What are the advantages and disadvantages of buying a pre-foreclosure?

Question

I understand a preforclosure means the bank has not yet taken possession (the owner still owns the house). but will the seller be easier to work with or the bank when it does become an actual foreclosure? If I wait, can I count on the bank listing at a lower price than what it is now listed at?

Answer 1

When working on buying foreclosure properties at any point, you have to realize that you do not have time to fool around, because there is no shortage of people that want to buy a home for $100,000 under market value. The really good deals last about five minutes.

On the other hand, you can buy a really bad deal in a hurry, too, so making snap decisions will cost you money.

You have to know how to check the land records yourself to find all the liens against the property, how to estimate current loan payoff amounts, and how to estimate the cost of structural matters. And you have to be able to do all of that faster than the other people that want to do what you're doing.

In my experience, banks don't negotiate much with buyers. They will sometimes negotiate with sellers, but they aren't interested in getting into negotiations with someone that may or may not actually buy.

However, sellers can be hard to work with if they have no equity. They don't like the idea of signing a contract that has them bringing money to the closing table, in the hopes that the payoff can be negotiated for less than the full amount.

Once the bank owns it, it's anyone's guess whether they are easier to work with, or will give a lower price. Sometimes the block to a seller sale is the second mortgage, which is now gone, and you can get a better price. Generally their contracts are so lopsided on the non-price terms that it is actually a chore to get them to the closing table.

It varies. Buying foreclosure properties at any stage is not for the faint of heart. If you're new to real estate, get a really good attorney, as the pitfalls are pretty deep.

Answer 2

Personally, I see no advantage to purchasing a home that is in the 'pre-foreclosure' phase. Years ago, purchasing a foreclosure home was usually a good buy -- not so today! Many homes that will be foreclosed on in the future have too much debt on them to be any great bargain when the jig is up. Banks are not as flexible with the prices and you would do just as well to look for homes with a realtor and make offers on homes. Sellers who are in that 'pre-foreclosure' phase are usually in dire straights and it is never easy to deal with people whose backs are against the wall (literally!) It's a buyer's market out there -- be sure you check out the normal channels for purchasing a home before you get caught up in the business of dealing with amateur sellers. Unless you are very savvy in these matters, you will be glad you had the assistance of a good buyer's agent when purchasing a home. They cost you nothing (sellers pay the commission) and they will work their fannies off to find you the house of your dreams -- and then walk you through the process to the closing table. Well worth it!

Answer 3

The advantage of a pre-foreclosure deal is that you are negotiating with the owner, not the bank; the owner may be willing to sell his equity (if there is any!) cheaply to avoid having a foreclosure on his record. The disadvantage is that you then need to deal with the due-on-sale clause in the mortgage, whiich means negotiating with the bank. You may be able to take over the existing paper, or may not, depending on your credit record and what has happened to rates since the original mortgage was written. I think that if I were trying this, I'd talk to the bank first and see what they have to say.

Answer 4

You can't always count on the bank to list it at a lower price because they are going to want to get their money back from the default on the loan. So at the very least, they are going to try to recover that outstanding debt. The current owner will try to preserve their credit, so even if they don't get their full asking price, they may be willing to sell just a little lower than their outstanding debt - preserving a good credit is better than bankruptcy any day of the week.

Answer 5

no, if the bank gets the property, it would most likely go up for auction. that would mean that many people would have a chance to make an offer, driving up the price a little. it may also be tieed up in court for months before sale. if you can get it before foreclosure, you can use the leverage of keeping someone out of bankruptcy to lower the price. offer them exactly what they owe on the house. they keep good credit and you get a steal.

Answer 6

Sadly foreclosures are in abundance.I say sadly becuase plenty of people suffer when they lose their homes to forclosure. The biggest disadvantage is they are sold as is. One advantage is there truly are great deals to be had that will put you in equity the minute you close.