7 On Your Side: Pre-Foreclosures

One person's misery could become another's gold mine.One person's misery could become another's gold mine.  Some people are turning foreclosures into an investment opportunity.  7 On Your Side's Chris Coffey shows you how to find a bargain palace, and avoid the pitfalls.

Take a drive around Austin.  "For Sale" signs are hard to miss.

"There are an increased number of foreclosures," said realtor Knolly Williams.

Foreclosure can be a disaster for homeowners, but others are turning it into a financial windfall.

"It has become an investment opportunity," said Williams.

Dozens of websites list new foreclosure properties on the market.  More and more investors are moving in to buy those properties below market value.

"You can get a better value on a pre-foreclosure," said real estate broker Ronnie Bredahl.

Brendahl said, it can be a win-win for the investor, the homeowner, and the mortgage company -- by helping them avoid a foreclosure auction.

"A foreclosure is almost like a bankruptcy on your record," said Bredahl.

"That can be really, really bad," added Williams.

Many homeowners are eager to unload the property before it goes to auction and a foreclosure goes on their credit.  Lenders usually are eager too, since they stand to take a big loss.

"The bank -- on average, they lose about 35 thousand dollars per foreclosure," according to Bredahl.  "So if they can sell short 10 thousand, they're saving 25 thousand."

So it sounds like a great deal for everyone, right?  Well, not so fast.  Before you buy a foreclosure, there are also risks.

"Oh, you're not ever guaranteed to make a profit," warned Bredahl.

Bredhal said, before you buy:

- Find out the property's actual market value.  Remember, you'll have to pay thousands in realtor costs when you buy and  when you re-sell it, so factor those costs in.
- Have a home inspector check for damage.  You need to know how much money you'll put into the house.
- Check out home prices in the surrounding neighborhood.  Look for price trends.

Bredahl said, properties in the suburbs don't hold their value as well, because so many new houses are going up.

"Just because it's a pre-foreclosure, they think they're automatically going to make money," he warned.

Knolly Williams knows a few things about foreclosure.

"We thought it could never happen," he said.

He almost lost his home a few years ago.

"I can relate to my clients, yeah," Williams said.

Now he tries to get homeowners back on the "road" to success.

Foreclosures in Texas are actually down this year, beating the national trends.  If you are losing your your home, lenders are often willing to forgive part of the loan amount if you sell to an investor.