How do I sell a Pre-foreclosure

Question

Happy Friday my fellow BP'ers. I'm hoping someone can answer this question for me and help guide me in the right direction. Let's say I get a Pre-foreclosure under a lease option contract. I want to retai it for Maxim profit. Will the owner need to be at the closing our is the lease option contract enough to complete a conventional loan, not having to deal with the previous owner at all? Hope I didn't make it sound too confusing.

Thanks for your response.

Brian Gibbons · Answer

My friend @Roy Schauer has been in court with pre foreclosures.  Not for the rookie.

There are "rights of redemption" and "foreclosure rescue" laws from the Attorney General's Office.

I just googled and found this, no idea how current and how accurate.

http://homepreservationnetwork.com/foreclosure-laws-by-state/item/south-carolina-foreclosure-laws

See a foreclosure lawyer that knows JUDGES's reactions to so called RE Investors attempts to cure notes and buy property from distressed homeowners.

Vanessa Brown · Answer

I would think that another issue is that it's a pre foreclosure. This means that there is an outstanding mortgage on it. You can't transfer clear title without that mortgage being satisfied. How far into foreclosure is it? How much do they owe? Is it underwater creating a short sale situation?

Your option contract doesn't give you ownership it just gives you the option to buy the house. Like @Don Konipol said you would have to exercise your option to take possession of the property BUT if your option is for less than they owe it creates a short sale that would need third party approval (from the bank) for you to even exercise your option to purchase the property.

Depending on how much they owe and how far the bank has gone the bank has the option to review all terms, the price etc. The bank also has the option to not sell the property to you. They usually want to see it listed in the MLS for a certain amount of time to insure they have gotten fair offers and entertained all competition before approving a short sale. At that point you would have to go after the "owners" to get your money back.

That's why the market for options is so thin. If the bank gets involved because the people didn't pay their mortgage it gets awful.

Best case scenario you're paying more than they owe and you can do the back to back closing. Worst case it'll be a learning experience. Either way you need them involved because they're not the previous owners; they are the current owners.

Vanessa Brown · Answer

You'll get there a lot sooner than you think. I just had the misfortune of listing a short sale where the owners had signed an option some years back. It got ugly, lightning quick.

Floyd T. · Answer

@Vanessa Brown, Thank you, this is good stuff! Yeah, I definitely have a lot more learning to do. It seems like I'm never going to get there, lol

Floyd T. · Answer

@Gerald Harris Thanks,  maybe I'll just stick to wholesaling them lol.  Naaa  I can't let it get the best of me. Thanks, I appreciate the knowledge.

Floyd T. · Answer

@Don Konipol Thank you very much, your response is appreciated. That helps out a great deal. Pre-foreclosure is the niche I want to learn and operate in but it appears that I still have much to learn. Thank

Gerald Harris · Answer

Don is correct

Also, make sure the numbers work.  Dealing with Pre-foreclosures is a risky endeavor for the unexperienced investor.   Making sure there is a spread there for you to make profit.  The owner will have to be involved in this deal in order to get it done.   Also, when you go to resell, because it is a pre-foreclosure see how much time is left before it forecloses.   Find pendings and solds within a 1 to 2 mile radius and drop price a little for a quick sale and close.   The reason I say pendings is this will show you a "trend" of what is going on in the area.

Don Konipol · Answer

You can always sell the option contract, though the market for purchasing options is extremely limited.  You would have to exercise your option and immediately sell the underlying property (of which by exercising your option you have just obtained ownership of) to complete the transaction.

The owner of the property would have to sign a warranty deed transferring title to you. Theoretically this can be done in one swift action, however, title companies are more and more unwilling to partake in anything but the most straight forward transactions.

While most real estate buyers will demand title insurance, I, like many other experienced investors, have sold property directly to buyers without title insurance or title companies involved.  Mostly these are low or nothing down deals with owner carry back financing, any third party lender will demand title insurance and closing by a title or escrow office.

As a practical matter, there are title companies that will do back to back deals, so that you would need no cash to close your middle position.  However full disclosure to original seller would be required.

Please understand that as the holder of an option you do not hold legal, and probably not even equitable title to the property. Therefore, the property owners participation is necessary.

How do I sell a Pre-foreclosure

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