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 loan modification program, 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 a scam.
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.