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Buying homes in pre-foreclosure

By RealtyTrac | Published: Jul 28, 2010 | 58 Comments

Pre-foreclosure is a crucial time in the foreclosure process. It is during this period that investors can typically make the largest profits and can negotiate a deal that may be favorable for all parties involved including the buyer, homeowner, and lender. The steps below will help guide you through the process.

Find and file properties

It's important to get up-to-date pre-foreclosure information and act on it as quickly as possible.

Develop a system to keep track of properties that interest you. A good tracking system is important since most pre-foreclosure buyers pursue many properties sometimes over a period of several months.

After you find a property online, it's a good idea to drive by the property to get a better idea of the property's condition and the type of neighborhood. For some buyers and investors, driving by the property has also facilitated a casual meeting with the owner or yielded a wealth of unexpected information from a talkative neighbor.

Confirm pre-foreclosure status

When a property enters pre-foreclosure, the owner usually has at least 2-3 months to reinstate the property by paying off the amount in default. The reinstatement stops the foreclosure process, so it's important to find out if a property has been reinstated before proceeding. The best way to check if the property has been reinstated is to call the trustee or attorney assigned to the foreclosure. The trustee cannot typically answer other questions about the property; they can just let you know if the property is still in foreclosure or not.

Check potential bargain

You need to find out as much as you can about the estimated market value of the property, how much is owed on the property and if the owner has any other liens against the property. This is all public information and you can research on your own with the county recorder or you can use online property reports and tools to help. This process should not take more than a day or two, because you don't want to delay long before contacting the owner in default.

Contact the owner in default

You or your real estate agent should initiate contact with the owner to express your interest in the property. Before you expend the time and effort to contact the owner, make sure you're fully prepared to buy.

If the owner has decided to list the property for sale, you can simply contact the listing agent. Once the property is listed with an agent there may not be as much bargain potential, but you can still possibly negotiate a good deal because you know the owner has a limited amount of time to sell before the bank repossess the property or sells the property at public auction.

In most cases, the owner has not listed the property for sale, so you will need to pro-actively contact them. In this case, contacting the owner can be tough, but the potential bargain is greater because there will be no listing agent.s commission.

We recommend contacting the owner by mail to start. The basic message you want to communicate to the owner is that you're interested in buying the property and you want to work out a purchase agreement that benefits both parties. If you send a postcard, we would suggest not mentioning the word foreclosure as this could be embarrassing to the owner if someone else saw the postcard.

Don't be surprised if the owner does not respond to the postcard immediately. In most states, the owner has several months between the initial foreclosure notice and the public auction. During this time the owner will consider all the options available, including refinancing or selling. An owner's first reaction is usually not to sell. But if no other options work out, selling is a better option than losing the property at public auction.

Many successful pre-foreclosure buyers and investors send out quite a few postcards to properties in their area before they find an owner who is interested. It's not uncommon to send out several postcards to the same owner during the foreclosure process. The owner may be more interested to sell as the auction date looms closer. If the owner doesn't respond to postcards, some buyers and investors will try to reach the owner by phone or in person. If you do this, be prepared for a possible rude response as these methods of contact are more inherently confrontational. And always keep in mind that the owner in default retains ownership rights to the property during the pre-foreclosure period. If they are not interested in talking with you, it's time to leave.

If the owner rejects all of your contact attempts, you may still have a chance to purchase the property at public auction, which occurs if the owner doesn't sell or pay off the amount owed during the pre-foreclosure period. You could also call the trustee periodically to check if an auction has been scheduled.

Negotiate a purchase agreement

Once you have made contact with the owner, you should meet with them for further discussion about the property. As part of this meeting, or a later one, you should arrange to walk through the property to make sure it meets your criteria as a buyer.

Because owners in foreclosure may not have the money to make repairs to their property, you might be willing to buy the property as is, but you still want to keep a tab of estimated repair costs and subtract them from your purchase offer. Your willingness to put some "sweat equity" in the property after you purchase it will increase the chances of realizing a good bargain.

If you and the owner both agree to proceed, you need to negotiate the terms of a purchase. These negotiations will involve you, the owner and the foreclosing lender. A real estate agent can be a valuable resource during the negotiating process.

