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Secrets to closing last-minute pre-foreclosure deals

By | Published: Jul 28, 2010 | 32 Comments

If you're interested in investing in pre-foreclosure property, you should know that owners in default may not agree to sell until the last minute — sometimes only a few days before the public foreclosure auction. You'll need to act quickly and may even need to take steps to postpone the auction if you want to realize pre-foreclosure bargains.

"I like to have the deal worked out with the homeowner at least 10 days prior to the auction. This allows enough time to settle on the pre-foreclosure without worrying if the foreclosing bank will postpone the auction and allow me enough time to settle", said Lance Young, a real estate investor and author of several real estate investing books.

Depending on state foreclosure laws, the pre-foreclosure period can last less than one month or more than one year. Owners in default often are more motivated to sell the closer it gets to the date of the public auction. So even if you've contacted owners early in the pre-foreclosure period, you shouldn't be surprised if they wait until the last minute to sell the property.

Once the owners indicate they wish to sell, you'll need to spring into action immediately to make sure that you are able to negotiate a price that's acceptable to both parties, sign a sales contract and close the deal before the date of the public auction. Young recommends the following steps to get all this accomplished in as few as 10 days.

  1. Pinpoint the amount owned

    You should already have an estimate of the amount owed on the property based on your research of the notice of default or notice of sale and any liens and loans on the property. Once you're ready to put an offer price in writing, you need to determine the exact amount needed to satisfy the foreclosing bank and any other lien holders — including missed payments, late fees and foreclosure attorney fees and the loan balance — by having the homeowner sign a disclosure authorization.

    "This is as simple as having the homeowner write down his or her name, address and loan number on a short note that states the bank has permission to release this information to you", Young said, noting a disclosure authorization should be obtained for first and second loans. For other liens, such as a mechanics lien for work done on the property, you can usually just contact the lien holders and ask for the payoff amount.

    "Be aware that many junior lien holders will sell their liens at a huge discount prior to the auction — especially when you inform them that the house is in foreclosure and their junior lien stands a good chance of getting wiped out at the auction", he said.

  2. Negotiate and sign a sales contract

    When you have the exact numbers to work with, you can negotiate the final purchase price and other terms of the sale with the owner. If your homework shows the property has a solid amount of equity, you'll be able to make a pre-foreclosure offer that benefits you, the owner and the foreclosing lender. You purchase the property below market value, the owner walks away without a foreclosure marring his or her credit history and some cash for a fresh start, and the lender recovers the amount owed without the expense of continuing the foreclosure process.

    Put your purchase agreement in writing in a standard sales contract, which you can obtain from a local real estate agent or escrow company. Young recommends including a clause in the contract that releases you of any legal or personal obligation if the sale doesn't close before the public auction.

    "If you cannot settle on the house prior to the auction, you lose the deal. If you do not clearly write into the contract that it is null and void if you cannot settle in time, you might get sued by the former owner", he said.

  3. Open escrow and close the deal

    Take your signed purchase agreement to a local escrow company and open a case for the transaction. The escrow company acts as a third party, making sure all the terms of the transaction are properly enforced.

    "In addition to disbursing all of the funds properly and transferring the title, escrow companies ensure that all documents are correctly filled out and signed." Young said. "You should also obtain title insurance through the escrow company. Obtaining title insurance from the escrow company is very important because it insures you against any defects on the title."

    If you've got your financing in place and the escrow company doesn't have a lot of other cases in front of you, escrow could close in as little as one week, according to Young. It's best to have your financing secured before you even contact owners in default so that you're prepared to act quickly to make a purchase.

  4. Request an auction postponement if necessary

    Sometimes you won't have enough time to close the deal before the auction, even if the owner has agreed to sell. In this case, you can ask the lender to postpone the auction date so that you have time to complete the purchase transaction.

    "The best way to get the bank to postpone the foreclosure auction is to present the lender with a signed sales contract, along with a loan qualification letter from your bank", Young said. "The sales price must cover all of the money owed to the foreclosing lender, including the principal balance and the reinstatement amount. Bear in mind that the lender is not required by law to stop the foreclosure, although most of them will if you have both a loan qualification letter and a signed sales contract."

    "If the homeowner has waited until the day before the auction to sell, you still have a good chance at getting the auction postponed by showing the lender your loan qualification letter and a signed sales contract."


