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As a prospective buyer, you may find yourself interested in buying a home from someone who can no longer afford to pay their mortgage payments. As a result of their inability to pay, their home is going into foreclosure. However, many buyers don’t know what qualifies a property for pre-foreclosure and how buying pre-foreclosure works.
Pre-foreclosure means that the owner can no longer pay the mortgage and the property is on the brink of being foreclosed upon. The lender may consider taking action or may have already issued a notice of default to officially initiate the foreclosure process.
However, even after filing a notice to default, the owner can reclaim ownership by paying the outstanding mortgage payments. But if the owner is unable to catch up on their payments, the home will go into foreclosure. Many owners consider selling their homes before the house is officially in foreclosure.
There are different types of foreclosure, and you can buy a property regardless of the type.
Pre-foreclosure is the first stage. As mentioned above, this is the stage during which the homeowner receives a formal warning from the lender stating that they’re in default on their home loan. A homeowner can avoid the foreclosure process if they’re able to sell the property while it’s in the pre-foreclosure stage.
When the owner owes the lender more payments than the home is worth cannot make up for the difference, the only alternative to foreclosure is a short sell. This occurs when the bank agrees to sell the property and accepts less than what remains due on the home loan. It’s important to note that a short sell can’t be done without the lender’s consent.
Purchasing a short sell property is no different than buying a traditionally listed property except the contract’s language will likely differ. The buying process is also lengthier because it takes the bank time to review the request.
Bank-owned property is a foreclosure property that is seized and managed by the bank until it is sold.
It’s best to buy a pre-foreclosure directly from the homeowner. This is because the homeowner generally doesn’t have a fair idea of how much their home is worth so buyers can purchase the home at a considerably lower price.
Many investors exploit homeowners’ ignorance regarding their property’s value by making owners believe that. They are trying to help them by taking the property off the homeowner’s hands when they only want to buy the property. Since many owners fall victim to this strategy, many states have enacted laws that prohibit investors from purchasing pre-foreclosed homes directly from homeowners.
When the property is in foreclosure, the bank is not yet involved. It is possible that the owner has not even listed the property yet. So, how would you know if a property is a pre-foreclosure available or not?
Information about foreclosures is publicly available regardless of whether the owner has put the property on the market or not. Many real estate websites include pre-foreclosure listings and can provide additional information about such homes. Another way to find pre-foreclosures is through the county and city courthouse, which maintains a list of foreclosed homes.
Read Also: Foreclosed Homes: To Buy or Not To Buy
✔ Start your search as soon as possible; you can search online or check with a real estate agent.
✔ Visit the property to see the condition firsthand before making a blind offer to the seller.
✔ When you find a property, find out what the outstanding loan balance is, then consult with your agent about how much you should offer.
✔ When making an offer, consider the potential costs you will encounter, such as liens, insurance, loan balance, and use those figures to negotiate a lower sales price.
Buying a pre-foreclosure can be as challenging as it is risky. But it’s worth it if you find a house you like. Keep in mind that some of these houses can be in poor condition. So you may need to factor in additional money to give the house the TLC that it needs.