Expert: Cinzia Dalgarno - 6/9/2009

Question
I was wondering about trying to buy a house that was in pre-foreclosure. I have looked at a few places (web sites mostly) that say they will offer me a list of these homes at a "low" rate!! Which turns out to be a ridiculous fee. What is the best way to find homes in pre-foreclosure?

Answer
Hello, I should clarify first, that I am a Mortgage Broker. Thus, my expertise lies in helping you with all aspects of obtaining the very best mortgage product, rather than where to find out about pre-foreclosures, or any particular type of property, you might wish to purchase. So I will say this, without predjudice:
Pre-foreclosures differ from foreclosures in that the owner of the property realizes that they are in dire financial straits, and chooses to sell their home themselves, usually at a reduced price, in order to facilitate a "quick" sale (thus avoiding the effect of an actual foreclosure, on their credit). They may not, in this scenario, get enough to pay off their entire debt to the bank; however, the bank will likely prefer to accept the loss rather than deal with the foreclosure situation, which could take many months and could be a costly and involved process.
While the owner in the pre-foreclosure scenario might use the services of a realtor to sell their home, which would certainly expedite the process of finding a buyer...they may wish to try selling the property themselves, so as to avoid having to pay the realtor's fee. Therefore, and I am only guessing, I would think that to find pre-foreclosures, you have 2 options:
1. scour the ads! Craigslist, newspapers, etc. You will find owners trying to sell their homes themselves. Some of these may be in pre-foreclosure situations. You will need to know your prices in order to know whether you are getting a deal. If the property is in Canada, you could use the property assessed value as a base for the value of the property, although this is not always an accurate reflection of the true current market value.
Your second and I believe best option is: employ a realtor yourself. Let them know what you are looking for; they are experts on what is out there, what it's worth, and how to go about finding a "good deal". Yes, they get a percentage of the purchase price as a fee...but you get what you pay for. Use their expertise, in the end, it will likely not only save you time, but money! Finally, I should point out that the pre-foreclosure and foreclosure situation in the United States is very likely a different animal entirely, right now, than what you will find in Canada. I am not sure in which country you are looking at buying property, but if it is in the States...do go talk to a Realtor as well as to your favourite Lender. Take a drive in the area you wish to buy, and look for "sale by owner" signs, look in the local paper for "homes for sale by owner". The market at the moment is not one that any of us has much if any experience in, and you could only benefit from a variety of input. Hope this was helpful to you,
Warm regards,
Cinzia