There is less competition in buying pre foreclosures than there is when buying at foreclosure auctions. Some people do not know how to find pre-foreclosure or probate house opportunities and some people fear dealing and negotiating with lenders.

Lis Pendens (notice showing a legal action is filed and pending) are documents posted in county and city courthouse buildings listing home owners who cannot pay their monthly mortgage installments and taxes.

How much time do you have?

You can find the best buys by contacting homeowners before the lender takes over. You can make arrangements with homeowners and lenders to make both parties happy while you get a good deal.

You can act to make an agreement from the listing day until the property is offered for sale at auction. This may take about 90-120 days in different states.

Advantages for all parties

Lender and the home owner are motivated to resolve the default situation at pre foreclosure phase. Here are some of the reasons motivating the parties involved:

You "quit claim" the property and take over the mortgage payments. Now, you own a real estate property at much below market prices.
Previous owner is relieved of his debt and stays sound financially. You are helping the troubled homeowner.
Bank is happy to have a new borrower who is in better financial status. You rescued the mortgage loan.

How can you do it? It's simple!

Find Lis Pendens and locate mortgage loans in default.
Contact homeowner and bank.
Find out what homeowner and bank need and assess their motivation.
Obtain information on prices of similar houses in the neighborhood to determine the price that you will offer after calculating the closing costs and your profit.

Get more information on pre-foreclosure procedure in your state

Each state has its own foreclosure procedure in which pre-foreclosure procedure also takes place. Find the foreclosure law applicable in your state to start. Determine whether you are in a judicial or non-judicial state.

It makes more sense to be careful about pre-foreclosure purchase of the property especially in states where the owner has a right of redemption (see definition in foreclosure glossary).

Contact pre-foreclosure home owner for friendly conversation

Contact the owner of the pre-foreclosure property by direct mail rather than by telephone. You need to reflect your sympathy in your letter to get an appointment.

Negotiation tips to prepare acceptable low-cost offer

Pre-foreclosure negotiation home purchase is a very delicate matter. First, you need to exercise great caution not to hurt the feelings of the homeowner who is already in big problem.

You need to demonstrate that you are not taking advantage of the situation and but trying to make a reasonable offer by addressing the needs of the property owner.

Inspect pre-foreclosure property with a professional home inspector

Inspecting a pre-foreclosure home is not very different than inspecting a regular home. However, you need to make sure that the owner who is in financial trouble did not cause any harm to the property until vacating the property. (See home inspection for details.)

Arrange your financing for pre-foreclosure home purchase

In most cases, your will be dealing with the lender who is in trouble collecting its mortgage installments. You can negotiate a better deal by making your financing through the same lender unless you can find a better deal or have a pre-approval letter from your own lending institution.