If you have been wondering how to buy preforeclosures, there are a number of ways. Hopefully this article will seek to demystify some of the misconceptions, skepticism, and fears that people generally have about preforeclosure real estate investing.

Misconception #1: Preforeclosure investing is unethical.

Many people raise this objection that preforeclosure investing is somehow unethical because you are allegedly taking advantage of the misfortune of desperate homeowners in order to make a profit. While it is true that there are a few bad apples out there who use illegal scams to con homeowners into signing away their homes, the vast majority of preforeclosure investors are honest and ethical, and keep the homeowner's best interests in mind, and strive to create a win/win solution for the homeowner. The reality is that preforeclosure investing is all about helping those people in need who have no other recourse. If a homeowner could save his home, he will. But if he has exhausted all other options, such as refinancing the house, working out a modified repayment plan with the bank, buying more time, borrowing money from another source, or filing bankruptcy, and has no other place to go, then the homeowner might look upon an investor as a savior who is there to solve this problem in their life. On the other hand, if a homeowner is able to refinance their home and an investor comes along and pressures the homeowner to sell the house and discourages him from refinancing, that is not ethical at all.

Misconception #2: Taking ownership of a property subject to the existing loan is a violation of the mortgage agreement.

That is absolutely untrue. The mortgage company has the right to demand all money due in the event that they find out that the title of the property has been transferred without paying off the loan. But even if the mortgage company were to exercise this clause, what are they going to do? Foreclose on the property to get their money? Hey wait a minute! The property is already in foreclosure! Quit claiming a property is absolutely and positively legal and is practiced every day.

Misconception #3: You cannot get financing for a property going through preforeclosure.

Yes you can. As a real estate investor, you can get a mortgage through a standard mortgage broker, or you can get funding from either a hard money lender or from a private investor under a profit-sharing agreement. You do not need to use your own money or your own credit in order to invest in real estate. Yes, money is needed in order to do deals, but it doesn't have to be your money.

Okay, so how do I buy preforeclosures?

The answer is to follow this simple process:

1. Subscribe to a foreclosure listing service.
2. Analyze the leads on the list to identify which ones have mortgage balances that total less than 70% to 75% of the as-is fair market value (FMV) of the property.
3. Send postcards to those homeowners, call them up, or knock on their doors offering to help them in their situation.
4. If the property is vacant / abandoned, use a people locator service to find the homeowner.
5. Determine the fair market value of the property.
6. Negotiate a deal with the homeowner whereby you take the property subject to the existing mortgage in exchange for some financial incentive to help them get a fresh start.
7. Once you have the title in your name, seek financing from a private investor, a mortgage broker, or a hard-money lender to reinstate the mortgage (pay it up to date).
8. Hire contractors to fix the property up.
9. Advertise your home for rent and / or list it for sale by owner.
10. Sell the house and collect the cash!

More info on your stop foreclosure information search:

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