Distressed real estate like foreclosures and short sales can offer investors a significant bargain to help them profit. Pre-foreclosure listings are among these properties, but are sometimes overlooked compared to definitively foreclosed homes or other distressed properties that can be sold at a discount. However, there is much opportunity in locating homes in the pre-foreclosure stage.

What Is a Pre-Foreclosure?

A pre-foreclosure is when a house “in-between” the homeowner owning it and foreclosure- the time gap between nonpayment and bank repossession.

A pre-foreclosure sale happens when a homeowner stops giving mortgage payments and the bank sends them a Notice of Default (NOD), a Notice of Sale (NOS) or a Lis Pendens. All of these mean that the bank will seize the property and soon start the foreclosure process.

Pre-foreclosure properties are often sold below market value and are excellent opportunities for anyone in the real estate investing space.

How to Find Pre-Foreclosure Homes

You can find pre-foreclosure homes in a variety of ways. Some easier methods involve directory memberships or a one-time payment, while others are free but require more work. Either way, it’s not obscenely expensive or time consuming to find pre-foreclosure leads.

1. Buy online pre-foreclosure information.

The easiest place to find pre-foreclosed properties is to just buy a list from a directory that does the work for you. Preforeclosure.com is a good place to start. Each service has different plan and price settings, so pick the one that works best for you.

2. Search public records in person.

Paid services look through public records for you, but you can easily do this process for free if you have some time on your hands. Visit your county recorder’s office and look for properties with a notice of default or notice of sale. These are public notices that are given to homeowners in the pre-foreclosure process. In these notices, you’ll usually get the lender’s name, amount the borrower owes, property owner’s name, relevant contact information, and the preforeclosure’s address.

3. Search the MLS.

For a marginal fee, you can find preforeclosure homes on the Multiple Listing Service, also known as the MLS, a database of properties for sale. This is the same system real estate agents use, and you can search for properties by status, whether it’s a regular sale, foreclosure, preforeclosure, short sale, and more.

4. Look on free directories like Zillow.

While they don’t update as quickly as the MLS, sites like Zillow and Redfin offer substantial information about distressed properties for free.

5. Network with real estate professionals.

People in the process of foreclosure are often in contact with real estate pros to find a solution for their home. Therefore, getting to know other people in the field can connect you with more of these properties.

Wholesalers, brokers, real estate agents, real estate attorneys, investors, and mortgage brokers can know people navigating foreclosure. If you’re a cash buyer, they’ll want to know you better for sure. You may even hear about these properties before they officially become pre-foreclosures!

6. Check the local paper for “lis pendens.”

Don’t knock the old-school methods! Local newspapers are surprisingly good resources to find pre-foreclosures. If your paper has a legal section, look for Lis Pendens – which is Latin for “pending suit” – this will list all the homes in the area that have been given notice of foreclosure. Thankfully, you can find this information both in print and online!

Pre-Foreclosure vs. Foreclosure

Pre-foreclosure refers to the time gap between notice of mortgage nonpayment and bank repossession. During preforeclosure, the owner still has rights to the home and therefore a chance to make a deal with the bank or find a solution for their home.

Foreclosure homes are fully repossessed by the bank and sold at auction. The former owner has lost all rights to this real estate owned property and has to vacate it.

The Pros and Cons of Pre-Foreclosure Homes

Real estate investors make big decisions to propel to their business forward. Integrating pre-foreclosures in your search widens your home buying net. But before you proceed, here are the pros and cons of pre-foreclosure homes.

Pros of Pre-Foreclosure Homes

  1. They are often sold at a discount and on a fast timeline because the owner wants to avoid the credit hit of a full foreclosure.
  2. Since they are often harder to find, there is less competition for them.
  3. Since pre-foreclosures are often occupied, they are typically in better condition than REO and foreclosed properties that have been sitting vacant.
  4. Bank-owned homes are easier to negotiate prices with since they aren’t emotionally invested in it and also want to get rid of the house to avoid foreclosure.
  5. Home inspections are available during the due diligence process.

Cons of Pre-Foreclosure Homes

  1. While pre-foreclosures are usually in better shape than foreclosures, they aren’t pristine like new homes and typically need some work.
  2. For HUD pre-foreclosures, the buyer cannot be related to the homeowner and there are certain payment thresholds to meet to within a strict timeline. Note: Not all pre-foreclosures are HUD homes.
  3. Pre-foreclosed homes often cost more than foreclosed homes.
  4. They can come with surprise costs. For example, there may be unpaid taxes or liens, which you’ll be responsible for paying.

How to Buy a Home that is in Pre-Foreclosure

To buy a home that is in pre-foreclosure, you maximize your chances by working with a realtor experienced in working with investors. Pre-foreclosures can be on or off-market, especially in the early stages. A seasoned realtor has the connections to find these properties, delivering much better results than working alone. It is also easier to buy pre-foreclosures with cash or a robust line of credit since the bank has steep financial requirements and a tight timeline.

Finding Pre-foreclosure Homes

If you need investment properties, then you’ve come to the right place. Marketplace Homes has been active in the property management space for over 20 years. As a result, we have a network of investors who trust us to source homes. We also just launched Marketplace One, a full-cycle real estate service that provides everything you need- from investment sourcing, property management, to disposition – under one roof.