Buying Pre-Foreclosures
These methods work in Florida because we have mortgages, however
I am not sure of the process for states that use deeds of trust.
Much of this information will apply to Florida and its laws so
it is best to get the overall gist and apply it to your area.
I have purchased several properties over the last 6 years in the
Sarasota, Florida area by finding pre-foreclosures. Pre-
foreclosures are simply homes that have gone into foreclosure
but have not sold at the auction yet.
This used to be a great way to pick up undervalued real estate.
However, recently it has not worked that well do to the super
hot Sarasota, Florida real estate market. I started out with
pre-foreclosures because I did not have the money to purchase
homes at the county auctions. Typically the auctions require you
to pay cash at the day of the auction.
Step 1 - Find the website for your county that contains
courthouse information. Many counties now have their court
information online, however smaller areas may not be that
advanced yet. You are basically trying to find information on
lawsuits.
Step 2 - You will want to look for people who are being sued by
their mortgage lender. In my area the very first step to a
foreclosure is the "Lis Pendens". Latin for "a suit pending," a
written notice that a lawsuit has been filed which concerns the
title to real property or some interest in that real property.
When a homeowner stops paying their mortgage the time it takes
for a bank to start foreclosure proceedings varies. However, I
have noticed it is around 4-6 months. I guess the banks figure
at that time the homeowners are in too deep and will not be able
to pull themselves out.
Every counties computer query system is going to be different so
this is where you will need to do some investigating. Typically,
you will see the large banks or lenders vs. Joe Schmoe. This is
the first step in the foreclosure process. These people are
going into foreclosure.
Step 3 - Once you have found the "Lis Pendens" create a list of
people who are in foreclosure. Take this list and cross
reference them with county property records. Get to know your
local real estate market. I am Realtor here in Sarasota so I
know the real estate market well. There will be houses you may
not want to buy so there is no point in chasing them. You also
need to know the real estate market to find out if what you are
buying is a deal. There is no point in going through these steps
if you are just going to be a house for retail. The point is to
buy the house undervalued. You need to know the real estate
market to determine what is a good deal and what is not.
Step 4 - Contact these people - find a way to contact them that
most suits your personality. You can call them on the telephone,
knock on their door or write them a letter. I took the less
aggressive approach and wrote letters. Sometimes these people do
not want phone calls or to be contacted in person because they
may have already been getting harrassing phone calls from banks
and bill collectors.
Step 5 - Try to buy the house. Be sympathetic to their situation
and try to find a win-win scenario for you and the homeowner.
Obviously, you are trying to buy the house at an attractive
price to you. This price will depend on what you plan to do with
the property. If you plan to live there then you don't need too
much of a discount. If you plan to flip it then you need a
larger discount.
Here are a couple of things to remember about buying homes in
foreclosure:
Banks will take less than what is owed to them. If you find a
with a large mortgage in relation to it's value you may need the
bank to take a discount on their mortgage. I have done this with
clients when selling their home. However, banks are not dumb and
they know the values of real estate have been going up the last
few years so it may be difficult.
Here in Florida the foreclosure process from start to finish
usually takes 3 to 6 months.
You can pull someone out of foreclosure up until the actual
foreclosure sale and in some instances even after the sale.
Legitimate lenders do not want to foreclose and take back homes.
In most situations you will be dealing with the foreclosing
attorney not the actual bank filing the foreclosure suit.
This information will start you off to finding pre-foreclosures
to buy. In closing, I will say that it has been since November
2003 that I bought my last home this way. I bought a house for
$69,000, spent about $30,000 cleaning it up and as of today it
will retail for about $270,000. Of course, the home prices in my
market have increased dramatically since I bought that home.
Lately, like other markets, my market has been too hot to find a
property that much undervalued. With the number of articles in
the local newspaper most people are aware of how hot the market
is. However, within the last few months the market has slowed
down. As a Realtor, I have seen many people stretch themselves
to get into a house they really can't afford. Flexible lending
policies should lead to more foreclosures. Good luck.
Marc Rasmussen is a Sarasota, Florida Realtor. For more
information go to http://www.TheSarasotaMLS.com