I’ve heard of buying pre-foreclosures, anyone have experience?

Question

I was talking to a man a week or so ago, and he said that his friend used to buy properties that were a few days prior to foreclosure. He said it kept the bank from having to execute the eviction process, it salvaged the owners credit by not having a foreclosure on it, and the buyer gets it a much lower cost, because of the leverage of the impending foreclosure. Does anyone have experience doing this, and know how to go about it? Is it public record that I can find online? Or is that something you have to find on your own by dropping off business cards?

Curt Smith · Answer

Hi, pre foreclosure in all of its permutations, before the bank sends Notice of Default (NOD) or efter which is state even county dependant but often starts a 4 week clock till the trustee auction are the 2nd most difficult deal scenario and IMHO only experienced investors should bother, the 1st most difficult deal scenario are bidding at the court house steps on lord only knows what is being auctioned off sometimes even 2nd mortgages, you need to do so much home work to attempt to reduce your risk at the court house steps...

Pre foreclosure no one talks about these issues, always about the nice sounding stuff like "motivated seller" get a good deal etc etc both are usually not the case.

- 95% of folks in pre or post NOD want to stay in their house, keep their house inspite of them 100% will loose the house at the auction.  I'm in a team who does these deals and we have a team of "door knockers" who go back weekly till the auction, they file bankruptcy which only delays 3+/- months 100% chance that the lender will as that their mortgage is removed from the bankruptcy they file NOD yet again.   Summary;  95% of all pre forclosure owners refuse to even talk about selling inspite of the empending auction.  Sad!!

- If the 5% do say they'll sell a must in this business they have to also agree to MOVE OUT PRIOR TO YOUR CLOSING DATE.  Few of the 5% agree or can do this.  They have no cash to qualify for a rental or even pay for the move.  A few times our door knocker team doubles as "movers" litterally.

- You will have to come out of pocket for the arears, fees etc, just to get into "contract" some times $20k or more and all you have as protection is the word of someone who's proven to be unreliable and a signed piece of paper...  Geeze!  ;(

- if as-is value is less then the balance on the mortgage + arears OOOPS you need to have the owner work with the bank, you as the investor buyer AND a short sales expert often an agent work the tedious and usually failing short sale process.  I don't fool with these.  Too much time and when the difference is only 20-30% the banks won't bother with a short sale.

- The signed P&S and the arears cleared up will stop the foreclosure.  Now you schedule your purchasing closing assuming the balance on the mortgage is equal to or less then the as-is value.

- NOW the seller has to be willing and able to move out before your closing date.  Which BTW most of our closings are subject-to the existing financing, so we have little cash into the deal, just the arears and the closing costs.

You find NOD and pre-notice via;   realtytrac.com / equitydepot.net (if they cover your area).  Auction.com for some 66% or so of the preforeclosures in your area, other trustee's run other auctions, but auction.com has sucked up the majority of the business nationwide.    Check 4 weeks prior to your counties trustee auction date for new inventory.  LOL but this route you have only 4 weeks to contact all the sellers MULTIPLE TIMES.

- The golden rule in my group is the seller has to have a deal, the numbers work, be willing to sign, be willing to move out no later then 7 calendar days prior to the auction!!!!!  NEVER violate this rule. You will be sick, go crazy and not get it all done and your time will be wasted.  Most of the 5% who agree to sell agree the day before the auction,,, say no to these folks and move on!

Theres so many problems, this is a team deal scenario and one needs rules;  never take a contract less then 7 days prior to the auction, and NEVER NEVER N E V E R close allowing the seller to stay in the house after closing.  Its not as simple as using eviction law even after you closed and now are the owner.  You've signed up for one PIA if the owner is still in the house.

One way to tippie toe into this is to hook up with short sale agents and start working with them offering to door knock the NOD folks.  Letters, post cards even calls are useless to this owner class.  They have perfected putting their head into the sand post cards are tossed, phone calls hung up on.  This is a "foot in the door" asset type!   OMG!  Be ready for "spouces" not knowing their house will be auctioned off in <<4 weeks. WOW that is a bad scene!

