A pre-foreclosure is a distressed property that has not yet gone into foreclosure. While a foreclosure is repossessed and sold because the homeowner has failed to pay his mortgage, a pre-foreclosure indicates that the homeowner has defaulted on the loan, but the lender has not yet repossessed the home. The pre-foreclosure stage is a grace period allowing the homeowner to sell the property and repay the loan. In some cases, the homeowner qualifies for help in selling the home from the US Department of Housing and Urban Development (HUD).

Pre-foreclosures often require some work and are sold at below market value because the homeowner is highly motivated to sell. Since the homeowner is trying to prevent foreclosure, she is often willing to work to create very favorable terms for a buyer. All of this can mean a good property in a good neighborhood, purchased at a discount. If you think pre-foreclosures might be right for your investment business, consider:

1. Searching online pre-foreclosure listings for fast access to pre-foreclosure information around the clock.

2. Hiring a real estate agent with pre-foreclosure experience for personalized assistance.

3. Taking classes to avoid some of the pitfalls of investing in pre-foreclosures.

Action Steps
The best contacts and resources to help you get it done

Visit pre-foreclosure list sites to find properties all over the country

A listing site is a type of pre-foreclosure directory that details available pre-foreclosure properties across the country. These sites are a great way to get basic information about distressed properties at any time of the day or night. These sites are generally easy to navigate and are a great place to start when you're familiarizing yourself with the pre-foreclosure market.

I recommend: Preforeclosure.com allows you to search for pre-foreclosure listings in every state. The listings are frequently updated and buyers can sign up for a free trial of the service. ForeclosureListings.com allows site users to search specifically for pre-foreclosure properties across the country. The company is staffed 24 hours, seven days a week so that new listings can be added daily.

Work with a real estate agent specializing in pre-foreclosure properties

Working with a pre-foreclosure provider or agent can often mean excellent results. While listing sites are great, one major disadvantage is that the information on these sites often becomes outdated very quickly, as pre-foreclosures sell fast. A real estate agent lets you overcome this problem by providing you with up-to-date property information--and, in some cases, information not available online.

I recommend: RealtyTrac allows you to easily find local pre-foreclosure real estate agents. Michael Sorensen specializes in pre-foreclosures in the Chicago area, while Ron Suponcic and Bozena Michalec find and sell pre-foreclosures in Florida. Keisha Hosea sells pre-foreclosure homes and other distressed properties in California.

Learn about pre-foreclosure sales before you enter the market

In the pre-foreclosure market, being able to find deals and put together deals quickly and correctly is paramount. Learning how to find great properties and how to structure sound deals from other investors is a great way to ensure that you don't lose your shirt investing.

I recommend: Short Sale Deals is a simple online course that covers all the basics of putting together deals and finding pre-foreclosures. PreForeclosureBooks is a class, consisting of CDs and booklets, that teaches investors every stage of the pre-foreclosure process.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  When looking over pre-foreclosure list sites and pre-foreclosure information, investors need to keep two potential pitfalls in mind: too little equity and too many expensive repairs. Most homeowners facing foreclosure have been facing financial distress for some time and therefore may not have been maintaining the property. They may also have used up most of the home's equity in loans in an attempt to generate cash. Both can be problems. Costly repairs can cut into potential profits while too little equity can mean a higher asking price. A professional assessor and inspection can help uncover both potential difficulties.