How To Wholesale Pre-Foreclosures: A Step-By-Step Guide

Let’s dive into Wholesaling Pre Foreclosures! Use the beginner's guide menu below to learn more about this amazing wholesale opportunity:

• Pre-Foreclosures Vs. Foreclosure Properties
• What Does Wholesaling Pre-Foreclosures Mean In Real Estate?
• Can You Wholesale Pre Foreclosure Homes?
• Do You Need Money For Pre-Foreclosure Wholesaling?
• How To Wholesale Pre Foreclosures? (5 Steps)
• How To Negotiate a Pre-Foreclosure To Wholesale?
• Cold Calling Pre-Foreclosures: 4 Expert Tips & Script
• FAQ Section: How to Wholesale Pre-Foreclosures
• Final Thoughts On Wholesaling Pre-Foreclosures

 Ready to take your real estate investing to the next level? Learning wholesaling pre-foreclosures is just the beginning. Schedule a FREE Strategy Session with us to learn how our Ultimate Investor Program can unlock even more opportunities and strategies in your market. Don't miss out—take the next step toward maximizing your investment potential today!

In 2023, "Lenders started the foreclosure process on 270,222 U.S. properties...up 9 percent from 2022, up 193 percent from 2021," according to ATTOM's Year-End U.S. Foreclosure Market Report. 

"States that saw the greatest number of foreclosure starts in 2023 included California (29,180 foreclosure starts); Texas (28,533 foreclosure starts); Florida (27,427 foreclosure starts); New York (17,330 foreclosure starts); and Illinois (13,764 foreclosure starts)."

So, what does this mean for the overall real estate market? Given the pandemic and subsequent economic fallout, increasing foreclosures may become more prevalent as job losses continue and unemployment rates remain high.

The foreclosure process is both emotionally and logistically painful for the affected homeowner. The homeowner will face not only the loss of a home but severe damage to his or her credit. 

A real estate investor’s primary job is to find problems and identify creative, win-win solutions for all of the involved parties. Foreclosure investing is a perfect way to make these solutions. When a solution is found, then money is made! 

If an investor specializes in pre-foreclosure deals, he or she can help these distressed owners avoid a terrible situation while locating a great deal. When done correctly, this can truly be a happy situation for everyone!

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*Before we begin our guide on wholesaling pre-foreclosures, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!

Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling pre-foreclosures.

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Pre-Foreclosures Vs. Foreclosure Properties

When an owner borrows money from a lending institution to purchase a home, the owner signs a contract agreeing to pay back this money over time. This is called a mortgage. A typical mortgage contract includes the loan amount, any origination fees, interest, and the period over which the loan will be paid back.

If a homeowner is unable to pay the mortgage payment for at least three months, the lending institution has the right to begin the foreclosure process. This is where the lending institution opens a court case and sues the property owner for the property possession.

The term "pre-foreclosure" refers to the period before the official foreclosure court process begins. You can think of it as a warning period to the homeowner. This is when the lending institution notifies the homeowner that they will be pursuing legal action.

The lending institution will file a “notice of default” or “lis pendens” (depending on which state you are located in). This document is recorded with the county and officially becomes a public record.

In the pre-foreclosure stage, when the mortgage company has issued a lis pendens, an auction date is typically scheduled. The timing and days out of that scheduling will vary state by state. Sometimes, these auction dates for the foreclosure sale can be pushed out.

A homeowner usually has an opportunity within this window of time to catch back up on payments or to renegotiate a repayment plan with the lender so that they do not ultimately lose the house.

A property owner may decide to do a short sale. A short sale is when the bank gives the property owner permission to sell the property for less than what is owed on the mortgage. While not as damaging as a full-blown foreclosure, this is still a devastating option for the distressed homeowner.

The property can also be sold during the pre-foreclosure phase. This potentially allows the homeowner to sell the property, pay back any past-due amounts to the lender, and preserve credit for the future. 

