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I briefly spoke with another Realtor about pre-foreclosures/auctions on Zillow. We’re actually noticing more of these coming up on Zillow. Maybe its because our market has so little inventory and our buyers are becoming more “aggressive” in their search. Potentially in my opinion I think this is a leading indicator of a shift in the real estate market.

A pre-foreclosure is a home in which the owner is more than 90 days delinquent on payments and the bank has begun the foreclosure process by posting a “notice of default”. The owners still legally own the homes. Because these notices are public information, Zillow is picking it up on various databases and post on their site as pre-foreclosure. But keep in mind that these properties are not yet for sale! They may also designate an auction date which is based on the court side auction date, which this information is also publicly provided at the county court house.

Most times than not, these pre-foreclosures don’t come onto the market or reach auction because the homeowner also has the opportunity to avoid foreclosure or the auction by bringing their payment up to date.

If the property does have its court side auction, depending on the county, there are still other restrictions and requirements that must be met prior to the auction and after the auction, if there’s’ a winning bid.

Most counties require each bidder to provide a sizeable deposit prior to the auction (5 to 10% of the starting bid amount). If there’s a winning bid, most times the winning bidder will have to wait through an upset period (most times for 10 days). In the upset period, the current owner will have another opportunity to get their house back. It also allows other buyers to provide an upset bid that’s 10 to 20% higher than the winning bid. Once there’s a new “winning” bid then it goes through another upset period.
Even with all that, the mortgage company may decide that the winning bid amount isn’t enough and take back the property and proceed with the foreclosure process.

Its highly advisable for buyers that are interested in these auctions to have a lot of cash available or a type of loan where they can have access to capital very quickly. Once through the upset period, the county court will require the buyer to close on the property in a very accelerated period which means the buyer is taking the home as-is with little to no time to do exploratory inspections and title searches. Not to mention that there’s a possibility that the buyer and new owner will still need to evict the former homeowner out the house.
This entire process isn’t advisable for first time home buyers or inexperience home buyers.

There are also savvy investors out there that uses the “pre-foreclosure” notices on Zillow, where they would actually approach the distressed homeowners directly and offer to buy their homes at a discount prior to any auctions so that the owner can avoid being foreclosed. Unfortunately a lot of these investors aren’t very tactful.

About

Gerald Richardson is a Realtor with Nicole James Real Estate Group and managing broker of the firm's North Carolina office.

A proud representative of K.M. Minemier & Associates, Nicole James Real Estate Group is a full service real estate firm with offices in Durham, North Carolina and Atlanta, Georgia.