9 Tips for Buying a Preforeclosure (Especially If It’s Your First)
What should you know about buying a preforeclosure: A home that looks like it’s in good shape, and the price is neither suspiciously low nor way too high?
So you’re thinking about buying a house, and you start looking around online “just to see what’s out there.” As you’re getting familiar with the lay of the land — eyeballing homes that seem to meet your criteria and fit your budget, daring to let yourself feel excited about the possibilities — maybe you stumble upon a listing marked as a “preforeclosure.”
The photos show a home that looks like it’s in good shape, and the price is neither suspiciously low nor alarmingly high. So what’s the deal? What does preforeclosure even mean?
Before you rush into (or out of) anything, let’s slow down and take a look at what you need to know about buying a home in preforeclosure. With the help of top agent and San Francisco Bay Area real estate expert Rick Fuller, we’ll cover nine important tips for shopping for and purchasing a preforeclosed home.
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1. Understand what preforeclosure means
As the term implies, the home in question is approaching foreclosure. The homeowner is behind on mortgage payments, and while they do still have an opportunity to catch up before the bank seizes the property, an official notice of default has been issued.
Because notices of default are public documents recorded with the county, this information is now public. “It doesn’t tell you by how many payments; it just means that there’s an official notice that this homeowner, this borrower, is in default,” says Fuller.
2. Know the difference between preforeclosure and short sale
At first glance, there may seem to be parallels between a home in preforeclosure and a short sale property, but the two are very different.
“The nature of a short sale is that the homeowner owes more than what the home is worth. We might also say that they’re ‘underwater,’” explains Fuller.
“If they were to sell the property, they would have no proceeds and would in fact owe the lender or the lienholder money at the time of closing.”
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To avoid this deficit, short sale homes involve negotiating with the mortgage company to sell the property for less than what is owed. The seller can then typically walk away from the closing table without owing anything further.
Meanwhile, homes in preforeclosure generally have enough value to cover the outstanding mortgage.
“A preforeclosure doesn’t mean that the seller doesn’t have any equity; it simply means they are heading toward a foreclosure,” notes Fuller.
