreclosure sale. The homeowner lists the home as they try to recoup the loan amount as much as possible, and the lender will let him off the hook. The house may be sold at a pre foreclosure auction.

Can you buy a pre foreclosure home with an FHA loan?

Can you buy a pre foreclosure house? Yes. Are you wondering, can you buy a pre foreclosure home with an FHA loan? Yes, you can buy a preforeclosure home with an FHA loan. Even if your credit score is less than perfect, you can get an FHA mortgage with low down payments (as low as 3.5%). FHA mortgage has more stringent property requirements compared to a mortgage loan. Buyers can buy a pre foreclosure home assuming that the house meets the FHA standards.

Should I buy a foreclosure for my first home?

If you are wondering, should I buy a foreclosure for my first home? Yes, the main benefit of buying a foreclosed home is savings. Depending on present market conditions, you can purchase a foreclosed home for a lower amount than you would pay for a non-foreclosure home.

There are some risks you take when you purchase a foreclosure home. Foreclosure homes are sold in “as-in” condition, and you generally cannot walk through the property before purchase. The homes may have been unoccupied for years before the sale, or the past owners neglected or vandalized the property. You may need to spend on repairing the property.

Can you buy a pre foreclosure home with a loan?

Can you buy a pre foreclosure home with a loan? Yes, you can get a loan for pre-foreclosure, but if there are many offers for the house, a cash buyer will get the first preference. We recommend prequalifying for the loan before you make an offer. You will know how much you can spend on the property and repairs. Banks are willing to offer loans on unlisted properties.

What happens after the foreclosure sale date?

As a homeowner, you do not want to think about losing your home. If you are unable to pay the mortgage, your property heads for foreclosure. What happens after the foreclosure sale date? After the foreclosure sale date passes you go from owner to tenant, as the title deal passes to the new owner.

Some owners may agree to rent the property, but most of them want to take possession of the property. States have their laws about foreclosure, including the amount of time you are entitled to vacate the property. If you are unwilling to move out legally, you may need to be evicted from the property.

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Is it bad to buy a foreclosed home?

Many homeowners wonder, is it bad to buy a foreclosed home? Buying a foreclosed home is a good idea if you have some extra financial resources. If you are not worried about potential problems or repair costs foreclosed properties are a worthwhile investment. You may have to spend between 1 to 4% on repairs.

If you are not in a hurry to move into the house it can be a great idea. Repairs are time-consuming, and if you do not have any time constraints, you can purchase a foreclosed property. Foreclosed homes can be a nightmare if you have a tight budget and want to move into the home quickly.

How long does a foreclosure take?

How long does a foreclosure take? A foreclosure can take anywhere from six months to several years. Some milestones are –

• For missed mortgage payments, the lender contacts the borrower encouraging them to get their payments back on track. If the borrower misses four consecutive payments, the mortgage is in default. 
• The lender sends a legal notice indicating they will begin the legal foreclosure procedure in 90 days.
• If the borrower fails to make payments, the lender approaches the courts to begin foreclosure. The court appoints a trustee to oversee the auction.
• Several weeks before the auction, the trustee posts signs and publishes local news giving details about the property and auction. 
• The trustee puts the property for auction with a minimum base price, and the highest bidder takes ownership of the property.
• As soon as the property is sold, occupants are issued an eviction notice.

How long does foreclosure stay on your credit report?

If your property has been foreclosed, you may wonder, how long does foreclosure stay on your credit report? A foreclosure has a major negative impact on your credit report and can lower your credit score, impacting your ability to qualify for credit or apply for new loans.

A foreclosure entry remains on your credit report for seven years after the first missed payment that led to the foreclosure. After seven years, it is removed legally from your report. If it persists longer, you can approach the credit bureau to remove it.

How long can you not pay your mortgage before foreclosure?

If you are behind in your mortgage payment, you may wonder how long can you not pay your mortgage before foreclosure. Under federal law, the lender cannot start foreclosure proceedings until the borrower is more than 120 days overdue on mortgage dues. The 120 day pre foreclosure period gives the homeowner two options –

• A grace period to get caught up on the loan
• Apply for and work out loss mitigation options like mortgage modification. 

Applying for a foreclosure avoidance option can delay the start date by 120 day period.

If my house is foreclosed do I still owe the bank?

After your property is foreclosed you may wonder, if my house is foreclosed do I still owe the bank. It is a common misconception, that you do not owe your lender anything after foreclosure. The lender is obligated to apply the sale price of your home to the mortgage debt.

If your house is sold for less than the mortgage amount, you owe the lender the remaining money after the sale. The remaining debt is called a deficiency. The lender can sue you to recover it. If the deficiency amount is large, many borrowers opt for bankruptcy to protect their assets.