When a property is about to be put up for auction, or the foreclosure process has begun and is close to foreclosure, the property is said to be in pre-foreclosure. This can be a great opportunity to buy a home at a deep discount, make a big profit, and at the same time help someone avoid having a home or property foreclosed on their credit report for 7-10 years. This could be a win-win for everyone.

Pre-foreclosure properties get there for the same reasons as foreclosed properties. People face unexpected financial problems: job loss, health problems, divorce, excessive spending, or maybe even the fact that an adjustable-rate mortgage went up a few notches and the homeowner can no longer afford it.

In some cases, a homeowner will try to refinance, but if there isn’t enough equity in the home or if the person can’t show the bank how they can refinance or even make the payments, this may be impossible.

**Tip: Equity is what the property is worth minus the amount owed. If the balance is $50,000 on a $150,000 home, then the owner’s equity would be $100,000.

Often, if there is no other option, homeowners who cannot make their mortgage payments or refinance their property will have to let their property go to the lien holder’s bank.

Homeowners who are in trouble may also panic. They are so eager to sell their house before it is foreclosed that they rush to put the property up for sale, even though they may be very inexperienced in the real estate market. Because they are inexperienced, they may price the property too high or too low. If the property needs fixing up, it may even be difficult to find a buyer for it, especially if the owners are in a hurry.

Unfortunately, there are property owners who are in denial and maybe I would be too. They can’t believe this is happening to them so they don’t even try to do anything about it. They eventually lose their homes to foreclosure and are forced to leave.

All these cases are unfortunate and can happen to anyone. Few things are more traumatic than losing your home. As investors we need to realize that by buying a home before it is foreclosed on, we could really help these unfortunate homeowners and also have a chance to make a fortune and become their problem solver!