Working with Sellers in Pre-foreclosure

In the current real estate market one of the most common reasons for a seller to be motivated enough to work with an investor is an impending foreclosure. If your marketing efforts supply you with a regular stream of leads (as they should), you will encounter pre-foreclosure situations on a regular basis. Therefore, being able to understand and effectively deal with these types of sellers is a useful skill.

In order to understand how to work with sellers facing foreclosure it can help to empathize by visualizing yourself in the position of a typical seller faced with a foreclosure. Probably the foreclosure is a secondary source of stress for you; your main concern is likely to be the accident or illness or job loss that caused the financial strain, and your primary focus will be on taking care of your family.

The impending loss of your home on top of this causes you to have difficulty eating and sleeping and concentrating on normal activities. Since you have no money to pay the lender and nothing new to say to them each time they call, you are in the habit of not answering phone calls and leaving your mail unopened in piles. To top it off you are sensitive about the issue, making you want to bury your head in the sand and not talk to anybody about it, even to someone who might be able to help you.

The opportunity in this situation for you as the investor is that the seller genuinely needs help, which you can genuinely provide, so if you can get past their defenses they will probably give you the house. Your marketing to pre-foreclosure sellers should be sensitive but persistent as well as credible and professional. Direct mail, phone calls, and door-to-door visits are all possible ways to make contact.

If appropriate you should introduce yourself as a foreclosure specialist and offer your assistance with solving their problem. If you are not genuine or do not have the seller's best interest at heart they are likely to be sensitive to this.

With effective marketing and a strong introduction you will establish the trust and cooperation of your client. From that point you will move on to discuss possible solutions. The goal of the seller is usually simply debt relief.

Equity is rarely if ever an issue. Assuming the seller is incapable of catching up the loan and is resigned to walking away from the house, there are two tools in the quick-turn real estate investor's handbag that could be appropriate, depending on the willingness of the seller: you could take over responsibility for the house and the payments and cash the loan out at a later date, which is called subject to, or you could negotiate with the lender for a discount and cash the mortgage out immediately, which is called a short sale.

Relevant factors to the investor are whether the house could be rented for positive cash flow with the existing payment structure, and whether the retail market is strong enough to guarantee a fast sale.

One final note: if you don't currently work with pre-foreclosure sellers, look towards networking with investors who do. They can help you develop your business in that direction, or you can at least have solid referrals for the pre-foreclosure sellers you encounter.

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