Before you start searching for property that is in the pre-foreclosure stage, you should first learn a bit about the laws governing foreclosure for the state in which you live. Foreclosure laws and statutes do vary from state to state but there are a few basic ideas about purchasing homes in the pre-foreclosure stage that are important for anyone wishing to get into investing in real estate.
A home or property that is the pre-foreclosure stage is a home that for some reason or another, the homeowner is behind on their mortgage payments or is in default of their promissory note. All this really means is that the homeowner has not been paying their monthly mortgage payments to the lending company. When this occurs, the lending company can foreclose on the property and sell it at public auction. When the property is sold at public auction, the lending company is seeking to get the money that is owed on the homeowner's loan.
If you can find property that is in the pre-foreclosure stage, many homeowners will sell this property below market value to get out of the loan. Normally, however, the homeowners will sell the property for what they owe on the loan to avoid foreclosure and to save their credit rating.
When you purchase a home from a homeowner in the pre-foreclosure stage, you could find yourself with one heck of a deal. Let's say the homeowner has a home with a mortgage left of $35,000, the original loan was $120,000, the property in the area and the home itself has been appraised at $175,000. The homeowner needs the $35,000 to pay the bank and avoid foreclosure. You step in; purchase the home for $35,000 and then you can turn around and sell the property for $175,000. Nice chunk of change to put in your pocket, right?
Remember when you talk with the homeowners that this is their home and they may not really wish to sell their home, but see no other option. Be sympathetic and try to find a deal that works for both of you. If you are wishing to purchase the home so you can live in the house, then you should
not mind if you do not receive a huge discount, on the hand, if you want the property as an investment, you would want to buy it for less so you can make a profit.