Monica Katcher – Miami Herald Reports:
What is a preforeclosure? This is property in the foreclosure process but not yet owned by the bank. The borrower is generally 90 days or more late on the mortgage and has about three to six months to resolve the situation before the home is sold at auction.
Under normal conditions, such borrowers often slash their asking prices to avoid ruining their credit, meaning buyers who identify these sellers can often get significant discounts.
In today’s market, when home values are tumbling, however, the majority of homeowners entering foreclosure are upside down and owe more on their mortgages than the market value of their properties. That means buying preforeclosures most likely will involve negotiating a short sale with the lender who agrees to accept a sale amount less than the note due.
These can be complex and time-consuming negotiations that take an average of three to six months to complete, according to Jeanette Escudero, a title attorney who specializes in negotiating short sales. For determined buyers, though, they can be worth the effort, yielding discounts of 40-50 percent.
An advantage of a preforeclosure over a bank-owned property is the chance of getting a home that’s in pretty good shape because the owner has most likely been living there. You are also working with motivated sellers.
But remember not all preforeclosures are for sale. Often, buyers must convince property owners a short sale is in their best interest. Abandoned homes cannot be bought through short sales because lenders must proceed through the court system to obtain title.
Here’s how to proceed:
Research the property. There are several subscription services that provide listings of the first public notice of a foreclosure lawsuit for a monthly fee.
Otherwise, such filings (called lis pendens) can be searched free on the Miami-Dade County Clerk or Broward County recorder’s websites. These filings often do not contain addresses, only legal descriptions. This adds an extra step of research at the property appraisers’ websites.
Some delinquent borrowers will attempt to sell before foreclosure, so many preforeclosures are listed with real estate agents on the MLS as short sale offers.
Find out how long the home has been in foreclosure. Short sale negotiations take time and do not necessarily stop the clock on a public auction.
To craft a good offer, you also should find out the market value of the home, the amount of the original mortgage, and other liens and legal problems encumbering the property.
Approach the homeowner. If a property is not listed for sale, contact the homeowner. Do this with extreme care. Delinquent borrowers are likely getting dozens of phone calls and letters from creditors and business owners selling their services.
Experts recommend leaving a handwritten note to break the ice before calling or knocking on the door. Hire an agent to work with the homeowner if they agree to cooperate with you.
Submit an offer. The lender’s goal is to lose the least amount of money possible. Low-balling might get you nowhere, and some lenders do not make counter offers. Since short sales take a lot of time, you want to consider your offer carefully. Include evidence of your loan preapproval and earnest money.
Despite the home’s market value, consider how much the lender will lose. Factor in the cost of settling other liens as well as closing costs. Lenders will be following their own internal policies. They also may be considering numerous offers simultaneously.
Cash offers with no contingencies carry the most weight, Escudero said. Every concession a lender is asked to make is viewed as a loss, so most sales are offered “as is, where is.”
Make your offer contingent on the lender’s acceptance, and set a time frame for a response.
Close the deal. When a lender accepts your offer, they will pick up the seller’s closing costs, but not home warranties, homeowner association transfers fees, and so on.
(See a list of Short Sales on the Zilbert Realty website: http://www.zilbert.com/short_sales/short_sales.asp
