The Down Low on Preforeclosure Leads in Real Estate Investing

What is a Preforeclosure Lead?

When I talk about preforeclosure leads, I am talking about a seller lead who is in foreclosure but has not been foreclosed on yet. The lifespan of a preforeclosure lead is from the first step in foreclosure, when the lis pendens is filed, to when the property is sold at the court house steps. The time frame varies greatly from state to state anywhere from a few weeks to several months.

If you are interested in working preforeclosure leads, a good first step would be to familiarize yourself with your state’s foreclosure process. Depending on your state’s foreclosure time frame, you will want to cater your investment strategy to coincide with it.

2 Great Things About Preforeclosure Leads

Motivation - Believe it or not, being in foreclosure doesn’t always guarantee that a homeowner is motivated to sell but often times this is the case. A homeowner doesn’t have a whole lot of options depending on the time frame because if they wait too long, they are liable to get nothing. If the homeowner isn’t motivated yet, it’s your job to help them understand they should be.
Unlimited Deal Potential - Whether or not a seller has equity, it’s got deal potential because of the possibility of doing a short sale on the property. Banks will consider taking less than what’s owed on a property when in foreclosure. Banks are in the business of lending money not collecting houses. Equity or not, you’ve got your hands on a potential deal.

Preforeclosure Leads Fall into 2 Categories

Enough Equity As-Is
Short Sale Required

Enough Equity As-Is

Your plan of action should be to get in front of the homeowner as quickly as possible. Facing foreclosure can be a very emotional process. Often times, sellers end up making a decision on the spur of the moment. You want to be there when this happens. With enough equity in the house and some motivation based on their financial circumstances, this has all the right elements for a deal.

Typically in these types of situations, our buying strategy is to take over payments on the underlying financing until we sell the property and our primary exit strategy is through lease options. Cash offers can be very effective too.

Short Sale Required

Your first mission is to disqualify a short sale lead. Short sales can be laborious time consuming drains on your life energy. They can also be extremely profitable.

A good short sale lead is in “short sale condition” and/or has inferior liens. “Short sale condition” means that a case can be made to the bank that the house is worth less than what’s owed. Whether or not a house actually needs extensive repairs, it should at least look like it does. An inferior lien is any money owed to a creditor after the 1st mortgage holder. This could be a 2nd, a judgment, a tax lien, etc. If one of these conditions is met, you’ve got a good lead. If both are met, you’ve got a great lead!

What next?

Comments

Scott on June 10th, 2008 at 3:36 pm

I have been reading some about short sales and preforeclosure marketing strategies lately.

Thanks for providing such simple good info on the subject.
aturner on June 10th, 2008 at 3:49 pm

I have been doing some door knocking to preforeclosure leads. I liked your post on door knocking recently.

Disqualifying some of the leads is a great idea. But for beginners, it’s probably smart to just give it a try for practice even if the lead isn’t the best.