You may have seen the term “pre-foreclosure” on a property listing and wondered what that means? It sort of sounds like maybe the right buyer will step in and get a swell deal on a property before anyone even knows about it, right? Or maybe it’s a secret handshake deal between a lender and a potential buyer just before they lower the boom on a property owner.
In reality the term pre-foreclosure generally refers to a property who’s owner is behind on their mortgage payments and has been notified by their lender that they need to take immediate steps to make the payments or risk being foreclosed. It doesn’t mean that the property is necessarily for sale or that the lender has the ability to step in and sell it. More often than not it means the owner knows they need to do something or risk having a foreclosure on their record, a damning prospect going forward.
An owner who is in pre-foreclosure may be motivated to sell at a loss and, if the property is in great shape, a potential buyer may get a great deal. There is also a chance that the owner has known for a while that they might lose the property and has neglected the upkeep, leaving behind a rehab nightmare for the next owner.
There is also an equally good chance that the primary mortgage holder may not be the only one in line to file a lien if the property is sold. Any potential buyer looking to pick up a property in pre-foreclosure should do all due diligence in researching title records and make sure that they understand where they stand if they intend to risk investing their money. Certain times these properties require an all cash purchase.
There is, however, a safer approach to investing in a pre-foreclosure opportunity. If you see such a listing or hear of one that piques your interest, contact a mortgage or foreclosure professional and talk to them about the potential purchase. They can help you assess the chances of the property actually hitting the market and whether or not there might be hidden risks associated with a purchase.