Pre-Foreclosure Strategies for The Real Estate Investor

Pre-foreclosure Real Estate Investing is one of the most popular investment strategies chosen by small investors in the real estate industry. It is preferred because of the low financial input involved. According to Jeff Adams, pre-foreclosures can be simple or complex, and can involve a process spreading over many months. This depends on the position of the lender and borrower, the Notice of Default (NOD) and other legal factors.

Investing in pre-foreclosed real estate properties means knowing about them and this means going to the courthouse to sought information about a property’s NOD. Such basic information is usually given free of charge although the actual documents are available at a small fee. A more efficient way of identifying such opportunities is visiting online listing websites with pre-foreclosed property. They provide essential information like the document number, the date of the NOD and names of the parties involved.

When shopping around for such real estate properties, it is advisable to stick to property whose owner has made a final decision to sell it in order to avoid a foreclosure. This enables you to deal directly with the owner and negotiate a good deal. This reduces the risk involved and it allows for more accurate valuation and pricing of the property during purchase and resale in the situation of property flipping. To avoid any unwelcomed surprises after purchase, it is advisable to get a title insurance, because you’re purchasing directly from the owner, who still has redemption rights.

However, some people prefer dealing with the financial institution, since they tend to sell the property at a price below its market value. Short-listing property whose owner is still considering a loan modification or a deed-in-lieu arrangement could turn out to be a waste of time and money.

Borrowers who have been given a NOD or whose inability to repay has led to the issuance of a Notice of Trustee Sale (NTS) to the Trustee Sale (the auctioneer), may try to delay the foreclosure by declaring bankruptcy or filing for a restraining order against the lender. This prevents the lender from making any move with regards to the property and bars them from contacting the borrower about payments until the borrower files a motion for release from stay.

Lenders have a tendency not to re-file NODs after the borrower has filed for a release from stay. They do this to keep real estate investors away. Note that, it is important to track the process of such property as an investor since it could bring you a good deal. This is because the longer the process, the lesser the people interested which gives you better chances.

In a situation where you have found a very promising piece of real estate property but the owner (loan defaulter) is in denial of his current situation, creative financing is your last resort. This can be done through a subject-to where the real estate investor assumes the existing loan or through a lease-back deal where an investor purchases the property and leases it back to the owner.


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