By Peggy Kong,  Wed Aug 25 2010, 07:59
have a short sale property listing for $699K, my client offer 575K cash. What do you think the chance of getting it at $575K? The owner used adjustable interest loan and they probably owe a lot of money to the bank. Purchase price was $935K in 2004
send your reply to awkongnpk@aol.com

A lof of information from this web is not up to date.
By Auctiongirl,  Tue Oct 26 2010, 17:09
I have enough money to make an all cash offer so I'm wondering if buying at auction is the best way to go to get the most bang for my buck, but the thought that I can't inspect the interior beforehand seems like a deal breaker. Where can I get more information about this? Do i need to hire an agentto buy at auction or do I show up to the auction site? It seems like a scary gamble in case the interior is trashed. Any thoughts?
By Fran Rokicki,  Fri Jan 7 2011, 16:44
Buying foreclosed properties can be risky. They are sold, as is, where is with no warranty or guaranty. I would suggest finding a good Realtor and asking for her advice and guidance in your home purchase. Some of these homes are priced higher than their competition.
By Carlos Herrera,  Tue Jul 5 2011, 17:43
To actiongirl, there are some people that have money , ohter people the knoledge of buying real estate on auctions or trustee sales or at a discount, what ever the case may be you should partner up with some one that has the experience while you put down the cashand come to an agreement on how to split the profits. by the way i am looking for a cash partner!!
By Rete Bernhart,  Wed Jul 6 2011, 19:19
Don't get your hopes up...I have been inquiring about three houses on Williams Island Drive at these INCREDIBLY low prices and no one has any idea of where they stand. Are they for sale? No idea? Are they in forclosure? Are they even available? So far...Nothing is really available. The homes are (as I have been told) most likely uninhabited. Also, when I inquired about the prices of 268,000 and the other home that is listed at slightly higher on this street, I have been told that those prices are NOT the real prices...Buyer BEWARE!!! There are BIG-TIME liens stacked against these homes according to a broker I spoke to that puts these homes at the 699,000 range. I am just a person looking to relocate from PA and unfortunately, this has been one big run around on this website.
By Thaiduong13,  Mon Jul 18 2011, 20:41
I made an offer on a property where owner is trying to do a short sell. The unit has since gone into forclosure, and is going to auction. I am considering pulling my bid, and purchasing something else. I have a few backups.
By Christopher,  Thu Aug 11 2011, 07:51
signed a check for the price of a forclosure a week ago on the day the previous owner released the property. I am being told that the delay is due to asset managers being changed over at the bank holding the property. And the good thing is the house has no liens its clean, am i about to get bamboozalled
By Dj,  Wed Oct 5 2011, 19:55
What happen is the owner had a stroke and the mortgage ins din't pay and they sell the house at the auction.
Bank of America did this.
By beckykapp920,  Tue Jan 3 2012, 06:59
i like to know about the property on webre, in vinton, louisiana. my e-mail is... beckykapp920@gmail.com my auant lives accross the street. please e-mail me back on this.. thank you, Becky Kapp.
By Olivevol,  Thu Mar 22 2012, 13:18
Are there any FHA assumptions and as an assumption do I have to qualify if i have the money to assume?
By Olivevol,  Thu Mar 22 2012, 13:46
i need to assume a nice home from someone in a distress situation. Or, from an investor that has homes. I dont have a lot of money, so the little cash i have, will no doubt be funds in someone's pocket that is in need to exchange for me to have my own residence. It will be a gift to me as I am without a home, and looking for someone that have a nice home in the Dacula area, or Buford, Swuanee area that has homes to help me, or someone that has a home but will allow someone to assume for a few dollars.
By Matie,  Wed Jun 6 2012, 06:05
It's really risky. It's better to use other ways to buy a foreclosure home
By Joy Buck,  Tue Jun 26 2012, 08:30
Generally, if you want to know a lot about a house in foreclosure, just go on line and type in the address! You'll be surprised how much info you will get. The auction date, the value, the sale amount and a brief description of the home. Best idea yet is to ask the neighbors what the inside might look like! I did that and one neighbor told me that the owners were walking on plywood flooring for 15 years! Buyer beware...y
By Amana Nova,  Thu Mar 21 2013, 08:25
do you have to pay cash to get a foreclosure home or can you get a loan?
By dwilliamsss,  Sat Mar 23 2013, 17:45
Be careful with assuming. I have been trying to assume a loan for almost a year now through Bank of America and it still not closed.
By Jeanne Dieteren,  Mon Mar 25 2013, 10:52
There are many ways to finance a foreclosure or pre-forclosure. You can use an FHA with 3.5% down. Cash is nice as well as a conventional loan. There are other higher risk options but FHA and Cash seem to be the most used method.
By Purplechicc1987,  Sun May 5 2013, 16:23
Where can i get info about this house?
By Kathiephillips,  Tue May 7 2013, 21:39
Ill give you information, I live in this house. Kathiephillips@gmail.com
By ernesto8468,  Fri Jun 7 2013, 20:06
i would like some more info. about this house .
By Laura Gillig,  Tue Jun 18 2013, 07:57
Do families have the opportunity to lease a foreclosed home?
By morrisonne,  Tue Jun 18 2013, 09:02
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.