If the loan in default is assumable, you may be able to pay off the amount in default and take over payments under the current terms of that loan. If not, you will need to pay off the full amount owed on the loan. If the property has other liens placed on it, you'll need to make sure those are cleared out as part of the purchase agreement. If the owner has equity in the property above and beyond the liens, then you can offer to split the equity with them, allowing them to walk away with cash and you to acquire a property below market value.

Owners might be more willing to work with you if you are flexible to help them out in creative ways that address their situation. You could offer to let them stay in the house for a certain amount of time (possibly paying rent) until they find a new place to stay. You could offer to pay their housing costs for the first month or more after they leave the property. If you're purchasing the property as an investment, you may let them stay and pay rent until you decide to resell the house. There are myriad ways to work out an agreement that benefits both parties. Remember, just selling the property during pre-foreclosure allows owners to avoid a foreclosure-marred credit history, making it easier for them to find a new place to live.

While negotiating the purchase agreement with the owner, you should also contact the foreclosing lender and any other lien holders. You want them to know you plan to purchase the property and satisfy any liens against the property. You also may be able to negotiate a lower payoff amount to satisfy the debts owed. Since you're saving them the trouble of pursuing and collecting the debt owed them, some foreclosing lenders and lien holders will clear liens on a property for less than 100 percent of the amount owed. This is another way to realize a bargain during pre-foreclosure.

The goal for you as a buyer is to purchase a property at least 20 percent below full market value, although better deals are often possible. When determining the final purchase offer, you should also take into account the rate of real estate appreciation in the area and the potential for increasing the house's value by making repairs and improvements.

Close the deal

Once you've arrived at an agreement with the owner in default, the foreclosing lender and any other lien holders, you can put the agreement in writing. If you're not familiar with how to draw up a purchase agreement, you should have a local real estate agent or real estate attorney help.

Any purchase agreement should make closing the deal contingent on a full title search conducted by a title company or attorney. The purchase agreement should also allow for a professional inspection of the property before closing the deal.

An escrow company, who acts as a third party, can manage the transfer of money and property ownership. Assuming that you have your financing secured, this should be a fairly smooth process.


