Almost everyone has heard of foreclosures, but most people may be unsure about the meaning of the word. Usually, most people who want to become homeowners cannot afford to pay outright for the homes. This leads to the person taking a loan and dealing with periodic mortgage payments. In many cases, an individual may be unable to continue payments. The lender generally allows a certain amount of time for the individual to make his mortgage payment. If a defaulter is unable to make the payment even after the grace period has passed, banks and other lenders repossess and sell the property, usually at a discount, to ensure a fast sale.

Pre foreclosures are those properties that are in the final stages, before being taken back by the bank or the lender. It is still owned by the homeowner; however the lenders loan is in default. This means that the original owner is in charge of the property, but if he does not pay the mortgage to the bank, the financier will soon repossess the home. A loan goes into default once the mortgage payment has not been made within the required 30 days. After 90 days pass without payment, a list of people in default goes on record at the local courthouse. This list is called the 90-day Notice of Default. The bank does not yet own the home, but it does own the mortgage, which is in default.

There are a lot of benefits in buying pre foreclosures. First of all, the prices of such properties are lower. The owners are in a hurry to sell the house before the bank forecloses. So, they are more inclined to consider the offers they receive. It is possible to find pre foreclosures that are as much as 50% less than the market value. You also have the advantage of dealing directly with the owner. The buyer is in control in a pre foreclosure deal. There are no carrying costs. Until you sell, no one makes any payments. The profit is not eaten up by outrageous holding costs.

You can create equity by requesting a lender to take less than what is owed. Lenders often agree to do this because they really dont want to repossess the property. Foreclosures look bad on the banks record. This process of discount creates new equity and earns more money for you in the deal. Thus, you can create an unusually large equity spread.

Buying houses in your own name and on your own credit is quite dangerous. In pre-foreclosure deals you are taking over the existing debt, which continues to be in the sellers name. So, the finance is already in place, even before you buy. This reduces the liability, while enjoying all the tax benefits, depreciation benefits and actual appreciation of the property.

Bidding against others at auctions may not be your cup of tea. It is easier to anticipate everyones ideas and move in and complete the deal, before anyone else. It is a niche market with very little competition and therefore has space for you to learn and become an expert in building long-term residual wealth, without much money or credit. Finding pre foreclosures is the same as locating homes that the bank already owns. They are listed in the newspapers, online and with the lenders directly.

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