Also, be very wary of sales at Auction.com; many do NOT offer clear title to the property. Do your homework!
By Melanie Myers-acupuncturist,  Mon Jun 24 2013, 15:07
i bought a bank owned foreclosed home 4yrs ago with the help of a local realtor and local bank handled the loan. i had no idea what i was doing. mine was a second bid on the house. this house was freshly painted, new windows,almost new roof, in a nice neighborhood and ready to move in. did the inspections,title search,and everything else necessary to be sure i wasnt buying a lemon. if it werent for the collaboration of an experienced realtor and bank officer, i couldnt have ever bought my first home and lucked out so well. i would never try to go through this big process without people with a lot of experience. too much to consider. now, i'm looking again, selling this property, only because i want a different zoning for my home business. whoever buys my home will be getting a huge gem. great home, well taken care of.
By Savednsingle,  Fri Sep 13 2013, 05:47
I went to a live auction "Action Auction". Won the bid, had a realtor to draw up the papers. Then days later was told that the bank would not accept the bid. 4 days later the now "on line" auction sign went up. I followed this auction and the highest bid was higher than the one I had won. Two days later it is again posted for another "online auction" date. The house is in fairly good shape. They want cash only and the owner would be responsible for the city violations of about 25K, which did not include exterior paint and cosmetics. Do you think they are holding out for the reserve amount to be met? I do not have enough cash nor excellent credit. The previous owner comitted suicide in the house (per the neighbor). Title is free and clear and vacant and in a good neighborhood. Here is my email Savednsingle@yahoo.com., if preferred. Thank you
By jan sappington,  Tue Jan 28 2014, 08:15
Sounds like they are holding out for the reserve amount. I think I would steer clear of an online auction. Also, if you are thinking of reselling.. the suicide info might deter a sale or come back to haunt you. There are lots of good buys out there and having an agent you like is a better way to buy real estate.
By Delores Luna,  Mon Jun 16 2014, 17:23
these mortgage places are trying to sell my home ..we paid money to have the owner transfer the note from the bank to our name 1410 9th ave ,she took the money and took off ..i have 6 grandkids i am taking care of and this is all i have and we need this house it all we have .dont have any place to go..
By anitakellybyrd86,  Mon Sep 22 2014, 11:46
I would like to know more about this home
By Lew Pelot,  Tue Nov 11 2014, 23:44
I have gotten the run around on many of foreclosures, and only had one go through without a lot of trouble involved. In most cases I used a professional, but have done better on my on my own because I don't try to dupe my self.
By alwaysaustin,  Sat Jan 24 2015, 18:27
Does this house have a shared driveway?
By Mark Saunders,  Thu Feb 5 2015, 09:52
great advise in article
By thinz,  Sat May 2 2015, 06:31
One of the most important steps is to make sure you run the credit of the seller and do a quick title search both at the beginning of the pre-foreclosure/short sale process and a week or two before the scheduled closing (even a month before closing to be safe and have enough time to mitigate any title issues that could prevent clear title.) Likewise on the buyer side, there are too many folks getting pre-approvals who cannot qualify for a mortgage commitment as they get closer to the closing date. Need to manage both buyer and seller to make sure nothing gets screwed up...but overall, more so on the sellers side! Tom Hinz thinz@apexgroupus.com http://www.shortsaletosell.com
By Jolenemcoon,  Wed Oct 7 2015, 06:53
I am interested in purchasing a pre-foreclosure home, but the owner of the home is in federal prison and I cannot find any of his family members or anyone else that may have information on the home, I have contacted several banks and many realtors, no one has any information on this home and it is not yet showing up on the MLS, I know the owner was given foreclosure papers at the end of May this year and the home has been empty for a couple years. What are my options? How long can the pre-foreclosure process last? Thank you!
By Nanettebrienzi,  Wed Oct 21 2015, 11:59
I have a question about a house been empty and on pre foreclosure for years. but the man in the mortgage is dead and the girl on the deed not on the mortgage says she has nothing to do with it. Where do I go from here.

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