By Jermaine,  Wed Aug 11 2010, 15:53
This was most informative!
By Sameer Punjani,  Sat Aug 28 2010, 23:08
What about the part where you give the owner the option to stay and rent the place from you? I think if they are going to lose their home and you picking it up at 80% of the value, give them a chance to live in the same home or give them $5000 in relocation fees.
By Fran Rokicki,  Tue Sep 14 2010, 16:15
This is similar to a short sale. The owners are trying to sell the home, before the foreclosure notice is sent to them. Unfortunately, too many people borrowed money from their homes, increased their mortgages and then, could not afford to pay the mortgage. Some lost their jobs, others, need to relocate and cannot sell for what they owe the bank.
By Cinnamon Boffa,  Mon Jan 24 2011, 08:01
If you really find a home you like and you can work a deal out with the current owner, make sure before you sign the contact you do a title search to make sure you are aware of all liens against the property
By Linds,  Wed Mar 2 2011, 18:23
There's a forclosure on this site. It has no address though, how would I go about finding and buying it?
By Carol,  Sun Mar 6 2011, 14:58
How do I get more information aobut the homes in pre-closure status?
By J. Mario Preza, CRB, CDPE,  Mon Mar 7 2011, 10:52
What exactly is a pre-foreclosure sale? Is this a short sale? Is this buying a house in foreclosure directly from the seller? If the latter, please beware that there are some strict guidelines, depending on the state, about disclosing to a "distress home" seller about his/her rights to fair dealing, AND the requirement to use a special form to insure that the seller/owner is fully cognizant of certain rights even during the foreclosure.
By Sally,  Tue Apr 5 2011, 13:48
why do you have to pay to view foreclosed properties?
By Gail Liefer,  Fri Apr 15 2011, 14:16
I think you should at least put how many bdrms , bthrms so you can see if you may be interested we see the other listings
By Momma Firefly,  Sun Apr 24 2011, 09:48
It makes no sense to me that you have to pay to see forclosure listings. If they want to get them sold, wouldn't it make more sense to allow all people who may be interested see the listing? I would not pay a site to view listings. This sounds like a scam to me. Call your local real estate agents, and ask if they have any forclosure listings. Or call the major lenders directly. They are the ones that want to sell these properties, they will tell you addresses of properties they have in forclosure. Happy hunting!
By Littleasican,  Sat Apr 30 2011, 22:02
Fact: window shopping is basically just that. If you are serious on buying a home, get a realtor. Or get pre approved. Then make an appointment. with whomever has the property you are interested in .
By Jameas Duncan,  Sat May 14 2011, 05:19
I need an agent to work with me in detroit, often They never replay or get the information that I need.
I'm looking to buy multi units in detroit, up to $30,000 with units occupieid and not need much rehab work.
I seen several under $10,000 that I can pay cash for.
others up to $30,000 I would like to lease option for 5 years with 25% down
a lot of agents say they want all cash, but the seller needs to be told that that might not be the best for them that there are a lot of other properties in detroit
if your a real estate agent, e-mail me at altha2008@yahoo.com. that is if you want to work
By Yohannes,  Sun Jun 26 2011, 18:03
It dose not make sense to pay for forecloser home.
By Tgrwjd,  Sun Jul 24 2011, 17:11
The Trulia listings are just "teasers" to get you to sign up with Realtytrac.
All we need is the basic info how to contact the bank or owner, since there is NO MLS listing for the property. I spoke to a realtor who said that with out an MLS listing, the property owner is not really serious about selling
Is this correct?
Sharon B.
By Marvin,  Fri Jul 29 2011, 11:27
when a home is on the market as a forclosure is it at a higher risk of being damage to the property? or just the previous home owner lost the home and there just packed up and left?
By Xiao_yan620,  Fri Aug 19 2011, 10:06
For example, I want to buy a preclosure home with 500k loan. Should i pay off the loan and also pay the homeowner's downpayment back? If so, there won't be too much profit for me. ...
By Samuel41_2001,  Wed Aug 24 2011, 04:23
I am confused please realtors respond. When we see pre-forcosures on this site does that mean it is for sale or is it just letting us know that the bank may sell it due to default. How do you contact someone to buy a pre-forclosure you see on this site. It says realty trac. I have found the address but don't know how or if I can put an offer in on this property. Please respond and thank you.
By Cameron Adams,  Wed Aug 31 2011, 21:54
To pay to view a pre-forclorsure listing is a travsverty of justice and proves how scandalous agents are .#1 They dont want you to see the house or listing because if you do they loose out on the, sale so they put these lists together to make a buck, #2 After you buy the list they find out who you are ( a prepective buyer)so now they try and steer you away from that property and try to sell you one of thier listed properties so they can make the payment on thier new mercedes
By Mkheath2350,  Sat Sep 3 2011, 00:18
Go to blockshopper.com you can find all the pre foreclose for sale
By Mkheath2350,  Sat Sep 3 2011, 00:18
Go to blockshopper.com you can find all the pre foreclose for sale
By Wally,  Sat Oct 15 2011, 17:44
Don't waste your money signing up for realtytrac.
By Sharon Canada,  Wed Nov 16 2011, 16:36
The listing on Blueberry Hill was SOLD as a foreclosure over a year ago.
THIS site has it listed as a pre-foreclosure. That has NO BEARING whatsoever on whether it is even FOR SALE. This info. is grossly out of date and incorrect.
This info is NOT provided by Real Estate Agents. It is public records of Lis-Pendens.
If you are seriously looking to BUY a distressed property, consult a Real Estate Agent. or waste your time on this site.
If you think a homeowner who is behind on his payments on his UNDERWATER home can sell you his home 'just like that' you need a reality check.
Info provided in this comment by a licensed professional Realtor.
By Nice_2_meetcha,  Sun Jan 15 2012, 16:41
"A licensed professional Realtor", which means you are a UNION property hawker. National Association of Realtors is a Union that tries to hold all the property information very close to their vest so that interested parties have to access said properties through their over-priced services. No thank you. I'm much more resourceful than that.
By Chiniquemayelin,  Tue Jan 24 2012, 11:51
yo hablo espanol y quiero comprar una propieedad cash, necesito q me ayuden con el proceso
By Bumb Deal,  Sat Mar 24 2012, 07:51
Bank owned Foreclosures can be a real Bumb Deal for the buyer! Banks by law are not required to make any disclosures regarding the condition of the property. Believe me when I say IT IS BUYER BEWARE! A perfect example of this is the REO property located a 2138 Paseo Donito, Alpine, CA 91901. The roof leaks & needs to be replaced & there is mold & water damage on both the first & second floors due to the leaking roof. There are 2 private road maintenance agreements tied to the property. There are a number of access easements across the property. Alpine Fire is owed $4,500.00 for hazard abatement work done by them. None of this was or will be disclosed by the BANK! BUYER BEWARE!
By Fedup,  Wed Apr 4 2012, 23:03
i am just trying to find a house and feel like one i am getting messed over and 2nd some realtors are very mean and that is saying it nice. i have been trying to get info on what was said on a site pre-forclosure house and even tho there is a vacent sign on the door and is said it is in the reo to check out this site u then cant even find it. really u would think it is just sitting there y the heck not sale to someone that wants it and gets it out of your hands ( the bank). even tryed callin and still got the run around.and i dnt think even most realtors want to mess with this but guess what it is not just about u we as a buyer need respect and every opportunity to get a house not just so u can get a big fat check...............
By Tunde,  Mon May 7 2012, 04:32
DumbDeal wrote:
"Banks by law are not required to make any disclosures regarding the condition of the property."

