Pre-Foreclosure Procedure
Pre-foreclosure procedures differ from one state to another
Learn pre-foreclosure procedure in simple terms
There is no single law or procedure covering all foreclosures in the United States. Each federal and local government agency applies different rules. However, learning this procedure is not difficult. And, once you go through buying a pre-foreclosure home, then, you are in the game forever!
Prepare a detailed checklist for the steps that you need to take. This checklist must cover from contacting the owner of the pre-foreclosure property to the inspection and purchase of the property.
Beware of home equity sales contract statutes in some states (as in California) containing provisions that prohibits buyers using certain techniques to force homeowners to sign purchase agreements.
Your initial steps in preforeclosure home buying process
Here are the steps of pre-foreclosure opportunities:
- Find loans in default. Check lis pendens in your county. The courthouse and newspapers are also good sources of information.
- Get in touch with the owner. Writing a letter and explaining how you can help is effective. Making a telephone call may not be effective as the psychology of the foreclosure home may not be suitable for such conversation. Follow up your letter and pay a personal visit after getting an appointment.
- When you talk to the owner, investigate whether there are other liens or judgments on the property. Look at the property, tell the owner about things to be taken care of. You may also mention approximately how much the property will cost to repair.
- Calculate the equity. Estimate your profit after repairs, if any. Make your offer.
- Stop foreclosure, save owner’s credit rating, and perhaps provide him/her some cash in hand.
You need to know your state's procedure that applies to pre-foreclosures
You need to get a copy of documents containing information on:
- type of foreclosure action adopted to foreclose on mortgage and deed of trust loans;
- whether your state applies judicial or non-judicial foreclosure process; and
- statutory period allowed until actual date of foreclosure.
In judicial foreclosure states, the lender must file a lawsuit against the homeowner in default. The lawsuit is brought to the court where the judge schedules a date for foreclosure if the lender presents all convincing evidences.
In non-judicial states, the lender initiates the process by filing a notice of default. A public sale by the public trustee is decided upon.
In both cases, the property is sold to the highest bidder in public auction.
Timing of your action to buy pre-foreclosure property
Get first-hand information on defaults by the homeowners in your area. Contact the homeowner by direct mail to get an appointment for learning more about owner's financial problem.
Make another appointment with the homeowner after you calculate the home equity and decide that making an offer is worth the effort.
Time is of the essence. You need to act between the dates of default and scheduled foreclosure auction.