Today I am going to talk a bit about Pre-foreclosures. The Pre-foreclosure niche is the process leading up to the final day a property in pre-foreclosure is possessed by the bank. This is the time you will reach out to homeowners in order to find out if you can help them with their situation to avoid foreclosure You want to approach the homeowner heading toward foreclosure with a spirit of caring.
Your job is to discover what they need and find out if you can help them avoid foreclosure. As a buyer of pre-foreclosure properties, you should understand the options that are available to a homeowner. There are 18 options a homeowner might consider when in pre-foreclosure as of the time of this writing, (not included are government backed options as those change so quickly). It’s vital for you as an investor to understand the basics of these 18 options out there for homeowners in pre-foreclosure.
Options for seller to follow in order to keep their home
- Pay the delinquency
- Refinance Current Loan
- Equity Sharing
- Hard Money Loan
- 2nd Mortgage
- Loan Forbearance
- Payment Assistance
- Repayment Plan
- Mortgage Loan Modification
- VA Loan Modification/Refunding
- Partial Claim
- Chapter 13 Bankruptcy
Options for seller to follow in order to sell their home
- Private Sale
- Short Sale
- Loan Assumption
- Died in Lieu of Foreclosure
Being a compassionate listener is as important as knowing the facts about pre-foreclosures.
When you really listen to those going through pre-foreclosure, offering support and encouraging them to find professional help if they would chose to stay in their home, this gives you an opportunity to build trust. Honestly, this is where you can really make a positive difference in a person’s life whether you end up helping them by taking the property off their hands or not. After some due diligence and understanding of the process, the homeowner often comes to the conclusion that selling their house quickly is, in fact, the best decision for them after all. However, it is vital that you do not advise this… only support them on their own decisions.
IMPORTANT NOTE: Unfortunately we live in a litigious society where someone could later sue you claiming, as a result of following your advice, they suffered monetary damages and losses. Be sure and offer disclosures for anything you provide in writing. I suggest you never offer advice, only options. Suggesting legal help is most advantageous when dealing with anyone in pre-foreclosure who wants to keep stay in their home. And ALWAYS check with your attorney on specific laws and requirements.
Why are Pre-foreclosures a good niche to consider?
- Homeowners often must sell their property in order to hope for any financial gain. Of course this is only if the property has equity. If a homeowner cannot make their mortgage payment and the bank takes the house, they lose all money they have paid into their mortgage previously. You are helping them when you can buy it at a profit of any amount of their mortgage liability.
- It is wise for a person in pre-foreclosure to avoid costly credit liability. A foreclosure will show up on their credit report, where it will remain for up to seven years. Also, every time, forever and ever, a person completes a credit application where the same question is asked, “Have you ever filed foreclosure?” If the answer is “yes”, this will affect the ability to get some types of credit forever. A seller who wants to buy another home after foreclosure will usually end up waiting about 36 months before a lender will offer any kind of loan with an interest rate that makes sense.
- It is much easier and cheaper for a seller to sell to an trained investor with the ability to buy quickly, handling the entire transaction for the seller.
- You will obtain the property below market value.
- You are helping people in need of assistance, creating a win-win situation.
- You’ve got a good possibility of buying the house subject-to or some other creative strategy requiring little out of pocket from a very motivated seller who just wants out.
- There are thousands of notices of defaults published each month for you to work with.
Pre-Foreclosure investing does have some risks that you should be made aware of. I will discuss this in Part 3 of the conclusion of the Niches That Bring You Riches Pre-Foreclosures series.