Pre-foreclosure home listings may provide you the opportunity to find a new home or investment property at a great price. You can find pre-foreclosure listings yourself or through a real estate agent.
What is pre-foreclosure?
Before you hunt for pre-foreclosure listings, you need to understand them. Pre-foreclosure sales typically happen when a homeowner can no longer pay the mortgage and wants to avoid foreclosure. He or she may have received a Notice of Default (NOD), a Notice of Sale (NOS) or a Lis Pendens, which means “suit pending.”
The homeowner may owe more on the mortgage than the home is worth, because house values dropped. In this case, the home may be offered in a short sale, which is a type of pre-foreclosure sale in which the lender agrees to accept a payoff that is less than the mortgage balance. Many pre-foreclosure home listings exist because homeowners are taking proactive steps to rectify a difficult financial situation.
Steps to buy a home in pre-foreclosure
1) Search public records and public notices
You don’t need a real estate agent to search for homes in pre-foreclosure. Pre-foreclosure listings may be found in in public records at your county courthouse and in public notices in your local newspaper. When the lender sends a homeowner a NOD or NOS, it must also file the notice with the county and print it in the legal notices section of the newspaper for several consecutive weeks.
You may go to the county clerk’s or county recorder's office and ask to view these records free of charge or watch the legal notices section of the newspaper. Remember that these notices indicate that the homeowner is struggling to pay the mortgage, not that he or she wants to sell. You or your real estate agent will need to ask the homeowner if he or she is interested in selling during pre-foreclosure. It’s advised that you send a postcard or letter inquiring about a sale rather than knock on the door.
If you'd rather look for homes that are foreclosed, this guide explains how to find them and buy them.
Foreclosure laws in each state dictate how quickly a home can be foreclosed once a homeowner is in default and the rules regarding pre-foreclosure sales. Go here to get specific information about the state in which you intend to buy.
2) Get help from real estate agents
You can find pre-foreclosure home listings several ways. First, there are real estate agents who specialize in pre-foreclosure sales. These agents can help you identify good deals, homes that are in a state of disrepair and home sales in which negotiations will be difficult. They will also talk to homeowners for you, which may be unpleasant if you aren’t sure if the homeowner wants to sell or not. In some cases, homeowners are scrambling to pay the late payments and stop foreclosure proceedings.
You can find real estate agents online, in printed directories or from pre-foreclosure sale signs on properties. An agent representing a pre-foreclosure listing in a neighborhood where you want to buy will probably know of other properties in the area being sold in pre-foreclosure. Real estate agents also maintain business relationships with banks and other mortgage lenders, so they often have information about sales that have not yet been made public. Even if you find a pre-foreclosure sale through your own searches, you may need a real estate agent to negotiate and close the sale, as is the case with government short sales.
3) Search websites with pre-foreclosure listings
The Internet is another resource for pre-foreclosure home listings. Banks, mortgage lenders, real estate agents and government agencies list pre-foreclosure sales, short sales and foreclosure sales online. There are several websites that compile these listings for you and may even send you email alerts. They often charge a fee, so you will need to weigh that cost with the convenience of the service.
One of the best sites to look for homes in pre-foreclosure is the U.S. Housing and Urban Development (HUD) website. Houses in the HUD Pre-Foreclosure Sales Program are short sales. To buy a home through a HUD Pre-Foreclosure Sale, you must use a HUD-approved real estate agent and follow set guidelines.
Rules of a HUD Pre-Foreclosure Sale include:
- You cannot be related to the homeowner
- You must offer at least 88 percent of the home’s appraised value in the first 30 days of the sale
- You must offer at least 86 percent of the appraised value in the following 30 days of the sale
- After the home is for sale 60 days, you must offer at least 84 percent of the appraised value