What Is Pre-Foreclosure?
First, here’s a quick definition: pre-foreclosure is what happens when a homeowner has defaulted on their mortgage and is in the process of foreclosure. The homeowner may be up to 2 years behind on their monthly mortgage payments. Or they could be several months late. Typically, this period can vary significantly from state to state, but either way, the homeowner is well into serious delinquency.
Repayment problems can stem from many things, such as job loss or medical bills that pile up and make it hard to catch up financially again right away. But whatever the reason, if you’re struggling with your payment and want out before foreclosure starts, pre-foreclosure sales are one option to consider.
When Does This Process Begin?
The pre-foreclosure process begins when homeowners miss three or more mortgage payments. The lender sends them a notice of default that gives them 90 days to cure it or sell their homes. If they do not act, lenders will file notices of sale that start the pre-foreclosure process.
During pre-foreclosures, homeowners can still live in the home and look for money to pay off large loans while avoiding foreclosure.If they do not respond or keep their homes, lenders will complete the foreclosure and sell it at auction. This legal process helps homeowners avoid foreclosure and receive some money for their homes.
Types of Pre-Foreclosure
A few steps need to be followed to complete a pre-foreclosure sale. The homeowner needs to work with their lender to determine if they are eligible for pre-foreclosure. Once approved, the homeowner will then put their home on the market. They will need to find a buyer willing to purchase the home at its current market value. If a sale can’t be reached, the home will go into foreclosure.
There are three types of pre-foreclosure:
1. Pre-Sale
Pre-sale is when the homeowner tries to sell their home before being foreclosed on. It usually happens when the homeowner cannot sell the home enough to cover their debt but still wants to avoid foreclosure.
2. Financial Hardship
This type of pre-foreclosure happens when the homeowner struggles financially and needs time to get back on their feet. Usually, this only lasts until the owner’s financial hardship concludes.
3. Pre-Judgment
When the homeowner has not made their mortgage payments, and the foreclosure process hasn’t started yet, they still owe money on their home. This usually occurs because of a lawsuit or judgment against the borrower. The lender will file a lawsuit for non-payment, allowing them to get a court order to take the property.
In Summary
The pre-foreclosure process can vary depending on the state that you live in. Some states have laws that allow the homeowner more time to work things out with the lender, while others are less lenient.
If you are in pre-foreclosure, it’s essential to consult with an attorney to understand your options. You may be able to work out a payment plan with the lender, sell your home or file for bankruptcy. It’s essential to act fast, as the foreclosure process can move quickly.