"Pre-foreclosure": this involves buying out homeowners who know they are in trouble and just want te mess to go away before foreclosure. You would be buying a house which the owner may or may not have any equity in. If they have no equity and the price you pay is lower than they did, you would have to get the bank to agree to a "short sale" in which they agree to the sale and the loss aead of time. You would want to be careful not to buy a property with lots of other oustanding liens (chances are if they are stiffing the mortgage lender, they have stifed someone else who may be ble to stick a lien on the property). You also would want to be careful not to end up preying on desparate people in dire straits.
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A spouse of someone I know does this. They put a lot of work at it - and have done well. It is certainly more of a j*b than investing.
They start with some publically available list of pre-foreclosures, or tax liens. Every month as soon as list is out, they do a mass mailing offering to "get involved and help". A small amount of the people respond - and they meet with them and see what's possible.
Most of the successful deals the homeowner is "slightly upsidedown" - they owe a little more than current value. My friend's spouse contacts the bank and tries to frame-out a "short sale" (as Brewer describes above).
Concurently the put a for sale by owner sign up and start trolling the market. They don't keep properties and rent.
They've gotten better at "smelling" the deals that have potential - there's a wide range of financials, bank "personalities", homeowner emotions, 2nd/3rd mortgages, liens, etc.
And every state is different - they do deals in DE, PA, MD -each has uniquenesses in how titles, liens, notifications, etc happen.
There's a lot of w*rk negotiating deals - and a lot of "dry holes" - spend a ton of time lining everying up - and then falls through.