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RISMEDIA, September 10, 2009—With all the buzz about bank-owned homes—REO properties—in the mainstream media and trade press, the entire market of pre-foreclosure properties has become virtually invisible.

Yet the majority of foreclosure properties aren’t REOs. In the RealtyTrac database there are over 1 million properties in various stages of pre-foreclosure, compared to about 800,000 REOs. Remarkably, less than 20% of these pre-foreclosure properties are listed for sale, in spite of the fact that in many cases the homeowner would be able to avoid a foreclosure by pursuing a traditional sale or a short sale. As astounding as this phenomena is, it isn’t necessarily a shock. Mortgage giant Freddie Mac has conducted studies that consistently show that a large majority of homeowners simply don’t know that they have any options at all to avoid a foreclosure once they receive their first default notice.

This situation presents a golden opportunity for real estate professionals to create a real win/win situation: helping to save a homeowner from the emotional and economic trauma of a foreclosure, saving a lender tens of thousands of dollars in foreclosure processing, getting a great deal for a buyer and making a commission in the process.

Most of the agents we talk to who are successfully working with pre-foreclosures note that dealing with homeowners during this process is something of an art form. The homeowners are under tremendous stress, and go through a fairly predictable cycle that begins with denial and ends in despair. These are people who need empathy, respect and someone who can provide them with hope.

There are a few general rules of thumb when dealing with homeowners in pre-foreclosure:

Be informed: Understand the foreclosure process in your state. Know how long the process takes, how it works and be able to explain that to your client.

Be an expert: Know what current market conditions will dictate in terms of pricing, time on market and competitive sales. If it takes five months to sell a home and the foreclosure process is only four months, you need to have a plan of attack.

Be a resource: Most homeowners have no idea what options they have for avoiding a foreclosure. Learn about loan modification programs and short sales. Discuss the opportunity of getting a delay or forbearance from the lender by putting the property on the market (lenders aren’t anxious to get more REOs these days).

Be present: We hear time and again that the agents who are getting these listings—and closing the deals—are the ones who make the effort to knock on doors when they can do so safely. Distressed homeowners may not answer the phone or read their mail, but they might respond positively to a friendly face.

Above all, remember that working in the foreclosure market can include much more than just REOs. There are a million other homeowners in foreclosure and hundreds of thousands more that are delinquent on their loans. By focusing on this part of the market, you can provide them a way out of their distress and grow your business at the same time.

Rick Sharga is senior vice president at RealtyTrac.

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