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Investing in Pre-Foreclosure Property
Investing in pre-foreclosure property varies from investing in foreclosures in that negotiations are conducted with the owner of the property.
Pre-foreclosure investing presents the opportunity to create a winning situation for both the investor and the owner. The investor can usually obtain property for a substantial discount, occasionally as much as 50%, from the property value. The owner has the ability to get some of their money back and save their credit by preventing the completion of the foreclosure.
In order to invest in pre-foreclosure property, you must first locate the property. This can be done in several ways:
* Contacting lenders and mortgage brokers
* Contacting foreclosure attorneys
* Looking for “Notice of Public Sale” or “Trustee Sale” listings in the newspaper
* Using a foreclosure listing service that includes pre-foreclosure listings
After locating suitable pre-foreclosure property, an investor must contact the owner to negotiate purchase. The contact and negotiation includes confirming the debts owed against the property, verifying who actually holds the property title, and getting the physical details of the property.
In addition to negotiating with the owner, pre-foreclosure investing may require negotiating with the lien holder. If you are able to settle with the lien holder for a percentage of the total debt, it will increase your ability to make a profit on the property. The lien holder stands to lose the entire debt if the property goes to auction, so they are usually willing to negotiate a deal for settling the debt.
When you successfully negotiate a deal with the owner, you will both need to sign a Real Estate Purchase and Sale Agreement or an Equity Purchase, depending on what is required by the state in which the property is located. The terms stated in either type of contract should be clear, leaving no room for interpretation by either party. In addition, successful negotiations with the lender will require a Release of Lien agreement. It is advisable to have an attorney who is knowledgeable about real estate purchase to review any contract before signing.
Pre-foreclosure investing does carry a few disadvantages of which every investor should be aware. First, the owner of pre-foreclosure property does have the legal option of redeeming their debt prior to the foreclosure sale. If the owner decides to pay off their debt rather than sell to you, then you have spent valuable time negotiating for nothing.
Another disadvantage to pre-foreclosure investing is that all debts on the property must be paid before purchasing. That is why it is important to research thoroughly the property prior to negotiating a purchase. While research may take some time, it is better to go into negotiations with a complete understanding of what is owed than to be surprised by other debts after the contract is signed.
Finally, anyone involved in pre-foreclosure investing must ensure that they are negotiating with the actually property owner. The person who holds title to the property must agree to the sale and sign the sales contract in order for the sale to be legal.
As with any foreclosure investing, pre-foreclosures require the investor to do his or her homework. If you take the time to learn the trade and perform due diligence on each property, pre-foreclosure investing can be a financially rewarding venture.
About the Author: Alex Diaz has worked in the foreclosure business since 1998. If you are interested in foreclosure listings, or Pre Foreclosures visit Alex's website for more information