Buying a pre-foreclosure home is much harder than buying a foreclosure. It sounds counterintuitive, but it’s the truth. This is mainly the case because you have to really seek out pre-foreclosures. Homes that have already been foreclosed are easier to find because it becomes public knowledge. Homes that are in pre-foreclosure are not quite for sale yet.
However, finding the right homeowner about to lose his home could net you a great deal on the home. The homeowner will likely be desperate to find a way to avoid going through the foreclosure process and damaging their credit for the next several years.
How to Find a Pre-Foreclosure Home
You’ll have to be somewhat of a sleuth if you want to find a pre-foreclosure home. Start by checking the court records in the county you wish to buy. If your state allows the recording of Notice of Defaults, you can see when banks start the pre-foreclosure process. If your state does not allow that or you want more listings, Zillow also offers listings of these homes.
Drive Through the Area
Next, you’ll want to assess the home and the area from a distance. Take the time to drive through the area during different times of the day. This will give you an idea of what the owners are up to with the home. Do they seem like they still care for the home or is it in complete disrepair? This will give you an idea of what you are up against. Homeowners that don’t keep up the exterior of the home probably care less about the interior as well. This will play a role in your negotiations.
Don’t forget to look at the area too. Do many homes look like they are in disrepair? Are there many homes in the area in the same status or even in full foreclosure status? This will give you a good idea of what to expect. Many foreclosures in one area will drag the value of all of the homes down. Consider whether you want to invest in something like that or not.
Determine the Value
Now comes the hard part. It’s time to value the home. This plays a role in how much you offer. Some homeowners are desperate to get rid of the home and will take whatever you offer. Others are torn up about losing their home and want top dollar to help them stay afloat.
Before you even make an offer or talk to the owners, find out the value of the surrounding homes. This will give you a starting point. You won’t offer this much, but you’ll understand the number the sellers may have in mind.
You’ll also want to determine the amount of outstanding liens on the home. The sellers will want to cover at least that amount so they walk away without damaging their credit. This is public information, so searching the county’s public records should turn up this information for you. Don’t forget to look for other liens – if the homeowners are in financial trouble, they may have other unpaid debts that may become liens as well.
Find Out the Status With the Bank
Again, before you make an offer, talk to the bank that holds the existing liens. Determine if they are still in pre-foreclosure status or if they have started the full-blown process. If it’s in foreclosure, no purchase contract or any other written agreements will stand up in court. You would be out any money you put into the process and be without a home.
Talking to the bank is a vital step. They will let you know where they stand and if they are willing to postpone the process in the event that you buy the home. If you cannot get information from the bank itself, you may be able to discuss the case with the trustee that is in charge of the foreclosure. The more information you have, the better you protect yourself in the end.
It’s time to negotiate once you have all of the information you need. Determine the maximum amount you are willing to bid and start with a bid about 20% lower than that amount. This way you have room to go up if the seller isn’t willing to accept your original offer.
Don’t forget about non-financial benefits. For example, are you willing to allow the seller to stay in the home for a month or two? This could be worth a lot to the seller, allowing them to accept your lower bid. The more time they have to search for a place to live, the less stress they will feel. If they are forced out immediately, they will need more money than what they owe the bank because they will need somewhere to go right now.
Remember, be as respectful and caring as possible. The person you are negotiating with is losing their home not out of desire, but out of force. The more benefits you can offer them, the more willing they will be to work with you.
Buying a pre-foreclosure home is not an easy process, but it can be done. It will take a lot of work and patience. It may even require you to try a few times with a few different sellers. Finding the one that is the right fit and has the same needs as you have means will help the process go as smoothly as possible.