Someone else’s loss can be your gain. Homeowners who can’t keep up with their mortgage payments are at risk of losing their homes at a sheriff’s sale, so they are motivated to sell them before that occurs. Before starting your hunt for a house heading for a sheriff’s sale, make sure you have your financing preapproved by a lender beforehand. A good deal on a home in pre-foreclosure goes to those who don’t have to scramble for financing after the fact.
Understanding the Pre-foreclosure Process
Pre-foreclosure is the initial step in the foreclosure process. When the lender sends a default notice to the homeowner, the borrower is generally two to three months behind in his mortgage payments. The homeowner may decide to sell the house or make an attempt to work out a settlement with the lender. The lender may postpone a sheriff’s sale if the homeowner informs them that he is selling the home to pay off the mortgage.
Foreclosure usually begins with the fourth missed mortgage payment. How long it takes to proceed to a sheriff’s sale depends on state law, but in many cases, it may take six months to a year.
Working with a Real Estate Agent
Find a real estate agent who specializes in foreclosures and distressed properties. These agents often work with banks that want to avoid the costly foreclosure process. A real estate agent should know the "comps" for homes in the neighborhood, which you would otherwise have to research for yourself.
While working with a real estate agent to find a pre-foreclosure is probably the easiest route, it’s not the only one. You can find homes in pre-foreclosure on your own if you head to your county records office and search for notices of default. Other options include checking out the legal notices in your local newspaper for properties in default or visiting real estate websites, such as Zillow, that list houses in pre-foreclosure.
Contacting the Owner
If you find a house you like, the next part is tricky. You or your agent must contact the homeowner and let her know of your interest in the property. A phone call or letter is the best way to go. Keep in mind that this is likely a very difficult time in the homeowner’s life, so tact is needed. If the owner permits, ask to inspect the property. The condition of the house gives you an idea of the extent of any repairs and maintenance needed, although you would need a professional inspection for an exact estimate.
Find out what the owner wants for the house and make an offer. As with any sale, some owners are flexible on price, and others will not budge. Don’t expect the owner of a pre-foreclosure to do any painting, carpeting replacement or repairs that you may expect from a standard home sale transaction. These homes are sold "as is." Once you and the owner have completed negotiations, have your agent or a lawyer draw up a purchase agreement.
Buying at the Sheriff’s Sale
If you found a house you really liked but weren’t able to purchase it during pre-foreclosure, you may have an opportunity to buy it if it does go to a sheriff’s sale, or auction. The sheriff’s office conducting the sale should list properties on its website, and they also appear in the local paper’s legal notices section. Most jurisdictions hold sheriff’s sales at least once a month. Before you can bid on the property, you must have your funding certified. Properties usually have a reserve on them, meaning bids below that amount are not considered. If you are the winning bidder, you may have 30 days to close on the property, although the amount of time varies by the sheriff’s office.
A graduate of New York University, Jane Meggitt's work has appeared in dozens of publications, including PocketSense, Zack's, Financial Advisor, nj.com, LegalZoom and The Nest.