So, You Want To Buy Pre-Foreclosures?

So you want to buy pre-foreclosures? So many investors ask me about this method of finding deals. Here's my 30-second seminar on the topic. If you're going to buy PRE-foreclosures--after the seller is behind on their payments, but before the lender's auction date-then there are some pros and cons to consider.

Pros:
• There is a good possibility of buying the house subject-to the loan from a very motivated seller who just wants out.
• Information on the homeowners in pre-foreclosure is public information, and readily accessible (although this can also be a con – see below)
• Foreclosures across the country are at an all time high.

Cons:
• Depending on your state, you either have so little time before the auction date that it is almost impossible to contact the homeowners, obtain signed contracts, run title, obtain funding, and close – or – the auction is so far away that the homeowners are not even motivated by the threat of foreclosure. The truth is that they can probably live in the house rent free for a year or more.
• Most pre-foreclosure homeowners are in denial about their situation and/or angry that their private situation has become public knowledge.
• Everyone and their mother contacts these sellers once they hit the pre-foreclosure list. It’s not just investors, but also real estate agents, bankruptcy attorneys, and forbearance consultants.

If you want to focus on pre-foreclosures as a method for finding deals, then you want to stand out from the others. You might want to try unusual mailings. Have you ever received an envelope with a pen or something bulky inside? Could you resist opening it? No, you had to se what was inside. There are companies that specialize in these type of inexpensive premiums to place in your direct mail pieces. They even have unusual mailing containers (trash can, coconut, stick of dynamite) that make your advertisement stand out. The trick is to get your marketing piece read, remembered, and acted upon. The other thing to remember is that it takes multiple impressions – so you have to mail numerous times: 5-7 before you’ll even get noticed. Consistency is critical. Don’t give up.

Develop your plan for contacting the homeowners on a regular and consistent basis. If there is a long foreclosure process in your state, then you may want to consider one initial mailing when they hit the list, then only one more contact each month until your are closer to the auction date at which time you may step it up to once a week. Remember that most of your competition will stop contacting these homeowners long before the auction. The sellers who wait until the last minute are usually faced with far fewer options – that’s a great time for you to contact them.

When you do speak to these homeowners, remember to be sympathetic, but not condescending. Act as a consultant helping them to find a viable alternative to destroying their credit and their future chances at a new mortgage. What they want more than anything is relief and respect. Provide both, and you have a great chance at a deal.


Best of Success & Abundance,

Lou Castillo

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