A pre foreclosure home is a home in one of the many stages of foreclosure. Pre foreclosure is the very start of the foreclosure phase and it begins when the homeowner has not been able to make his or her payments and the bank or lender then starts to act with the formal foreclosure process. It is in this time that the troubled homeowner is presented with a few options to solve their problem, including refinancing or paying the loan in full or catching up on payments and all the fines incurred.
Obviously, except for the refinancing option which is often hard to go through with anyway if the owner is having problems paying his or her mortgage, he or she also will not be able to perform the options offered. If he or she were able to pay off the mortgage or even continue the monthly payments, then he or she would not be in this position in the first place. This is where experienced or informed novice investors and skilled negotiators can make good profits from a pre foreclosure home.
The best properties to locate, although they are not easily spotted, are those where the value of the home is more than the outstanding loan balance. Start by looking at your local resources. You can check the county records of present home owners as well as the section dedicated to Legal Notices in your newspaper.
You can then try to get in touch with the home owner. Do it the old-fashioned way by knocking on their door, or give them a call. Often, they will not answer their phones if they have been avoiding lender's calls. Perhaps the most professional way to contact them is with a letter about how you can help them get out of the situation they are in.
You'll need to find out if there are any liens or mortgages against the property, and, if so, leave that one alone. When you pick out a property that meets the no-lien criteria, get a full inspection to obtain its value. If you then decide to move forward, work together with the owner on a purchase agreement.
This way you will be helping the lender who won't have to spend anything on the usually expensive foreclosure process. And you will be helping the homeowner because he or she will not suffer much damage to their credit rating. Depending on how much the value of the house is, you can decide if you even have enough money left over to offer the home owner some extra cash to secure your deal.
Remember that all investments incur risks. In general, the higher the risk, the higher the profit. But you can lower your risk significantly and still profit by putting in the time necessary to do your research. There are also many foreclosure websites that list pre foreclosure homes.