Obviously, banks still have way too much power and should be regulated much more than they now are. They have already made enough mess, haven't they?
By Kj,  Wed May 23 2012, 09:28
How do you find pre-foreclosures?
By Gina Mcglashen,  Fri May 25 2012, 14:53
I agree that homes in pre-forerclosure or foreclosure should not have to require a fee to see them. I have a realtor selling my home and I am looking for another. i am certainly not going to pay to see a home that I may not even be interested in, or pay any more commissions than I already am required to. There is little or no info listed about each home and you must Pay to see it
. Sounds like the moron that said we have to approve Obamas healthcare package before we can see what is in it. ..with a big smile on her face too!
There are many pitfalls and risks involving foreclosed homes and to pay just for the opportunity to look at it is plain ridiculous! If this site did some of the work involved or had any assurance of fairness in negotiating , there might be a chance that merits a fee, otherwise, it is just a plain rip off!
By David R.Indermill,  Wed May 30 2012, 23:22
You can find many pre-foreclosures on http://WWW.foreclosureradar.com
By Matie,  Wed Jun 6 2012, 05:57
If you are seriously looking to BUY a distressed property, consult a Real Estate Agent. or waste your time on this site.
If you think a homeowner who is behind on his payments on his UNDERWATER home can sell you his home 'just like that' you need a reality check.
I agree with that. I can advise more for looking pre-foreclosure on http://www.indexpost.com/ free search, agents and so on
By Joanna Jensen,  Tue Jun 19 2012, 01:38

1) if you see a home on this site listed as a preforeclosure (auction) that does not mean it is listed for sale. Do not go to that home and knock on the door. You may insult the owner, or worse yet their child may answer the door and really be surprised.

if the home is listed for sale you would see it listed on Trulia, homes for sale or realtor.com.

If your looking to buy a short sale, or preforeclosure you should hire a realtor, generally they will have lists of homes for sale.

I am a Real Estate Agent and I work for a Real Estate Attorney, homeowners calls us to sue the lender if they are in a wrongful foreclosure. I would think twice about buying a home in foreclosure or (reo).

