By: Cody THOMAS
In terms of mechanics, foreclosure flipping is very similar to regular property flipping. However, there is added risk when dealing with foreclosure flipping because there is often a heightened probability of unforeseen problems that have been cosmetically repaired and possibly hidden trust deeds that encumber a property. In addition, people who lose their homes to foreclosure sometimes do damage to a property out of frustration at having lost their home.
Buyers need to be particularly aware that fixes to the property could be cosmetic in nature where mechanical or structural problems could be present. These problems tend to show up after the home has closed escrow and the seller of the flipped property has moved on to another area, possibly out of state. In those circumstances, it is highly probable that the buyer will not be able to re-coup the losses they sustained. The key message is to know what you are getting into in terms of value, risk and unseen problems that property inspectors may uncover. Get the third party information you need about market values and risks.
Pre-foreclosure flippers identify properties targeted for foreclosure usually because of a Notice of Default (on payments) that has been filed by a lender, due to non-payment of the mortgage. They want to be involved early in the foreclosure process because they want a “good deal” and do not want a real estate agent involved, usually because of the added commission expense.
They generally offer the minimum amount possible to a distressed seller to get them out of the property. The offer will generally be just enough to get them out of the property (to protect their credit rating) and perhaps a few more thousand dollars so they leave the property with something. The market value of the property may be, and often is, considerably more than the pre-foreclosure flippers will offer. They understand the sellers in this situation are often desperate and they take advantage of that situation. Their objective is profit and their goal is to buy the home with minimal up front expenses.
If owners find themselves in this type of situation, they should first contact their mortgage lender to see if there is a way to “work out” of the situation. If so, such terms should be discussed, as lenders are not usually excited about the foreclosure process. If a buyer has consistently paid their mortgage and has run into short-term problems, lenders will sometimes help them work through the problem.
If that’s not possible, the owner should consult with a local real estate professional (a broker or agent) familiar with the market to discuss listing the property and develop a specific plan of marketing and sale of the property. If there is enough equity, a broker can help expose the property to market very quickly. If a full service broker costs too much, there are several notable discount brokers that may be able to help. If you are in this situation, understand that a pre-foreclosure flipper may be a solution for you but that there are other means of addressing your situation.
