Buying Pre-foreclosures what is a good deal and what is not.
By Marc Rasmussen, Fri Dec 9th
These methods work in Florida because we have mortgages, howeverI am not sure of the process for states that use deeds of trust.Much of this information will apply to Florida and its laws soit is best to get the overall gist and apply it to your area.
I have purchased several properties over the last 6 years in theSarasota, Florida area by finding pre-foreclosures. Pre-foreclosures are simply homes that have gone into foreclosurebut 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 superhot Sarasota, Florida real estate market. I started out withpre-foreclosures because I did not have the money to purchasehomes at the county auctions. Typically the auctions require youto pay cash at the day of the auction.
Step 1 - Find the website for your county that containscourthouse information. Many counties now have their courtinformation online, however smaller areas may not be thatadvanced yet. You are basically trying to find information onlawsuits.
Step 2 - You will want to look for people who are being sued bytheir mortgage lender. In my area the very first step to aforeclosure is the "Lis Pendens". Latin for "a suit pending," awritten notice that a lawsuit has been filed which concerns thetitle to real property or some interest in that real property.
When a homeowner stops paying their mortgage the time it takesfor a bank to start foreclosure proceedings varies. However, Ihave noticed it is around 4-6 months. I guess the banks figureat that time the homeowners are in too deep and will not be ableto pull themselves out.
Every counties computer query system is going to be different sothis is where you will need to do some investigating. Typically,you will see the large banks or lenders vs. Joe Schmoe. This isthe first step in the foreclosure process. These people aregoing into foreclosure.
Step 3 - Once you have found the "Lis Pendens" create a list ofpeople who are in foreclosure. Take this list and crossreference them with county property records. Get to know yourlocal real estate market. I am Realtor here in Sarasota so Iknow the real estate market well. There will be houses you maynot want to buy so there is no point in chasing them. You alsoneed to know the real estate market to find out if what you arebuying is a deal. There is no point in going through these stepsif you are just going to be a house for retail. The point is tobuy the house undervalued. You need to know the real estatemarket to determine
Step 4 - Contact these people - find a way to contact them thatmost suits your personality. You can call them on the telephone,knock on their door or write them a letter. I took the lessaggressive approach and wrote letters. Sometimes these people donot want phone calls or to be contacted in person because theymay have already been getting harrassing phone calls from banksand bill collectors.
Step 5 - Try to buy the house. Be sympathetic to their situationand try to find a win-win scenario for you and the homeowner.Obviously, you are trying to buy the house at an attractiveprice to you. This price will depend on what you plan to do withthe property. If you plan to live there then you don't need toomuch of a discount. If you plan to flip it then you need alarger discount.
Here are a couple of things to remember about buying homes inforeclosure:
Banks will take less than what is owed to them. If you find awith a large mortgage in relation to it's value you may need thebank to take a discount on their mortgage. I have done this withclients when selling their home. However, banks are not dumb andthey know the values of real estate have been going up the lastfew years so it may be difficult.
Here in Florida the foreclosure process from start to finishusually takes 3 to 6 months.
You can pull someone out of foreclosure up until the actualforeclosure 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 foreclosingattorney not the actual bank filing the foreclosure suit.
This information will start you off to finding pre-foreclosuresto buy. In closing, I will say that it has been since November2003 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 itwill retail for about $270,000. Of course, the home prices in mymarket have increased dramatically since I bought that home.
Lately, like other markets, my market has been too hot to find aproperty that much undervalued. With the number of articles inthe local newspaper most people are aware of how hot the marketis. However, within the last few months the market has sloweddown. As a Realtor, I have seen many people stretch themselvesto get into a house they really can't afford. Flexible lendingpolicies should lead to more foreclosures. Good luck.
Marc Rasmussen is a Sarasota, Florida Realtor.