Generally, the servicers or lenders do not legally own the loan in order to foreclose on it and have already been paid on the loan. This is a big foreclosure mess and I definately would not try to buy with out a realtor / real estate attorney
By Jalva321,  Wed Jun 27 2012, 09:55
I agree and disagree with most individuals posting's. In todays market who in their right mind would pay for a foreclosure, especially when the majority of all the properties were inflated. Unless it is some sort of shortsale. However I do Mortgage Defense for owners in foreclosure and sometimes I buy homes from owners in Foreclosure while we fight the banks to remove the mortgage. Either way the listings are a good way for people to use the information for whatever means. Whether paying to see a list or outright just having a list. Any source that provides one an opportunity to information is always a valueble resource.
By Jim Wellman,  Wed Aug 29 2012, 08:13
I am a Real Estate Broker and my experiance in Michigan has been that unless the owner Bank has gone through all of their preliminaries (Pre-forclosure, Foreclosure, Sheriff's Sale, Redemption, Eviction and/or Notice of Abandonment, Assignment of Interest to FHA/HUD, Re-keying, Winterizing, and eventually assigning a Real Estate Broker to market the property) it is highly unlikely that anyone will be given an opportunity to purchase the place!
Very Frustrating for all; but that seems to be the way it is.
By Suzanne And John Fillion,  Sat Sep 15 2012, 10:13
What is so sad is that me and my husband have BANK OF AMERICA who were told we cant do a modification on our INTEREST ONLY loan because they sold the note to our home and the note holder wont do modifications. REALLY? We had to stop making payments...hire a lawyer out of state because nobody here knew what the heck they were doing here in California and BOA is still stringing us along. We qualify for all the programs but BOA keeps saying paperwork is missing...asking us 2.5 months later for our BK lawyers to talk to the foreclosure lawyers. We are finally getting somewhere 9 months later....three BOA experts ( NON TRAINED IN NEW LAWS FOR ANY STATE!!!) by threatening a lawsuit. I want to take these thief's to court. We are $230.000 under water...CAN pay the interest only but we refuse to do so because they got 4 years of $3000.00 a month interest only payments. Bank of America robs homeowners and with all the new laws in California and other states they have not trained anyone yet to do this paperwork. They are stringing homeowners along with the lost paperwork excuse which is silly. My best friend had BOA and it took her over a year to do this process herself. We are saving the mortgage payments in the bank as cash and even if we had to spend it it is nice to know you can do a chapter 13 to help pay it. I think the bank should let the homeowner keep the back payments especially when it is their fault it is taking over 6 months for each homeowner to get a modification. That is absurd to take that long. Here we go on 9 months and we have suffered financially and mentally and now physically with BOA's incompetence! We should be able to sue for suffering BOA is causing. This should only be a month process...ok..maybe three months at the best!!!!
By Tecla,  Mon Nov 12 2012, 10:07
sorry to say, but Trulia listings are mostly teasers. I have called the listing agents or realtors that posted houses for sale and all I the answers that I got were either the property is no longer available or it is pending, yet, I keep seeing the same houses for sale for several months now. I have asked my agent to check the properties and those are not even in MLS listing.
By Dteresaann123,  Tue Dec 25 2012, 16:29
ITS True I Also have seen the same house listed on here I was very interested in its REO Pre Foreclouser When I called a Realtor on this they can't find the msl listing anywhere this sight got my hopes high and a very big let down ..Buyers beware!! Its not fair to hard working people like myself to get my hopes up!! they should not be aloud to put a listing on that dont exist !!!!!! UPSET
By Ricky Beach,  Fri Jan 4 2013, 12:24
My client just sent this to me and I don't understand it.

Does the lien holder get a BPO or appraisal during this process?

If so, what was described above is a short sale not some special trick to get a good deal.

Also, who negotiates with the lien holder? The article makes it sound like the buyer. Then can the seller sue the buyer for negotiating a a short sale without a real estate license or being an attorney?
By Henry Nguyen,  Sun Feb 3 2013, 22:00
This site is scam .I called a realtor for checking 3 houses that I'm interested .All three of them was sold long time ,but all three house are still listed . Pit me off.
By berryp,  Wed Mar 6 2013, 07:12
By Amanda,  Tue Apr 9 2013, 08:57
Very interested in this property but nobody has any information and getting know where! If anyone can help me please let me know! I already saw the outside of the property and live very close to there now! Someone please help! I want to buy this place!
By Johanna Bassols,  Tue Apr 16 2013, 07:14
Basically you cant buy a pre foreclosure until the bak assigns a realtor to it, so it will come to the market as a foreclosure. In the case of short sales, they also have to come to the market with a realtor. SO... get a realtor, there is nothing to see on realty track, you could try to contact the seller directly but you need a realtor to negotiate the short sale with the bank and list the property on the MLS as this is a requirement, at least in FLorida. Solution: GET A REALTOR.
By cleverstuffks,  Wed May 15 2013, 01:58
It doesn’t make any sense to me. Why should people get a status of pre-foreclosure? As far as I understood buying homes in pre-foreclosure is a little bit cheaper feature. Though when a dwelling is on the market with such status it could be a possibility of damaging the property. Dwelling prices are too high especially in central districts, though their find their consumers. Maybe people who can’t buy something more or less worthy will enjoy buying home in pre-foreclosure.
Kate from http://northenloans.ca/faxless-payday-loans-online.html
By Karen Reyes,  Thu Jun 13 2013, 19:45
I want to contact at realtor for foreclosure in pa
By morrisonne,  Tue Jun 18 2013, 09:01
NOTE: RealtyTrac goes through these postings and deletes what they don't like; please copy and pass this info forward; they already deleted it once.