Foreclosure is the actual legal process of a lender suing and taking back the property from the homeowner. A foreclosed home is turned back over to the lending institution, the homeowner must vacate the property and the institution must then sell the property in an attempt to recoup its initial investment.

*To understand more about how the general foreclosure process works, check out this YouTube video:

 

Depending on the state and individual situation, the foreclosure process can take months to years to settle. Once the foreclosure is closed and settled, the property becomes known as an REO or 'bank-owned' property. Most banks and lending institutions don’t actually want to own these properties, which is why investors often explore strategies like how to wholesale bank owned properties to acquire and flip them quickly.

Once they foreclose, the banks begin their own process of selling the homes. Therefore, helping a distressed owner prior to foreclosure really benefits all of the parties involved!

A property can still be sold in the foreclosure phase and in many states, it can be sold right up until the bank auction. This is state-dependent, and laws vary. 

If a home is foreclosed on, the process can be financially devastating to the homeowner.

What Does Wholesaling Pre-Foreclosures Mean In Real Estate?

Remember, wholesaling property is when a real estate investor locates a subject property, negotiates and secures the property under contract for sale, and then shops that contract to a third party investor or cash buyer.

The wholesaler then assigns the contract to the third party, and the third-party investor actually purchases the property.

For pre-foreclosure properties, the wholesaler will utilize the same process of locating the property and then finding a third-party purchaser. The main difference will be in how the investor locates the property and who he or she works with the distressed homeowner.

In the pre-foreclosure and foreclosure process, timing is paramount. It is critical for the real estate investor to be in touch with the homeowner and start working with them as early as possible.

Read Also: Virtual Wholesaling Real Estate: A Step-By-Step Guide

Can You Wholesale Pre-Foreclosure Homes?

Yes, real estate investors can wholesale pre-foreclosure homes! Timing and open communication with the homeowner is critical when answering the question, can you wholesale foreclosures?

The foreclosure process is long and will contain many complicated steps. Every state will have different laws around the foreclosure process.

As an investor, it will be easiest for you and potential foreclosure clients if you work together as early in their foreclosure process as possible. This means potentially contacting distressed owners once they have made 1 or 2 missed mortgage payments. 

Successfully connecting with a distressed seller early in the process will help establish a relationship and prevent missed deadlines down the road.

Do You Need Money For Pre-Foreclosure Wholesaling?

Just like many other real estate investing strategies, you don’t necessarily need money to get started with pre-foreclosure wholesaling! If you have funds to invest, you should consider pre foreclosure investing in marketing options, whether that be direct mail, hiring bird dogs, or bandit signs.

If you are tight on cash, you can always start by driving for dollars or looking at your local Multiple Listing Service (MLS). You can start by looking for homes that are showing signs of neglect or vacancy. 

Vacant homes can signal an absentee owner situation. Signs of neglected maintenance may indicate a deeper issue and a distressed seller.

Because you are ultimately wholesaling the property and assigning the purchase contract to a third-party purchaser, you will not need significant funds to get started. This makes this investing strategy a great starting point for new investors.

Read Also: Probate Wholesaling: The Ultimate Guide

How To Wholesale Pre-Foreclosures Step-By-Step

1. Find Pre-Foreclosure Properties
2. Contact Distressed Homeowners
3. Run Detailed Analysis
4. Make Offer & Secure Contract
5. Assign, Close, and Collect Your Fee

Step 1: Find Pre-Foreclosure Properties 

Real estate investors can also pay for pre-foreclosure list services. This saves a significant amount of time and allows the investors to focus on more important aspects of their businesses! 

Where To Find Pre-Foreclosure Leads

Pre-foreclosure leads can be found through free and paid methods.

An investor can run a direct marketing campaign that canvasses a specific target area. Sending direct mail postcards, yellow letters or handwritten letters can yield all types of real estate investing leads.

