Buying A House in Pre-foreclosure
What is Preforeclosure?
If you buy a house by getting a mortgage and you fail to pay for three consecutive months then the bank shall send you a notice of default.
The period between when the notice of default is sent and when the official notice of an auction is sent by the bank is called the preforeclosure process. In Kenya, this process lasts between 3 to 10months.
How does one Buy a House in Preforeclosure?
1. First, get the information on properties that are in the pre-foreclosure process.
The Bank usually gives out the list of defaulted mortgages and auctioneers advertise the list for a certain period of time. These lists are mostly advertised in various newspapers.
2.Identify a Property or a house you are interested in.
You can do this by getting in touch with the borrowers and going around looking at the properties. You can also in the process of it all, value or estimate the value of each Property.
Once you identify the Property you would like to purchase, create a rapport with the borrower as you move towards trying to buy the property before it is put up for auction.
3. Offer to cure the loan.
You can do this by not only paying the money that the borrower owes the bank but also paying the legal fees or the auctioneers' fees.
If for example, one owes the bank 500,000ksh for a Property worth 19 million, Now despite the value of the property, the bank is going to sell it at 500,000ksh and that is going to be a big loss to the borrower.
Therefore, you can offer the borrower to buy the property subject to the existing loan and pay them an additional 1.5 million. This means you shall pay 2 million in Total for a Property that is valued at 19 million.
Even though it may look like you would have significantly gained than the borrower, you would have helped the borrower solve two problems,
a) His name would not be spoilt in the bank.
b) He shall gain some money from the sale as opposed to if his property was to go to an auction and sold at only 500,000ksh.
4. If the borrower agrees then you can sign the documents and pay the bank first.
You shall then pay them the remaining money and take up their mortgage to finish up the mortgage loan