What Is A Pre-Foreclosure House?
May 14th, 2021
Learn what a pre-foreclosure house is, how to talk to these motivated sellers, and the steps to closing the deal...
A pre-foreclosure happens when the owner has missed mortgage payments and the bank wants to recoup its money. In this article, you’ll learn how to find pre-foreclosures and how to flip them in 4 simple steps.
Stages of Foreclosure
The first stage is called pre-pre-foreclosure. This happens when the owner of the house misses their first mortgage payment. If they continue missing payments for 3 months, the bank will file a notice of default, which puts the house into the second stage, known as pre-foreclosure. At this stage, the bank begins legal proceedings, and the house is on public record as being in pre-foreclosure. The final stage is an auction sale. That can happen between 3 months and 12 months after the pre-foreclosure start date. On the auction date, the owner loses all rights to the house.
During the foreclosure process, owners often ignore the problem, hoping it will go away. The goal here is to get them to deal with it before it is too late, so they can avoid a foreclosure on their record.
Watch this YouTube video where Jerry Norton teaches you how to buy pre-foreclosure houses.
How To Find Pre-Foreclosure Houses
You can find pre-foreclosure houses on Zillow or other real estate websites, but the fastest and easiest way is to subscribe to Jerry Norton’s Flipster software and get pre-foreclosures leads with the seller’s contact information (including phone number)! If you haven’t heard of Flipster, it’s a cloud-based platform that helps you organize, streamline and automate all the steps to wholesaling and flipping houses. It also comes with millions of motivated seller leads across the country, including pre-foreclosure leads. To learn more and see it in action, CLICK HERE.
After finding a pre-foreclosure, the next step is contacting the owner. You can do this by mailing postcards, texting, calling or knocking on their door. Contacting a distressed seller can be intimidating, which is why a script is helpful. The trick here is to use a script (but not to sound like you’re using script). You want to sound confident and empathetic to their situation. Luckily, Jerry Norton has the perfect script for talking to motivated sellers, which tells you exactly what to say and how to overcome common objections! To get your copy of Jerry’s Motivated Seller Scripts, CLICK HERE!
Note: Always check laws in your state because in some states, contacting a seller at the pre-foreclosure stage is illegal.
Once you get your foot in the door with the owner, then follow these 4 steps to close the deal.
Find out when the auction is! You need to know what timeline you have to work with.
Find out the exact amount owed on the house. The easiest way to do this is to have the owner ask for a payout amount from their mortgage company. This is common for mortgage companies to do and is often very quick. The reason for doing this is simple: you have to know if they have enough equity in the house to do a deal.
You need to decide the best way to handle the financing. Does an all-cash deal work, or do you need to explore creative financing? Creative financing can be seller financing, subject-to, land contracts, or lease options. You can learn about these in Jerry Norton’s free guide called Creative Financing Hacks. CLICK HERE to get your free copy!
Watch this YouTube video where Jerry Norton teaches you about the different types of creative financing.
Also... check out this article if you want to read more about creative financing options.
Decide on the exit strategy. Do you want to fix and flip, wholesale, or make the house an income property and rent it? Once you have your exit strategy, then execute and close.
That’s it! Those are the 4 simple steps to flipping a pre-foreclosure house. Just remember, work pre-foreclosure leads as a problem solver. If you approach sellers as a helper, you will stand out from the crowd because chances are they have already been contacted by other investors that just want to make a quick buck. If you have empathy for the homeowner, they will appreciate it and want to work with you.
Remember, these sellers are often stressed out, overwhelmed and discouraged. They might not want to sell and would rather ignore the situation, but you have to make them see the urgency of the problem. Getting something for their house is always better than getting nothing at auction. Plus, you’re helping them avoid terrible credit and a foreclosure on their record.