As mention in Part 1, the foreclosure moratorium coming to an end now on July 31st, real estate investors will be focusing on how to identify new-to-market opportunities. The pre-foreclosure market may be a particularly good sector for you to research in your search for properties. Let's look at how PropStream's tools can help you in your hunt for pre-foreclosure properties.
The State of the Foreclosure Market
Many homeowners have been attempting to work out deals with lending institutions. This is known as the forbearance process. Debt is not erased at this stage, and consumers are still in jeopardy of losing their homes.
Laws vary by state, so real estate investors considering properties in pre-foreclosure need to understand their own state's legislative policies that protect homeowners and lending institutions.
The CARES Act (federal legislation protecting homeowners during the pandemic) applies to both single-family and multifamily properties. Landlords were unable to evict tenants for nonpayment of rent, and this has put a financial strain on landlords. Multifamily property owners may, therefore, also be looking to sell.
How Are Pre-Foreclosure Properties Recorded?
Prior to foreclosure, certain actions are captured by the legal system that would indicate that a property might soon be available for investment.
- Notice of default: A notice is filed by the lending institution with the court. It includes the borrower's and lender's names, addresses, and the amount owed.
- Lis pendens: Latin for " lawsuit pending," this means that a homeowner has a dispute in play with the court that could ultimately slow down the purchase of the property. The new owner will have to assume the cost of any litigation. It is common during divorces. Twelve states require lenders to follow this process.
- Notice of trustee's sales and sheriff's sales: When a loan hasn't been paid within 90 days of the notice of default, a recording is filed in the county in which the property is located. After a set period of time, a date is then set for an auction. The lender then establishes an opening bid, which is typically the unpaid loan balance. In a sheriff's sale, a judge orders the local sheriff to seize the property and sell it at auction.
Finding Properties in Pre-Foreclosure and Foreclosure
Rather than searching court records, looking for auction schedules, real estate investors can use PropStream, a real estate big data investment tool, to identify opportunities and market to them at precisely the right time. The pre-foreclosure stage is the best time to work with property owners — you can often find properties below market value and the homeowner can walk away with much-needed cash, so it's a win-win. PropStream helps you find properties in this early stage by using filters or many built-in search combinations to identify pre-foreclosures, liens, or bank-owned properties.
Remember that the information about foreclosures is only made public once auction dates are set, so you will want to get ahead of the buying curve. Because lending institutions take as much time as they need to foreclose, you have a window of investment opportunity. Sixteen states do not even require a judicial process for foreclosure, so the first public notice may be a notice of trustee's sale.
Once you've identified the properties you may want, do a thorough job of researching the individual property, including repairs and upgrades. Depending on your investment strategy type, you or your buyer will be responsible for the loan balance as well as any liens on the property, along with any unpaid mortgage and homeowners insurance. Allow sufficient time in the buying process for negotiations, completing the required paperwork, and time for the current homeowner to vacate the property.
Most foreclosures have yet to happen, but once the mortgage moratorium ends, real estate investors will be looking for previously unavailable properties. You can stay one step ahead by using Propstream's tools to organize your data.