Buying Pre-Foreclosure Property
Understanding Pre-Foreclosure Buying Opportunities
Often times cash strapped home owner is unable to make the mortgage payments and defaults on the mortgage terms. Under such circumstances, the financial institution can give the owner a notice that the house will be foreclosed. This could mean an adverse impact to the home owner’s credit and a substantial loss of the equity they have built up in the house. If the owner does not want the house to go into foreclosure, they can opt to go into pre-foreclosure.
A pre-foreclosure property is in the process of foreclosure but the buyer has not put up the property in the market for 
sale. Thus, any sale transactions are conducted directly with the owner since the home owner still legally owns the real estate. This is in sharp contrast to buying foreclosures where one deals with financial institutions. Based on the type of foreclosure the property comes under, the period between it becomes in default and goes to auction, can be between three months to one year.
Advantages of Buying a Pre-Foreclosure Property
Understanding pre-foreclosure is important, because a pre-foreclosure property can be a good deal for a smart buyer who does their homework and research. The higher the difference between the default amount and the market value of the property, the more the buyer stands to gain on a pre-foreclosure purchase. Some of the advantages of buying a pre-foreclosure property are:
- The basic idea behind a pre- foreclosure is for the owner to prevent foreclosure and thus save their credit. This is a strong motivation for them to work with the potential buyers to come up with a price and a solution that is agreeable to both. Thus, a prudent buyer can often negotiate a good price that is well below the market value.
- In addition, the seller is usually in a hurry to sell his property resulting in short closing times.
- For a buyer with poor credit, a pre- foreclosure is a good option as they can typically take over the mortgage of the seller. This saves the buyer the trouble of going through credit checks and saving money for a down payment.
Risks of Buying a Pre-Foreclosure Property
Even though a pre-foreclosure property has some financial advantages as discussed above, there are certain risks that a buyer must be aware of, so make sure you an undestanding of the pre-foreclosure process:
- The owner of a property under pre-foreclosure has complete legal rights to repossess their property if they can pay off their mortgage and meet other terms and conditions with their financial institutions. Thus, a pre-foreclosure buyer may be in advanced stages of closing a deal but the seller might decide to back out putting all the effort in vain.
- A pre-foreclosure property is purchased by a buyer at their risk as the seller is not obligated to offer any guarantees. Thus, before closing the deal, the buyer should thoroughly inspect the property and make sure there are nor problems with it. Some of the items to verify include damages, title search for any unpaid lien to any other financial institution, unpaid taxes, condo fees etc.
