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PreforeclosuresPreforeclosures occur in the early stages of the foreclosure process, before a property officially becomes an REO, real estate owned by the bank. Preforeclosures are another real estate investing strategy. In a preforeclosure you acquire a property from a homeowner before it goes into foreclosure. I personlly only advocate this strategy if you find a homeowner who is going to walk away from their property. There are many people facing foreclosure who don't care about the property and do not have an emotional tie to it. It is not their dream home and they could care less about a foreclosure on their record. I would not suggest this for homeowners who really want to save their home. So, you find a homeowner who is willing to sign over to you an "authorization to release information" form. With this form, you can now act in their stead in dealing with their mortgage company. You call the mortgage company and speak with the Loss Mitigation Department.
Step-by-step instructions1. You inform them that you have the appropriate form to legally speak for the homeowners.2. Say that you understand that the homeowners are in foreclosure and are not going to be able to pay this loan and are going to walk away from the property. 3. Explain that you would like to arrange a payoff of their loan so that the homeowners don't have a foreclosure on their record. 4. Then, make them understand that the only way you could help is to negotiate a short sale because the property is worth much more than the loan amount. 5. If the bank is willing to discount the loan then they won't have to lose money and time proceeding with the foreclosure process. 6. Finally, offer a payment of 50% of the loan amount that you can pay within 30 days. (You need to have this money ready to go! i.e. be preapproved for a loan already.) 7. Be ready to accept a counter offer and proceed back and forth until a suitable amount is negotiated.
Win-win-win situation!You have successfully negotiated a win-win situation. The homeowner doesn't get a foreclosure on their record. The bank doesn't have ANOTHER REO on their records and you have created an excellent DEAL! This is how preforeclosures can work and make you a lot of money. Now of course, you only have a paper profit that will only be realized when you sell the house but that's fine as well.Let's say you got it for, maybe, 60% of FMV. You can sell it to the next investor for 85% of FMV. That is how you can "realize" your profit. Another option is, keep it as a rental. If you've worked the numbers then you may be able to just turn this preforeclosure into a rental property to add to your portfolio. Maybe the FMR (fair market rents) will cover the loan payment and possibly put a little in your pocket after all expenses are paid. Preforeclosures can work out to be excellent deals to me! (Just don't take advantage of anyone!)
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