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.

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.

What do you need to do not to miss the preforeclosure option?

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

Remember: During pre foreclosure stage, 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.

Here are the steps to take advantage 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. à 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.

Reasons for foreclosure acquisition:

Foreclosure as a result of government insurance, or guarantee
Confiscation
Tax default
Seizure by the customs
Government surplus
Unclaimed property

What types of real estate properties?

Real Estate Owned (REO): REOs are typical fixer-uppers. They are vacant. People who cannot afford to pay mortgage installments start ignoring the property. They could not afford to spend money on it. Furthermore, some occupants damage the property because of their problems.

Lenders prefer to sell the property “as-is” rather than fixing it up. Remember, lenders are not in the real estate business; they are not in the repair business either. They are in the lending business; and they are under legal and accounting obligations to get rid of such properties to reduce the total amount of their non-performing assets. They have to stay liquid to meet federal and state requirements.

REOs are on the liabilities side of their balance sheet rather than on the assets side. That’s why they want to sell them as soon as possible to recover their receivables.

There are no rules set forth for selling REOs by lenders. Each lender applies different rules. Accordingly, make another offer if your first offer is not accepted. Change your terms and see if the next offer is found to be attractive.

HUD-Owned Homes: Properties owned by the Department of Housing and Urban Development (HUD) are the most popular. HUD/FHA (Federal Housing Authority) does not make the loan; it only insures the lender against loss in the event of default. FHA helps you when you cannot obtain a conventional loan. With FHA insurance, the conventional lender feels comfortable extending you the loan you want. Furthermore, you can get the loan with minimal down payment since a government agency supports your loan.

HUD provides insurance to lenders that extend loans to homebuyers under the FHA based on the home’s market value (after-repair value).