Buying Pre Foreclosure Property is a great way to make money with real estate. However, there is an art and process to approach and talk to a distressed homeowner. First you must understand a little about the foreclosure process. Then you must understand what is going through the mind of the home owner who is losing their home. Knowing both of these topics well will help you be a successful real estate investor utilizing the process of buying and selling pre-foreclosure homes.
The Foreclosure Process - What Is It?
The foreclosure process takes time. How much time depends on what state you are in. Some states take longer than others. Also, there are different foreclosure laws in each state so you will need to do some research for your particular state to fully understand the lawful environment that you will be working in.
When a home owner finances a property, they get a mortgage from a mortgage lender. This mortgage is a legal binding contract that tells exactly when payments are due, for how much, for how long, at what interest rate, whether it is a fixed or variable interest rate etc. Once this paperwork is signed by the home owner, they are then obligated by the laws of their state to honor that contract or agreement to pay the mortgage company.
The foreclosure process starts when a home owner gets behind on the mortgage typically more than three months. Foreclosure is legal process by which the mortgage lender can gain ownership in the home if the home owner stops making payments to them. The mortgage lender can then resell the home once they own it so that they can get some or all of their money back that they had loaned to the homeowner on the mortgage.
For the purposes of this article, any home that has had the foreclosure process started on it, but has not been sold at auction is considered pre-foreclosure.
Buying A Home From Someone In Foreclosure - Is It Ethical?
Well, that depends on your personal ethical opinions. But, always keep this in mind when considering buying a pre foreclosure home - you are helping the home owner get out of a jam. The homeowner had an agreement with their mortgage company to make payments on their mortgage and for whatever the reason the home owner has broken that agreement. Thus, the home is going to be taken from the home owner at some point unless someone steps in - like a real estate investor.
Sadly, many subprime borrowers have foreclosure problems due to having gotten themselves into bad mortgages. The unfortunate outcome of a borrower not making mortgage payments to their mortgage lender is foreclosure unless someone or something stops the foreclosure process. Buying the home from the home owner before they lose it to a foreclosure process is one way to help the home owner prevent further harm from being done versus taking advantage of their misfortune.
Saving A Home Owner From Losing Their Home To Foreclosure Is A Good Thing
Approaching a home owner who is in the process of losing their home might be a tough talk to have. Often the homeowner might not being doing anything their foreclosure hoping that the problem is going to go away. However, no action is probably one of the worse things one can do. So your offer to buy their home can often be just the thing the home owner needed to get things moving in the right direction for them.
Buying A Pre-foreclosure Property Helps A Homeowner - Reasons Why
- Being in foreclosure for anybody is a stressful time. It's not a common water cooler topic of discussion if you are in a foreclosure process yourself. If you are going to approach a home owner in foreclosure consider that they are about to lose their home - their stability or roots if you will. By stepping in to purchase their home, you can alleviate a tremendous amount of stress on them, their family, loved ones, and their friends. Be sensitive to their stress level and let them know that you understand that buying their home will help alleviate their stress and problems; it will give them a fresh start
- In cases where a home owner has equity in their home and they lose their home to a foreclosure they do not get paid or compensated for the equity that they lose. Offering to purchase a home in foreclosure could help the home owner save any equity that they might have.
- Foreclosure is perhaps the worst kiss of death to anyone's credit report. Very few options for mortgage financing are offered to anyone who has had a foreclosure for at least 3 years from the time that the foreclosure happened. Anyone can fairly easily recover from a few missed or late payments here and there. By stepping in to buy a pre foreclosure home, you can help that home owner keep their credit record from suffering from too much serious damage. This very act of stopping the foreclosure process can help the home owner start back on the road to building a good credit profile.
These three things are key to being able to know that buying pre foreclosure properties as a way to make money in real estate investing is a decent and public serving way to make a living. Don't get caught up too much in the home seller's life drama. Have compassion for their feelings and experiences, but keep in the forefront of your mind the help and assistance that you are providing them by helping them to stop foreclosure by buying their pre foreclosure home.
