Reviewing some of the advantages and disadvantages to buying homes in pre-foreclosure from state governments

Free Real Estate Services

Buying homes in pre-foreclosure from the state governments can be a great way to purchase the house of your dreams at a significantly low price. Before you jump into making a state pre-foreclosure purchase, make sure you understand all the opportunities and pitfalls you may come across throughout the process. The more information you have, the better prepared you’ll be, reducing the stress that often accompanies the purchase of a pre-foreclosed home.

When you make the decision to investigate state government pre-foreclosures in your area, you must first understand what a pre-foreclosure is. The pre-foreclosure stage is the time between the issuance of a lis pendens. or a Notice of Default. and when the lender places the property in foreclosure and schedules a sale (usually an auction administered by a County Sherriff). This time period can last for a few weeks or up to several months and is the best time to purchase a house at a price that is below market value. This is also the most stressful time to purchase a home because the owner can stop the foreclosure process at any time by paying what is owed or selling the home.

Finding homes in pre-foreclosure status in your state requires a little research on your part. Each state has varying agencies responsible for claiming, maiontaining and in essence “owning” properties. If a state-backed home falls into pre-foreclosure status, public notice of the Default status of the property is required and there are many services (online and through the appropriate state agencies) that keep curret records.

Advantages

One of the biggest advantages of choosing a home from the state government pre-foreclosures list is the price. First-time homebuyers, property investors and contractors are especially interested in purchasing pre-foreclosure homes because of the low price. A first-time homebuyer might not otherwise have a chance to purchase a home if it weren’t for the price. Property investors and contractors look for these cheap homes in order to fix them up and rent or sell them, and thus turn a profit.

One other advantage to buying home in the pre-foreclosure stage is that you may have more options for financing. Foreclosed homes are nearly always sold at auctions and nearly all of these auctions are “cash” auctions. In the case of a pre-foreclosure purchase, you can generally get more traditional financing in place for making an offer. In fact, you may even have the option of working with the original lender on a property in pre-foreclosure to work out some creative financing such as paying off any arrears and assuming the original loan.

Disadvantges

Since the pre-foreclosure stage is a volatile one, there are a few pitfalls that you may come across when trying to purchase a home. The biggest complaint from most people buying a pre-foreclosed home is the length of time it can take to complete the deal and process papers. It’s a classic “hurry up and wait” scenario as the time between pre-foreclosure and foreclosure can be short, but the process to get an answer on your offer can be drawn-out. Since a pre-foreclosed home is typically sold for much less than the original loan amount, special approval is required from the lender and any sponsors. The length of time this process takes depends on how long the bank deliberates over your offer and any competing offers. Sometimes a bank will not accept the first offer and will ask for a higher selling price. Sometimes a bank will reject your offer without giving any reason why. Sometimes a bank will accept a “worse” offer from another bidder for undisclosed reasons. This negotiation can go back and forth until a deal is made or the buyer decides to back out.

Another pitfall of purchasing a house in pre-foreclosure is that these homes are usually sold as-is. This means that the current homeowner will not make any improvements to the house as a condition of the sale. It is imperative that you have an inspection done so you know what you are getting into if you decide to move forward with the purchase.

There are many opportunities and benefits to buying a pre-foreclosed home in your state, and the best thing to do if you chose to consider a pre-foreclosed home is educate yourself on the process. It also helps to have experienced counsel on your side. Reply! can help in the process by putting you in touch with local real estate professionals who have that experience.

Free Quotes! Click here to get your Real Estate estimates now!

Larque Goodson is an real estate editor at Reply! She has 20 years of experience in photojournalism and marketing. To share ideas about real estate, find her on Google+ .