These methods work in Florida because we have mortgages, however I’m not sure of the process for states that use trust deeds. Much of this information will apply to Florida and its laws, so it’s best to get the general gist and apply it to your area.
I have purchased several properties over the last 6 years in the Sarasota, Florida area by encountering prior foreclosures. Previous foreclosures are simply houses that have been foreclosed on but have not yet sold at auction.
This used to be a great way to pick up undervalued real estate. Recently, however, it hasn’t worked out so well for the super-hot real estate market of Sarasota, Florida. I started with prior foreclosures because I didn’t have the money to buy houses at county auctions. Auctions generally require you to pay in cash on the day of the auction.
Step 1 – Find your county’s website that contains courthouse information. Many counties now have their court information online, however smaller areas may not be that far along yet. Basically, you’re trying to find information about lawsuits.
Step 2 – You will want to search for people who are being sued by their mortgage lender. In my area, the first step to foreclosure is “Lispendence”. Latin for “a pending lawsuit,” a written notice that a lawsuit has been filed that concerns title to real property or some interest in that real property.
When a homeowner defaults on their mortgage, the time it takes for a bank to initiate foreclosure proceedings varies. However, I have noticed that it is around 4-6 months. I suppose that the banks calculate that at that moment the owners are too involved and will not be able to get out.
Every county computer lookup system will be different, so this is where you’ll need to do some research. Typically, you’ll see the big banks or lenders vs. Joe Schmoe. This is the first step in the foreclosure process. These people are going into foreclosure.
Step 3 – Once you have found the “Lis Pendens” create a list of people who are in foreclosure. Take this list and cross-reference it to county property records. Know your local real estate market. I’m a real estate agent here in Sarasota, so I know the real estate market well. There will be houses that you may not want to buy, so there is no point in chasing after them. You also need to know the real estate market to know if what you are buying is a business. There is no point in following these steps if you are only going to be a home for retail. The point is to buy the undervalued house. You need to know the real estate market to determine what is a good deal and what is not.
Step 4 – Get in touch with these people: find the way to get in touch with them that best suits your personality. You can call them on the phone, knock on their door or write them a letter. I took the less aggressive approach and wrote letters. Sometimes these people don’t want phone calls or to be contacted in person because they may have already received harassing phone calls from banks and debt collectors.
step 5 – Try to buy the house. Be understanding of their situation and try to find a win-win scenario for you and the owner. Obviously, you are trying to buy the house at a price that is attractive to you. This price will depend on what you plan to do with the property. If you plan to live there, then you don’t need too much of a discount. If you plan to flip it then you need a bigger discount.
Here are a couple of things to remember about buying foreclosed homes:
- Banks will accept less than what is owed to them. If you find a large mortgage relative to its value, you may need the bank to give you a discount on your mortgage. I have done this with clients when selling their home. However, the banks are not stupid and they know that real estate values have been rising in recent years, so it can be difficult.
- Here in Florida, the foreclosure process from start to finish typically takes 3-6 months.
- You can get someone out of foreclosure until the actual foreclosure sale and, in some cases, even after the sale.
- Legitimate lenders don’t want to foreclose and repossess homes.
- In most situations, you will be dealing with the foreclosure attorney, not the actual bank filing the foreclosure lawsuit.
This information will help you find pre-foreclosures to buy. To finish, I will say that it is since November 2003 that I bought my last house in this way. I bought a house for $69,000, spent about $30,000 cleaning it, and as of today it will cost about $270,000. Of course, house prices in my market have increased dramatically since I bought that house.
Lately, like other markets, my market has been too active to find such an undervalued property. With the number of articles in the local paper, most people are aware of how hot the market is. However, in recent months the market has slowed down. As a real estate agent, I have seen many people struggle to get into a house that they really can’t afford. Flexible lending policies should lead to more foreclosures. Good luck.