For those who’ve fallen behind on their mortgage payments, a letter from their lender may have arrived informing them that their home is at risk of foreclosure.
This is akin to someone telling you that your home is on fire, and you need to do something or you might lose your house for good. As bad as pre-foreclosure is, it can be a great investment opportunity if you’re looking into buying property. And, if you’re the homeowner, you still have options to better your situation.
Keep on reading to learn all about the nuances of pre-foreclosure homes and how the entire process works.
Pre-foreclosure Homes 101: Understanding Pre-forclosure
The initial stage of the foreclosure process is pre-foreclosure.
It’s intended to provide homeowners with alternatives to losing their pre-foreclosure houses. When a homeowner fails to pay their mortgage, the lender issues a notice of default, and the house goes into pre-foreclosure. Foreclosure has commenced, according to this official document.
Prior to foreclosure, a borrower’s outstanding debt may be amenable to negotiation on the part of the lender. Foreclosure is frequently the last opportunity for a borrower to avoid a final foreclosure eviction by either making up late payments, arranging a modification, or selling their home.
What’s the Difference Between Pre-foreclosure and Foreclosure?
When a monthly payment is missing, the first stage in the preforeclosure process starts.
Defaulting on a mortgage means that a homeowner has missed three consecutive months of payments. That’s when the foreclosure process begins. First and foremost, call your mortgage servicer when it becomes evident that you will not be able to make a payment.
For the most part, lenders will work with homebuyers as they get back on their feet as long as the issue is reported to them as soon as possible.
Foreclosure costs a lot of money, therefore lenders attempt to prevent it if they can.
A mortgage forbearance or pausing of payments may be arranged between lenders and customers, and this can assist both sides to come up with a repayment plan they can both live with. Keeping the channels of communication open is essential to keeping the connection going.
Homes in Pre-Foreclosure: How the Process Works
Depending on where you reside, the legal criteria for pre-foreclosure differ.
Yet, generally speaking, they will all follow something akin to the following steps.
To commence pre-foreclosure proceedings, a borrower normally must miss three consecutive monthly mortgage payments for a period of at least 90 days.
The borrower has defaulted on the debt at this stage.
Notice of Default
When the lender sends a certified notice to the borrower stating that they expect to launch foreclosure proceedings within 30 days, the pre-foreclosure period starts.
Basically, it’s setting a deadline for the end of the pre-foreclosure into the forclosure proceedings.
Pre-foreclosure notices issued by lenders in several states are put to a public list of people who are at risk of losing their homes.
Next, the pre-foreclosure period concludes with the finalization of a foreclosure order, which takes place on a schedule that varies greatly from state to state.
Due to legal disputes and overbooked court schedules, several jurisdictions require the lender to submit proof of nonpayment for examination by a judge. This procedure might take many months. Within a few weeks, other states allow for the issuance of foreclosure notices.
People are evicted from their homes after they’ve been foreclosed and the locks are changed so that the property may be put up for auction. If the property does not sell at auction, it becomes real estate-owned (REO) property, and the lender arranges for a private sale to reclaim possession.
What to Do if You’re in the Pre-Foreclosure Phase of Your Mortgage
In the pre-foreclosure stage, you have the opportunity to save your house.
Although your alternatives may be restricted, if you act promptly, you may be able to avoid the financial ruin and credit damage that a foreclosure would otherwise bring.
Resolve Past-Due Accounts
Borrowers in pre-foreclosure situations may still be able to save their homes by paying back-dated payments, bargaining for a loan modification, or even selling their homes short.
The first thing you should do is make up all of your past-due payments. As long as you stay up with your payments, most lenders will suspend the pre-foreclosure procedure.
Making a loan modification is yet another choice you have.
Refinancing your home is possible, but in the end, you’ll need to contact your lender and get a new loan. This choice will likely result in a longer loan term, but since the payments will be spread out over a longer period of time, it will be more reasonable in the long run.
During pre-foreclosure, you have the option of selling your house. If you’re in pre-foreclosure, most lenders will accept a short sale. A short sale occurs when you are unable to sell your house for more than the amount of money owed on your mortgage.
When it comes to avoiding foreclosure, it’s one of the best options out there.
It saves the banks money and time by not having to foreclose on a home. Pre-foreclosure management is now in your hands. Having to leave your house is a drawback.
Deed In Lieu Of Foreclosure
A deed in lieu of foreclosure is another option for avoiding foreclosure.
All of the debt is forgiven when you surrender your house to the lender. Last-ditch efforts to escape foreclosure and its repercussions are often made here. People who wish to avoid the foreclosure procedure and the resulting damage to their credit score might take advantage of this option.
Pre Foreclosure Houses: Simplified
No homeowner wants to be in the pre-foreclosure stage, which is truly stressful. It’s possible to halt the foreclosure process before it’s too late and you lose your house and your credit score forever.
Even if you’re on the verge of defaulting on your mortgage and your lender is sending you notices that your account is at risk, you’ll want to stay calm. We hope that our guide has shed some light on the inner workings of pre-foreclosure homes.
Next, you’ll want to check out our real estate section for more guides and explainers on making the best decisions in the real estate market.