Pre-foreclosure refers to the status of a property that was held as collateral against a loan. In the world of real estate, pre-foreclosures or foreclosures are terms that are as good as regular. However, for the layman, it is always a good practice to understand the concept thoroughly before considering investments therein.
What is a Pre-Foreclosure?
When a loan is drawn, the borrower holds a certain asset, usually a property, as collateral against the loan. If the repayment of this loan is defaulted, the lender sends across a ‘Notice of Default’. Such a notice implies the beginning of the pre-foreclosure stage. The borrower is informed that in the event of failure to clear the debt, the lender will resort to legal action.
What are the Options with the Borrower during the Pre-Foreclosure Stage?
The best and most preferable option would obviously be to clear the entire debt.
However, since that’s not possible in most cases, the parties concerned can figure out a working solution. Here, the borrower can explain his problems to the lender. More often than not, lenders are open to reaching a consensus.
If a consensus cannot be reached, the property owner can enter into a short sale. In a short sale, the potential buyer can expect to get the property at a lower price.
Jeff Adams is a well-known and reliable name when it comes to real estate investment. He has been one of the strongest promoters of investment in pre-foreclosed properties. In fact, he terms this investment as the new ‘silver lining’ of the dark real estate market.
A pre-foreclosed property is in a transitional phase. It runs the risk of moving into foreclosure. During such a phase, in the words of Jeff Adams, the property owner tries his level best ‘to salvage his credibility’ by attempting to sell off the asset at a break-even price.
The Benefits of Investing in a Pre-Foreclosed Property Differ Depending on Two Phases.
1. When payments have been missed or defaulted
- The owner is looking for a fast sale; hence, the property may be available at a price that’s even lower than the market value.
- The owner may be willing to undertake or bear the cost of structural repairs or maintenance issues. The buyer can ask for inspection checks.
- Concessions could be available depending upon the owner’s urgency to sell off the property and the quantum of his debt.
- The potential buyer can opt for mortgage financing.
- All the legal documentation and condition of the property must be revealed to the potential buyer.
2. After receipt of the Notice of Default (NOD)
- The bargaining power of an interested buyer can be at its peak.
- The interested party has every right to delve into all the details of the property including titles.
Buyers of a pre-foreclosed property should consider renting it out especially if it is located in a commercial or a high-standard residential zone. Investing in a pre-foreclosed property can be a lucrative option. However, one must seek the right guidance from the right people before taking the plunge.