Direct mail can be lucrative but it requires patience and a long stretch of time to build up reputation and name recognition in your target market.

Pre-foreclosure leads can also be found by manually searching lis pendens records at a county courthouse. Once the mortgage company files the lis pendens, the pre-foreclosure becomes a public record and knowledge.

Investors should also leverage their own investor networks and utilize word of mouth to find great deals. Leads from a title company or trusted realtor can add significant value and potential as well. Working with a real estate broker with access to the MLS can also be helpful.

A real estate agent can search for properties based on certain keywords and criteria. Notable search keywords can include “auction”, “motivated seller”, “distressed seller”, “property must sell/go”, or “willing to negotiate”.

Establishing relationships with real estate attorneys, bankruptcy lawyers or estate lawyers can also yield great leads. Many of these professionals work with distressed sellers and may be willing to make a referral for certain clients.

*Investors can also search Zillow for pre-foreclosure listings. Using the search function, Zillow has created a specific section exclusively for pre-foreclosure, foreclosed, and “potential” foreclosure properties.

Where To Find Lists Of Pre-Foreclosures

Let’s review a few of the pre-foreclosure paid list services available:

• RealtyTrac: RealtyTrac focuses exclusively on REO listings, including pre-foreclosure and bank-owned properties. The website provides users with daily updates on local pre-foreclosures. Investors can sign up for a free 7-day trial to test the platform. The monthly fee is just $49.95 and pulls comprehensive listings from other pre-foreclosure lists, foreclosure auction lists, and REOs.  

• MyREIPro.Com: This paid service provides a lead generation service and deal servicing system bundled into one platform. Users can start with a 14-day free trial. Plans range from $97 to $197 per month depending on the size of your team. Leads from many sources, including pre foreclosures are provided.

• ListSource: ListSource is a paid list service that creates customized lead lists on your search criteria. ListSource is well known for its wide variety of search options, including pre-foreclosure leads. Users can create lists specifically targeted around missed mortgages or missed property tax payments. List prices vary depending on the requested number of leads pulled, ranging from $0.11 0.13 per lead.

• PropStream: PropStream is a subscription-based real estate investing software that allows you to pull wholesaling pre-foreclosure leads nationwide. With just a few clicks, investors can pull properties with a Notice of Default, lis pendens, or that are otherwise scheduled for auction. Click the link below for a 7-day free Trial of PropStream, then it's just $97 per month for unlimited pre-foreclosure leads.

Sign Up For A 7-Day Free Trial of PropStream & Find Pre Foreclosure Leads Today!

Step 2: Contact Distressed Homeowners

Reaching out to distressed homeowners is a critical step in wholesaling pre-foreclosures, as it sets the foundation for your entire deal. After identifying potential properties, contact the sellers through phone calls, direct mail, or in-person visits.

The key is to act quickly and with empathy—distressed homeowners are often under significant pressure, and establishing trust is crucial.

Introduce yourself as someone who can help them avoid foreclosure by facilitating a fast sale, and be sure to communicate the benefits of your offer.

Step 3: Run Detailed Analysis

Run a solid financial analysis with the seller and the pre-foreclosure home.

In addition to knowing the payoff balance of the mortgage loan, you also need to know about any other interest or late fee charges, the total monthly payment on the property, potential reinstatement fees, other liens against the property, back taxes, or any other outstanding debts related to the property.

You will also include any holding costs, closing costs, and estimated rehab costs. You should know these in advance as you will need these to present to potential third-party buyers.

Ask for copies of the house payoff statement and all supporting paperwork. Insist on having everything in writing! Run real estate comps in the neighborhood and understand what the property could ultimately sell for if completely fixed up and flipped back onto the market.

Flippers who may be interested will need to know the after repair value (ARV). Having an accurate market value is critical!

Running this analysis helps fend off potential roadblocks down the road, understand the actual equity in the property, and see if there is enough margin in the deal to actually profit.

