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. Start with what the homeowner needs after reviewing why preforeclosures may be your best option to make profits higher than those that you can make at foreclosure auctions or other foreclosures.

Is it a fair business? You are not taking advantage of anybody’s misfortune. You are creating a “win-win situation”: You save homeowners from foreclosure or bankruptcy and help lenders to recover their money. You also deserve your share in return for your efforts and investment. In other words:

Homeowner gets out of debt (and trouble).
Bank/lender avoids bad loan.
You acquire a property, and make it more valuable. And, profit from what you do at pre foreclosure stage.

To be successful, you need to convince the bank. Then, you need to negotiate a good deal with the owner.

Remember: In pre-foreclosure, you need written permission from the borrower to deal with the lender. Otherwise, the lender is prohibited by law to disclose financial information about its borrower.

Four simple steps for successful pre foreclosure deals

Find loans in default. Check lis pendens in your county. The courthouse and newspapers are also good sources of information about preforeclosures.
Get in touch with the owner. Writing a letter and explaining how you can help is effective. --> Stop foreclosure + save owner’s credit rating and perhaps provide him/her some cash in hand. Follow up your letter and pay a personal visit.
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 rehab. Make your offer.

Strategize your pre foreclosure deal

Owners at the pre-foreclosure stage are worried about going into bankruptcy. They have limited time to solve their problems. They may need to have more money to pay their increasing debts and late payments. They will save their credit, and may even get cash out of the transaction if they act on time.
Lenders want to solve the problem before their loan becomes a bad loan. Not only that, but they will also have to acquire the real estate, tie their money to it, and wait for the proceeds from the sale to resolve outstanding loans.
Many people in this situation try to find more money to solve their problems. People often get into trouble as they try to find more money because they end up getting further in debt. Lenders can figure out what is going on pretty easily. The lenders check clients’ credit report, which shows their credit card debts and some other problems. When the owners receive a letter or call from the financial institution stating that their card has been declined, it is too late!

Advise both sides that you can handle the transaction fast and to the satisfaction of all parties. Time is of the essence.

Don’t make your negotiation a personal matter. You are trying to make a real estate deal. Focus on the property. Don’t let the owner take any statement personally.

Many people don’t know about the opportunities that exist before the foreclosed property reaches the floors of courthouse. Finding out the homes that are at pre foreclosure stage is easy. Plan your negotiation strategy, save the owner from bankruptcy, keep the bank happy to avoid a bad loan, and reward yourself for your deal-making.

About the Author: John Anderson worked as real estate agent, Realtor® in Florida and Virginia and certified home inspector in California. He publishes foreclosure newsletters on bank and government owned foreclosures.

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