True re the prior poster, re this helping the seller save their credit, if you buy sub-to you will dramatically raise their FICO since the mortgage will show on-time payments.  But almost zero percent of NOD owners can make it through the selling / moving out process go get this benefit.  Preforeclosure's best model is "going down with the ship".  Very sad, very taxing, a lot of effort before you have a deal to show for it.

Jay Hinrichs · Answer

@Curt Smith  nice post on the realities ..  we did this a lot pre 07  in that year Oregon WA and then CA made laws that had lots of teeth about dealing with those in foreclosure.. so we just stopped doing it risk was not worth it.

I cant see how an individual can do this really.. Like you we had 3 teams of two door knockers  2 for safety one women one man.. and we door knocked every NOD in our 2 mil MSA  all to boil it down to if we were very lucky to get 2 to 3 deals a month.. now we were a little different I only would buy very high equity deals.. and we leased back .. because as you state 99% don't want to leave..  Oregon and WA made foreclosure rescue lease backs totally illegal.

We did not have a problem on the lease back we did have to evict many within the first year but it was a normal eviction and we had enough juice in the deal to make it work.

And one point the OP made about their credit.. only gurus talk about that.. by the time someone is days away from foreclosure their credit is trashed  having it actually go to sale will hurt a tiny bit .. but your not saving anything.

And frankly in many instances depending on the situation it could be beneficial for the owner to let it go.. as they are entitle to the overages.. IF any ..   But like you said talk about a ton of work.. and again I just don't see how an individual can pull this off unless they get very lucky .. and I mean VERY..

Not only that most of ours we saved within 1 to 3 days of the sale so it was hair on fire getting the reinstatement back to the trustee.. total risk on our part.. give the seller some money we always did.. and then record the deed  WE did our own deeds in house.. buy without title insurance etc etc.

Dick Green · Answer

This is a new venture that I'm looking into and real excited about.  It's the concept of buying the debt attached to the mortgage rather than buying the house.  i.e. buying and selling notes.

Of course the mortgage is attached to the property.  This is a debt society and debt is money.  I'm working on my first transaction.... we shall see.

Hanna Brown · Answer

@Jay Hinrichs  You mentioned Oregon and WA made foreclosure rescue lease backs totally illegal. Is this also the case when purchasing rights of redemption post-auction? Is it legal to offer to rent the property back to the homeowner who already lost their home to foreclosure when negotiating the redemption rights purchase?

Account Closed · Answer

@Curt Smith @Jay Hinrichs are both correct. It is very high risk investing now, both financially and legally. If you choose to go this route have a very competent attorney on your side and listen to his advice. It is an advanced technique that requires expertise and being well funded.

Also, once someone has received a notice of foreclosure, it shows on his credit report as a foreclosure and you can Not save his credit by buying the house before the auction.

Jonathon Weber · Answer

Many states have laws about what an investor can and can't do when homeowners are behind on their payments and in the pre-foreclosure stage.

By the time a pre-foreclosure home is listed by the real estate agent the home would like be sold at market value. Banks must approve a short sale for a short sale to take place, and banks hire appraisers and other real estate agents to perform broker price opinions (BPOs), or estimated values of the home.

The goal would be to negotiate with the seller before the home becomes a short sale.

To find a pre-foreclosure home, buyers can search popular websites that pick up feeds from an aggregator or they can pay for the feed. Some foreclosure websites publish pre-foreclosures as well. If you have a lot of time, you can contact each of the homeowners to find out if any of them are interested in selling.

You can contact your county court to see how you can search for notices of default. These homeowners are probably not delinquent, although they might not be able to sell without doing a short sale as they might have no equity.

If you're buying a home in pre-foreclosure, keep in mind that you're buying it as-is. You'll need to cover inspections and repairs. It may take more time for the lender to approve of the sale.