Step 4: Make An Offer & Secure The Contract

 Once you've gathered all the necessary information about the property and the foreclosure timeline, it’s time to make an offer to the distressed seller.

Your offer should be based on a thorough analysis of the property's condition, its after-repair value (ARV), and the costs involved in bringing it to marketable condition. Since you’re wholesaling the property, your goal is to secure the property at a price low enough to leave room for your profit margin and that of the end buyer.

Step 5: Assign, Close, and Collect Your Fee 

Once you've secured the property under contract with the distressed homeowner, the next step is to shop the contract to your network of investors and cash buyers.

Your goal here is to assign the purchase contract to a third-party buyer who is interested in completing the purchase.

To do this, you'll need to present the deal to potential buyers, highlighting the property’s potential, the terms of the contract, and the opportunity for profit after repairs or renovations.

Make sure your price includes a wholesaling fee, which is your compensation for finding and securing the deal.

Finding a Buyer and Assigning the Contract

The key to success in this step is having a strong, reliable network of cash buyers and investors ready to take over the contract. Reach out to your contacts through email, phone, or investor groups, and provide them with all the necessary details about the property, including its value, repair costs, and after-repair value (ARV).

Many wholesalers use platforms like Craigslist, Facebook groups, and real estate investment clubs to expand their buyer pool.

Once you've found a buyer, you'll assign the purchase contract to them, meaning they take over your position in the deal. This involves using an assignment agreement, a legal document that transfers your rights in the purchase contract to the new buyer.

The assignment fee, which is typically a percentage of the property’s value or a flat fee, is agreed upon during this process and will be your profit.

Facilitating a Smooth Closing

After assigning the contract, your role isn't over yet.

You'll need to ensure that both the distressed homeowner and the new buyer get successfully to the closing table.

This means coordinating with title companies, making sure all paperwork is in order, and ensuring the closing happens before the foreclosure deadline. By staying involved, you can help overcome any last-minute hurdles that might arise and guarantee that both parties follow through on the deal.

Once the closing is complete, you'll collect your wholesaling fee, and the buyer takes ownership of the property. You've successfully completed a pre-foreclosure wholesale deal, helping the distressed seller avoid foreclosure while securing your profit.

FREE Script Download: How To Talk To & Secure Cash Buyers

How To Negotiate a Pre-Foreclosure To Wholesale?

When having any conversation with a distressed homeowner, it is critical to have empathy and understanding. Homeowners facing foreclosure are often in denial, angry, scared, or embarrassed.

It is your job to bring empathy and professionalism as you help them walk through a deal that will ultimately help them.

Negotiations in a pre-foreclosure wholesaling deal should be respectful and constructed in such a way that a win-win scenario is created. You want the homeowner to walk away with dignity and a great deal.

Are you new to negotiating or afraid to get started? Watch this video with 8 great psychological tips and tricks to help you start a successful negotiation:

Cold Calling Pre-Foreclosures: 4 Expert Tips & Script

If you plan to cold call pre-foreclosure leads, it’s important to remember a few ground rules:

• Plan to have thick skin and expect that you will be hung up on. Remember, many of these owners are scared, angry, or embarrassed about their situations. They are worried that their credit will be destroyed. They may be in denial or overwhelmed by the sheer number of calls they are receiving from the bank or other investors.
• Always express genuine patience and empathy. You may have to be persistent and make several contact attempts. 
• Be direct and honest about what you do and what you can and cannot help with. Always be truthful and do not overpromise on what you can deliver to these owners.
• Always make sure you have done your research and understand your state’s specific rules around foreclosures. Many states legally restrict how and when you can contact property owners in the pre-foreclosure or foreclosure process.

With these tips in mind, a great starter wholesaling pre foreclosures script for a cold call could go something like this below. Using effective pre foreclosure scripts can help you connect with potential sellers and navigate the conversation more smoothly.

