Understanding Preforeclosures

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The homeowner is able to avoid foreclosure and get out from under the burden of a house he can't afford; the lender doesn't have to go to the expense and trouble of foreclosing and then getting rid of the property; and you get a potentially profitable investment.


In many cases, you'll be able to work with the homeowner to negotiate a discounted price for the property.


To make this happen, there needs to be sufficient equity in the property for you to buy it below market value, pay off the mortgage, and if possible, let the seller walk away with some cash.


Then you can keep the house and rent it, sell it to another homeowner at market price, or quick-turn it to another investor at a discount.


If there isn’t enough equity (which only means the part of the house that has been paid off already) in the property, or if the house is too distressed to allow you to make a profit after you pay what's owed, consider a short sale.


A short sale Means the lender is willing to take less than what is owed on the property. Lenders typically consider short sales to avoid foreclosure because they don’t have to fix it up themselves, or resell the home, most lenders do not turn away motivated buyers.


In a foreclosure, the lender has substantial legal costs, as well as expenses to sell the property once the foreclosure is complete.


It is good business for lenders to accept a little less than the balance due on the loan to avoid time, expense, and hassle of a foreclosure.


Of course, while it makes sense, don't expect lenders to make the short sale process easy.


You will have to prove to the lender that this is the best way to go and it will likely be the only way to stop the foreclosure.


Most lenders will provide you with a package that lets you know what you need to do to complete the short sale process.


Follow these instructions very carefully, remember to move quickly because other people know these tricks and the foreclosure process continues until you reach an agreement with the lender.


You don't want to lose a great deal because you didn't do the paperwork fast enough.