Tidbits on Real Estate

There are advantages and pitfalls to both. Pre-foreclosure properties are ones that the borrower has been slow in making payments and is usually behind so far that they can't catch up. The lender may or may not have filed a notice of default. If they do, then time is very short to get it closed. Lenders are required to post the notice 21 days in advance of a Trustee Sale, which is uniformly the first Tuesday of the month. It is very hard to find a home after the notice, get financing and close before the bank can auction the property.
Usually, if the seller notifies them of an impending sale, the bank will hold off on the Trustee sale and let it close with the buyer, but they don't have to. If the borrower is behind and the lender will get all his money out of the sale, they have a great incentive to let the sale complete. On the other hand, if the first or second mortgage (or both) will wind up short at the sale price, then they will study the net proceeds and decide if they want to foreclose or not.
Note that the costs involved in foreclosing, holding the REO, and selling at market later may be so high that a short sale is a better proposition for them. This makes pre-foreclosures pretty attractive. If you wait until auction day, then the price will be the current balance on the loan, not less.
Foreclosures have the advantage that title is cleared of all liens, except taxes. This means HOA liens, mechanics liens, second mortgage lien and so on are simply erased by the foreclosure. Taxes are a superior lien and run with the land. But, the mortgage company's REO will be sold to you with the taxes prorated. Foreclosures can be attractive also.
The downside of foreclosures is that the property may have been attacked by copper thieves, had a foundation shift during its vacancy, been stripped of appliances and anything of value by the foreclosed homeowner or damaged during his move-out. Banks are not required to issue a Seller's Disclosure, so caveat emptor. Pre-foreclosures usually are WYSIWYG. They may need updating or deferred maintenance taken care of, and usually need cleaning, carpeting and painting, but generally are in better shape, and they come with a disclosure statement.
Which one has better pricing? An old REO that needs work. Which one is the optimum choice for most people? The pre-foreclosure.
You can make more money on the foreclosure but it is riskier and requires deeper capital.

- Tue Jun 17 2008, 23:05