What is Pre Foreclosure?
The early stages of foreclosure, or pre foreclosure, can be
an opportune time for both home buyer and seller. Here is a
look at what is a pre foreclosure.
A home that’s in pre foreclosure is in the early foreclosure stages. At this point, the homeowner has
defaulted on the home loan and the lender is preparing the foreclosure process. The lender files a notice
of default and sends it to the homeowner. Once this happens, the homeowner has to pay the outstanding
balance or sell the home to avoid foreclosure.
The Pre Foreclosure Process
Pre foreclosures can start with just a single missed payment, though the default notice typically isn’t filed
until the mortgage payments are 90 days past due. The first step in pre-foreclosure is for the lender to
send you a letter letting you know that you risk losing your home if you don’t take action. Even when the
home is in pre-foreclosure, the homeowner can bring the account current again. But that requires you to
contact the lender and start negotiating. During pre-foreclosure, you still have the right to live in your
home. The lender can’t evict you without a court order.
The further behind you are, the harder it will be to bring your home out of pre-foreclosure, especially since
you could have thousands of dollars in past due mortgage payment. Talking to your lender, in person if
possible, is the best way to figure out your options. After a couple months of missed payments, the
lender will demand full payment and won’t accept payment arrangements.
How to Avoid Foreclosure
If you act soon, you may be able to go on hardship
forbearance. In forbearance some or all of your monthly
payments are suspended for a period of time. This is a
good option, if you’re facing temporary financial hardship.
Another option to bring your home out of pre-foreclosure
is to have your mortgage modified. With a
mortgage modification, your home loan is refinanced or
the term is extended or a combination of both. The lender
may be able to add the past due balance back into the
loan and you start over with the new monthly payment.
You typically have to be facing hardship before
mortgage modification is an option.
Pre-foreclosure sale or short sale is an option if you can find a buyer interested in the property. With a
pre-foreclosure sale, the buyer must be willing to pay at least 95% of the home’s appraised value. You
can’t be too far upside down in your loan or your home won’t qualify for the pre-foreclosure sale. Also,
you’ll have to be at least two months behind on your payment and have experienced some type of
financial hardship. Once you enter the pre-foreclosure stages, you may have buyers contacting you
interested in the sale. Get a real estate agent on your side to go through the process and help you
understand everything that’s necessary.
Beware of scams. There are many people out there who take advantage of homeowners in pre
foreclosure situations. Having an agent or attorney on your side can help you avoid becoming a victim of
Buyers are often interested in pre foreclosure sales because they can purchase the home without the
hassle of going to the foreclosure auction. There may be less competition from other buyers during the
pre foreclosure stage and buyers could arrange to see the home before purchasing. The drawback of
pre foreclosure purchases is that there’s more paperwork involved and it can take several months to
close on the home. There’s a chance the lender won’t agree to the pre foreclosure sale.
If you’re home isn’t brought out of the foreclosure process, it will be auctioned off to the highest bidder. At
that point, you’ll have to vacate the property. If the property is auctioned for less than your outstanding
mortgage balance, you may be liable for the deficiency balance.
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