Home > Blogs > Tony Hodge > Investors & Licensed Agents: Understanding the preforeclosure market

What is a preforeclosure sale?

By Tony Hodge

Services for Real Estate Pros

June 04, 2007 03:57 PM

Real estate investor glossary of terms:

Preforeclosure sale: Buying a property in preforeclosure involves approaching the borrower or homeowner and offering to buy the property outright. The borrower/owner can walk away with the equity in the property and avoid a foreclosure or sometimes a “charge back” on his/her credit report. The buyer has time to research the title and condition of the property. Often times a buyer can purchase a home in preforeclosure for at least 15-20% below market value, conservatively. In rare cases buyers can realize discounts of 40-50% below market value.

In many cases, homes in preforeclosure are left in deplorable condition due to the financial state of the borrower/owner. Also, often times borrowers/owners in preforeclosure are not inclined to work with investors, bankers, or real estate agents until days before the actual sheriffs sale.

Even worse is when the borrower/owner leaves the property vacant. I have observed homes stripped of anything and everything worth selling.

Comments(6)

Comment

Show All Comments

Sort:

1~Judi Barrett

Integrity Real Estate Services 116 SE AVE N, Idabel, OK 74745 - Idabel, OK

BS Ed, Integrity Real Estate Services -IDABEL OK

The ones that we have had lately have been neglected, dirty, trashy, etc.

Jun 04, 2007 04:10 PM

Eric Badgley

Keller Williams - Bellingham, WA

Bellingham Real Estate

latley it seems like there hasn't been much equity left in forclosures, I have run into a few that just get a equity loan on the home before it goes under and the peaces out for good not paying the loan back and ripping the bank off

Jun 04, 2007 04:26 PM

Tony Hodge

Piscataway, NJ

Judy, Eric...this is the recipe for investors and real estate agents who specialize in short sales...preforeclosure + no equity + trashed property = better chance of getting your short sale approved.

Anthony

Jun 04, 2007 04:35 PM

Gita Bantwal

RE/MAX Centre Realtors - Warwick, PA

REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

I have sold foreclosed homes and you are right. Some have bags of trash in them and no faucets etc. I have never sold a pre foreclosure. Is there a way to approach a seller after the sherrif's sale is announced or is it too late? What is the procedure?

Jun 04, 2007 10:21 PM

Gita—

I can only speak for New Jersey. In NJ it is not too late because the foreclosed on borrower has a redemption period. See Hardyston Nat. Bank v. Tartamella, 56 N.J. 508, 513 (1970). (“...the just course is to permit the mortgagor to redeem within the ten-day period fixed by R. 4:65-5 for objections to the sale and until an order confirming the sale if objections are filed under the rule.”

However, marketing to default owners in the early stages of foreclosure (preforeclosure) allows you much ore time for due diligence. Also, it is not unheard of to purchase a home in preforeclosure for 25-35% less than full market value.

As I have mentioned in previous posts, the downside to this market is that often times homeowners in the preforeclosure stage are not in a receptive frame of mind. It is up to you as the agent, broker, or investor to connect with these homeowners by building rapport, offering your time to listen to their problems, etc. In my experience, many of these homeowners are in denial, they are psychologically unstable due to negative events which lead up to their being in default.

Nonetheless, it is up to you (as a REALTOR) to educate the public, offer your expert services, and provide community service. I truly believe that you will feel a rich sense of accomplishment after successfully working with homeowners experiencing these hardships.

Jun 15, 2007 10:26 AM

Laura Moore Godek

Laura Moore Godek, PC - McHenry, IL

The sellers are not leaving with their equity if the home is discounted 15, 20 or 40 percent. It may be in the Seller's best interest to sell and they may be able to salvage some of the equity buy many are upside down and heve no equity. Others are going to loose whatever equity the had.

Jun 17, 2007 02:02 PM

What is a preforeclosure sale?

Comments(6)

Tony Hodge

Recent Posts

Additional Information