Foreclosure in 75013>Question Details

Ornella, Home Buyer in Allen, TX

what is the differnce between preforclosure and forclosure? Is it better to buy a pre- or a?

Asked by Ornella, Allen, TX Thu Jun 5, 2008

thank you

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There are advantages and pitfalls to both. Pre-foreclosure properties are ones that the borrower has been slow in making payments and is usually behind so far that they can't catch up. The lender may or may not have filed a notice of default. If they do, then time is very short to get it closed. Lenders are required to post the notice 21 days in advance of a Trustee Sale, which is uniformly the first Tuesday of the month. It is very hard to find a home after the notice, get financing and close before the bank can auction the property.
Usually, if the seller notifies them of an impending sale, the bank will hold off on the Trustee sale and let it close with the buyer, but they don't have to. If the borrower is behind and the lender will get all his money out of the sale, they have a great incentive to let the sale complete. On the other hand, if the first or second mortgage (or both) will wind up short at the sale price, then they will study the net proceeds and decide if they want to foreclose or not.
Note that the costs involved in foreclosing, holding the REO, and selling at market later may be so high that a short sale is a better proposition for them. This makes pre-foreclosures pretty attractive. If you wait until auction day, then the price will be the current balance on the loan, not less.
Foreclosures have the advantage that title is cleared of all liens, except taxes. This means HOA liens, mechanics liens, second mortgage lien and so on are simply erased by the foreclosure. Taxes are a superior lien and run with the land. But, the mortgage company's REO will be sold to you with the taxes prorated. Foreclosures can be attractive also.
The downside of foreclosures is that the property may have been attacked by copper thieves, had a foundation shift during its vacancy, been stripped of appliances and anything of value by the foreclosed homeowner or damaged during his move-out. Banks are not required to issue a Seller's Disclosure, so caveat emptor. Pre-foreclosures usually are WYSIWYG. They may need updating or deferred maintenance taken care of, and usually need cleaning, carpeting and painting, but generally are in better shape, and they come with a disclosure statement.
Which one has better pricing? An old REO that needs work. Which one is the optimum choice for most people? The pre-foreclosure.
You can make more money on the foreclosure but it is riskier and requires deeper capital.
1 vote Thank Flag Link Tue Jun 17, 2008
PreForeclosure is PRE---or before the foreclosure. Investors typically work these when they see the home appear on the foreclosure list. Maybe the person needs out, maybe you can help them. Maybe you can purchase the home and rent it back to them. Maybe you can take over their payments. Lots of different plays. Foreclosures are after the bank or another bidder has purchased the property after the auction on the courthouse steps or by some other means. Typically then you are dealing directly with the bank or note holder at that point and the person in the house is already gone. Are you looking to buy a home to live in or for investment. We can assist you with foreclosures and there is lots of free information on my website.
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1 vote Thank Flag Link Thu Jun 5, 2008
Bruce Lynn, Real Estate Pro in Coppell, TX
Here are three stages where you can look

1. Short sales where homeowners are selling property for less than what they owe on it. Although seller can accept an offer, it's the lender who makes the final decision. Lender will have to approve the short sale. Sometimes the Seller and the Realtor list the property before the lender approves the short sale. This could be rather risky as the lender may not agree with the price. Additionally, it can take 45 days or longer from the time the offer is forwarded to the lender before the lender accepts, rejects or (rarely) counteroffers the offer. If you have the time, and if you are confident about your offer, this is a good place to start.

2. Trustee Sale. If the property was not successfully sold during a period of time, the lender can issue a Notice of Trustee Sale which is recorded with the County Clerk's office. The sale is held at the court steps, and is open for bid. Sometimes, a minimum bid is announced. Some astute buyers/investors come prepared to raise their bid in increments, and come prepared with certified checks for each increment. However, one may be caught up in the fervor of the moment and overbid.

3. REO (real estate owned/bank owned). The lender has foreclosed and owns the property. They engage realtors to list the properties as REOs. They are not in the business of owning or keeping inventory, and will likely price the properties aggressively so that they will sell. REOs are generally AS IS sales, no credits, no repairs. So buyer beware. Fortunately, the buyers can still have the opportunity to check out the properties --- even after they have an accepted offer, they can have the loan/buyer inspection contingency. If the repairs are deemed too extensive by the buyer's standards, the buyer can back out.
0 votes Thank Flag Link Tue Jun 17, 2008

Bruce has a great response as to the difference of the two. I will just add that in a pre-foreclosure; that's usually where most GOOD investors make a killing! However, you've really got to have your system down and know exactly what you're doing before you start dabbling with pre-foreclosures.
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0 votes Thank Flag Link Fri Jun 6, 2008
It is faster, and easier to acquire a home after foreclosure. Once the lender forecloses the home is referred to as an (REO) Real Estate Owned. The bank will then list the home with a local agent.
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0 votes Thank Flag Link Thu Jun 5, 2008
A home enters pre-foreclosure once the lender files a notice of default (NOD). If the owner has equity in the home they may be willing to sell the home for under market value in order to obtain a quick sale. If the owner doesn't have equity in the home, they may be able to work with their lender to modify their loan or to list their home as a "short sale" which means the lender is willing to consider offers for the home that will not cover the total debt owed on the loan in order to avoid the costs involved in foreclosing. Short sales can be time consuming, and the bank or lein holder has the final say on whether an offer is accepted.
If a home goes through the complete foreclosure process and the bank ends up with the home they will usually list it with an agent who works with REOs (Real Estate Owned) by lending institutions. Depending on the conditions of the market in the area a bank may discount the price below market by a little or a lot, and in some markets where the real estate market has remained strong they may not discount the price at all. You should find an agent who knows the local market conditions in the area(s) you are interested in purchasing a home.

0 votes Thank Flag Link Thu Jun 5, 2008
Everyone is jumping on the foreclosure bandwagon or the pre-foreclosure(short sale) but many people are overlooking the tremendous incentives being offered by home builders. A professional home builder that needs to unload inventory may give you a better deal on a new home than you can get on a foreclosure and it will not need repairs and you will also get a warranty for one year after closing. If it is a bargain you are looking for do not ignore new homes. I think they are a better deal in this market. Michelle
0 votes Thank Flag Link Thu Jun 5, 2008
Your question is very valid, a pre-foreclosure the bank has all ready processing the eviction for the home owner. YES there are deals and opp's on these properties, in some instances you are bidding against others for the property. There are allot of GREAT buys there by working with a realtor who knows how to locate these properties for the buyer

We offer a buyers rebate program where you can earn up to 50% of our commissions. Contact my office if we can assist ... I have seen some opp's on new construction that were foreclosures. You will need to be pre-approved for a loan all offers are submitted with letter from the lender

0 votes Thank Flag Link Thu Jun 5, 2008
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