Pre-Foreclosures for Absolute Beginners

Pre-Foreclosures for Absolute Beginners

We hear the term pre-foreclosure thrown around by a lot of people, yet many don’t even comprehend its full meaning and what it brings to the table. Here is a mini-guide into pre-closures and what it means to all of the involved sides.


Pre-foreclosure 101

The term pre-closure defines a legal situation in which certain property is on track to be repossessed. It all starts with the lender filing a formal notice of default on the given property. Formal notice of default is issued when the owner stops paying the mortgage payments. The notice is there to inform the owner of the imminent legal action unless the mortgage debt is not paid.

At that point, the owner has two options. One is to cover the late payments which will effectively reverse the default status. The other one is to sell the property before the foreclosure.


You might ask why people fail to make their mortgage payments. Usually, there is some negative event that leads to that unfortunate situation. For example, a job loss, recent divorce, illness, and so on. Such unfortunate events can easily trigger that type of situation.

Why buy a house in the pre-closure phase?

If you are on the market for a new home, looking into houses that are in the pre-closure phase is something that you should consider.

First and most important of all is the fact that you will be looking at houses below market value. Usually, the owners are in a rush to sell the house before the bank takes possession of the house. As a result, they offer the house at a below market value.

Furthermore, house owners whose houses are in the pre-closure phase potentially have a ruined credit rating. By selling quickly and at a discount, those homeowners can sometimes repair their bad credit, at least to some extent.


From the owner’s perspective, it is also far better to sell the house on their own because of several reasons, most importantly, because they usually get a better deal than if the house is listed on an auction.

How to Close a Deal?

If one is able to identify a suitable house that is in its pre-foreclosure stage, the single biggest challenge is to get the attention of the homeowner. The thing is that every default of notice is public which means that you are not the only one aware of that particular case. In most cases, homeowners receive a lot of offers from various parties. The trick here is to find a way to communicate effectively with the owner and gain their trust.

If you manage to establish that, you also need to make sure that the house and the property has a clear title. If everything is in order, then both parties will need to sign the Real Estate Purchase and Sale Agreement.


Assuming all goes well, all the legal procedures and documents are in order, it is very likely that you have purchased a home below its real market value.