Buying properties in pre-foreclosure can be the most profitable segment of a real estate entrepreneur’s business! Unfortunately, it is the most misunderstood. Hopefully, this chapter will shed some much-needed light on the pre-foreclosure subject and how and why you should become involved.

How does the foreclosure process work? When a person buys a house, they normally have a small down payment and obtain a loan from a bank or mortgage broker for the balance of the purchase price. This loan is secured by the property in the form of a mortgage or deed of trust. If the lender does not receive their payments, they may file foreclosure to recover their debt.

The foreclosure process allows the lender to foreclose on any liens or encumbrances in order to take the property and become the legal owner of record, thus allowing the lender to resell the property and recover the original loan amount plus expenses associated with the foreclosure. The foreclosure process can be lengthy depending on the state, but up until the public auction, the homeowner owns the property and has several options available.

It’s important to realize when talking about pre-foreclosures, we are talking about acquiring the property any time before the public auction sale. The sooner you contact a homeowner in pre-foreclosure, the more time you have to structure a deal and purchase the property.

Many people have the misconception that people buying homes in foreclosure are taking advantage of another person’s misfortune. This is simply not true. The lender made a loan in good faith and the borrower agreed to repay the loan. If the borrower does not make the required payments they have broken the agreement and the lender must protect their financial interests and may foreclose on the property as agreed to by all parties when the loan was originally made. Anytime there is a foreclosure, the borrower has broken the terms of the agreement and your involvement solves a problem the homeowner created.