“Hi XXX, my name is XXX. I found your property and your information on a pre-foreclosure list/ or "lis pendens" list with the county/etc. I understand you are in the pre-foreclosure process. Are you open to selling your property before this happens?”

Being upfront, polite, and direct is the way to go. You may still get hung up on, or you may connect with an owner who appreciates your professional approach and is then open to hearing what you have to say.

From there, ask the owner questions about the property, the foreclosure timeline, and details about how much is owed. Set an appointment to meet with the distressed owner in person.

Prior to the appointment, ask the owner to gather all financial documents. Bring a copy of a purchase contract to the appointment.

FREE Download: The Ultimate Wholesaling Cold Calling Script

FAQ Section: How to Wholesale Pre-Foreclosures

What is pre-foreclosure wholesale?

Pre-foreclosure wholesale involves finding homeowners who are at risk of losing their home due to missed mortgage payments but are not yet in full foreclosure. Investors negotiate with the homeowner to secure the property at a discounted price and then assign the contract to another buyer for a fee. This allows the investor to profit without having to actually purchase or renovate the property.

How do you find pre-foreclosure properties to wholesale?

Pre-foreclosure properties can be found by searching county public records for notices of default or lis pendens, which indicate homeowners are behind on payments. You can also use real estate websites, such as Zillow or RealtyTrac, which list pre-foreclosure properties. Additionally, direct mail campaigns and networking with real estate agents, attorneys, and title companies can help you locate potential deals.

How does the pre-foreclosure process work?

The pre-foreclosure process starts when a homeowner falls behind on mortgage payments, usually after 90 days or more of missed payments. The lender files a notice of default, giving the homeowner a set period (often 3 to 6 months) to resolve the debt or sell the property. During this period, homeowners may seek to sell the property to avoid foreclosure, offering an opportunity for investors to step in and negotiate a deal.

What contracts are needed to wholesale pre-foreclosures?

To wholesale pre-foreclosures, you typically need two main contracts: a Purchase and Sale Agreement between you and the homeowner and an Assignment of Contract to transfer the deal to an end buyer. The Purchase and Sale Agreement outlines the terms of your purchase, including price and contingencies, while the Assignment Contract allows you to transfer the rights to another buyer for a fee. It's essential to include clauses protecting against title issues and other legal risks.

Is wholesaling pre-foreclosures legal?

Yes, wholesaling pre-foreclosures is legal in most states, but there are important rules to follow. You must ensure proper disclosure to all parties involved, and contracts should clearly outline your role as a middleman. It’s also advisable to consult a real estate attorney to ensure compliance with local laws, as regulations may vary by state.

Final Thoughts On Wholesaling Pre-Foreclosures

The pre-foreclosure process can be a scary, intimidating, and distressing process for homeowners in trouble. For savvy and empathetic real estate investors, wholesaling these properties can be an incredible strategy that not only creates a profitable deal but saves a homeowner from financial ruin.

For real estate investors who are willing to understand their state’s foreclosure rules, work hard to create relationships with troubled sellers, and run a critical analysis of the foreclosure numbers, this strategy can be a unique way to stand out in the investing market and expand your real estate portfolio.

 Ready to take your real estate investing to the next level? Learning wholesaling pre-foreclosures is just the beginning. Schedule a FREE Strategy Session with us to learn how our Ultimate Investor Program can unlock even more opportunities and strategies in your market. Don't miss out—take the next step toward maximizing your investment potential today!

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*Disclosure: Real Estate Skills is not a law firm, and the information contained here does not constitute legal advice. You should consult with an attorney before making any legal conclusions. The information presented here is educational in nature. All investments involve risks, and the past performance of an investment, industry, sector, and/or market does not guarantee future returns or results. Investors are responsible for any investment decision they make. Such decisions should be based on an evaluation of their financial situation, investment objectives, risk tolerance, and liquidity needs.