Buying preforeclosure properties: How to buy preforeclosure homes before they hit the MLS.
Buying preforeclosure properties: First of all, how does the foreclosure process work? The foreclosure process allows the lender to foreclose on any liens or encumbrances in order to take the property and become the legal owner of record. The foreclosure process can be lengthy depending on the state, but up until the public auction, the homeowner owns the property and has several options available. Unfortunately in the State of Missouri, foreclosures are a relative fast process, compared to many other states: only 3 weeks are required from the publication in the legal notices by the trustee (attorney) conducting the foreclosure and the actual foreclosure date.
It’s important to realize when talking about pre-foreclosures, we are talking about acquiring the property any time before the public auction sale. The sooner you contact a homeowner in pre-foreclosure, the more time you have to structure a deal and purchase the property.
When dealing with an owner in pre-foreclosure it is important to explain the benefits of avoiding foreclosure:
Protecting Their Credit. Stopping a foreclosure from happening and therefore avoiding foreclosure reporting on the credit record is a much preferred option. Foreclosure can stay on the credit for up to 10 years and stop from buying another home for 4 years.
Protect Equity. When a home is foreclosed all of the equity is lost. By working with an investor it may be possible to recover some of the equity and prevent the foreclosure.
Emotional Strain. Losing a home can create an emotional stress and depression. Stopping the foreclosure allows a person to move on with life and feel like he/she has sold a house, instead of just losing it to the bank.
For the real estate investor there are many ways to financially profit and it can be a great feeling to help people move on with their lives. If not for investors, lenders would foreclose on most properties and the homeowners would lose all equity and have a foreclosure on their records. Investors provide the vital role of helping homeowners salvage some equity, can often help the homeowner’s credit, and help people start rebuilding their lives.
For the investor, there are three main ways to profit when dealing in preforeclosures:
Purchase Property From Seller At A Discount. If the seller has enough equity, we can structure a purchase where they receive cash at closing, the balance of their equity in payments, or a balloon payment due at a later date.
Take Over The Loan And Make Up Back Payments. When a seller is in foreclosure it is possible to buy the house from the seller, take over the loan, and make up the back payments. The advantages for the seller are the foreclosure is stopped and the property is sold to an investor that will make the payments. A drawback for the seller is the loan remains in their name until paid off by the investor or a third party at a later date.
Discount The Loan(s) From The Lenders. Commonly referred to as a “Short Sale” this is nothing more than negotiating with the lenders to accept an amount less than they are currently owed.
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