How to buy a preforclosure?

[Sunshine Rules]

Lis Pendens is Latin for suit pending. It could indicate a lender starting the foreclosure process but there are other reasons for Lis Pendens filings as well -- divorce disputes, contested wills, unpaid taxes, etc. Not all properties with Lis Pendens fiings actually end up being foreclosed upon.

There are also two common types of foreclosures. In a judicial foreclosure, typically required for mortgage loans, the bank must go through the court. In a non-judicial foreclosure, typically allowed when a deed of trust is used, the court is not involved. The type of foreclosure you’re subject to will depend on your loan contract and what state you live in. Judicial foreclosures can take up to 1 - 2 years from filing to actual foreclosure.

If the seller owes more than the property is worth and can't make up the difference or negotiate an agreement with the lender, the only alternative would be a short sale, in which the bank agrees to the sale of the home for less than what the owner owes on the loan. Obviously, even if you and the seller work out a sales agreement, it would have to be subject to approval by the seller's lender -- which many sellers are less inclined to do in today's real estate market.

If the homeowner doesn't work something out with the bank, the property goes to foreclosure auction. Auctions are typically held live in front of the county courthouse or at a location approved by the local government. You can also bid on foreclosed properties online. In some cases, you may be able to contact a representative of the lender and inspect the property before the auction. But there are no guarantees, and once the bidding starts, the property is sold as-is. You may also become responsible for any other unpaid liens (such as HOA fees, past due utility bills, code enforcement liens, etc), so do your research carefully before approaching a foreclosure auction property sale.


The final stage you can purchase a foreclosed home is in a Real Estate Owned (REO) sale. This means that the property did not sell at auction and is simply sitting on the lender’s books waiting for a buyer. These properties typically get listed either with an online auction site or with selected local real estate agents.
If the property is in fairly decent shape, they typically get listed at a current market value, so no big savings. Sometimes REOs are listed at a discount – but for good reason. If it didn’t sell at auction, there is likely something wrong with it. There is likely a valid reason the property wasn’t purchased at auction, and it may require serious work (such as structural work or mold remediation) or be in an undesirable location for investing.


Keep in mind that the "pre-foreclosure" listings on many of those sites aren't necessarily updated on a regular basis. It just means at some point in time a Lis Pendens was filed in court. The owners could have already mediated the terms of their loan with the lender, sold the property or are simply waiting out the foreclosure process until the property is foreclosed upon and they are then given notice to vacate. If you do find one of these listings interesting, check the local county clerk of court records for legal filings. That will give you a better idea as to what is going on with that particular property.


You may have better luck searching FSBOs (for sale by owner).

[Taratova]

Look for an REO .It is a house that is bank owned already and you can walk through it with the realtor and check everything out.