IMPORTANT: RealtyTrac (and other, similar sites) simply scour court records for Lis Pending filings and post them. This does NOT necessarily meant the house is in default, available to buy, or anything else. It can simply be a small lien being requested for services unpaid; it could be anything.

This is also why these websites often have no pictures or info on a property, as you would expect a realtor or bank to have; they're just reposting court filings and know absolutely nothing else.

So. Buyer beware - and also beware of those companies that try to get you to invest long-distance; there's a large corporation offering seminars, etc, and their goal is to get you to buy blocs that are in their portfolio. Buyer beware, beware, beware. If you can't go to a property yourself, and if you cannot see the legal documents relating to the property, DO NOT buy.
By Justine Chandler,  Wed Jun 19 2013, 17:16
i want to pay cash for this house. i just need to know who to talk to..
By Will,  Mon Jul 15 2013, 12:13
Paying CASH won't help you. It's "funny Money" the Banks want. Numbers and not necessarily actual cash. They want the FULL MARKET VALUE and will hold on like a snapping Turtle till they get it no matter what happens to the current seller and being active military or a Vet seems to make NO difference to them at all. This is what I have found and what I have come to expect from Banks and Realtors.
By wandhudson,  Wed Jul 24 2013, 17:14
By gldesign2000,  Thu Aug 15 2013, 12:43
Go directly to a Banks website and search "foreclosures". They usually have a contact name or they provide a link to where to find them.

You can also go to HUD homes online.

Happy hunting!
By Dolores Dattellic,  Mon Sep 2 2013, 11:45
it's a big joke. banks are still thiefs.
By Gonzales33,  Wed Sep 18 2013, 17:26
how do I go about buying this home for this price? gonzales33@cox.net
By destivencia,  Thu Oct 24 2013, 12:06
need more information on this property
By Khaledhussain384,  Thu Dec 5 2013, 08:56
hi i really really need more information in this property my number is 516-366-8852
By Juan Carlos Chavez,  Sun Dec 15 2013, 22:28
By John Kirkman,  Sun Jan 19 2014, 12:30
Banks have a process and even if they lose money they really don't care so it's best imo to wait until auction for numerous reasons. I was out bid on six of the last 7 properties I wanted but if you want to make money you have to keep at it and yea it gets discouraging at times but the rewards are well worth it. A good realtor is gold -that said 98% aren't good enough imo
By Lasheema Monroe,  Fri Mar 14 2014, 16:37
Awesome article, it offered a lot of useful information for someone like myself, who is new to real estate investing and seeking some guidance.
By Buickman69,  Fri May 9 2014, 09:44
So.. you've watched the TV shows and think you can do it to huh?
Well one thing the TV shows don't tell you is the formula for buying and this article is misleading in that respect. You don't make money flipping by paying 80% of value then doing repairs on top of that. The formula is 70% of After Repaired Value or ARV then MINUS the cost of repairs. So you MUST know what the repairs are going to cost!!!
By gjathome,  Sun Jun 15 2014, 11:08
Banks should list their REOs (bank owned foreclosures) on their sites for all to see. Guess realtors won't allow it, so we need to contact EVERY bank in the book. A 45-year Broker in Charge friend advised to LEAVE OUT the realtor for buying REOs. But NEVER buy one BEFORE viewing.

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2/5 guides | View all

Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. It is during this time that an investor can typically make the largest profits and can negotiate a deal that may be favorable for all parties ...

By RealtyTrac | 36 Comments

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