What is Pre-foreclosure?

Pre-foreclosure is commonly considered one of the first stages of the foreclosure process. This can occur when a mortgage lender sends a homeowner a Notice of Default after one or more delinquent mortgage payments. For the process to officially start, lenders are typically required to file paperwork with the local clerk of the courts indicating the loan has moved into default status.

Pre-foreclosure can be a scary time for homeowners since it typically indicates the start of the foreclosure process. How a homeowner responds to his or her mortgage lender after receiving a Notice of Default can make a huge impact on how the foreclosure process plays out. Some homeowners may choose to sell the property at a short sale, some may choose to pay the delinquent mortgage amount in order to bring the loan current and some homeowners may choose to let the home fall into foreclosure. In any case, it can be wise to respond to mortgage lenders as soon as possible after the pre-foreclosure process has been initiated.

Pre-foreclosure Benefits

Pre-foreclosure may be able to offer some benefits to homeowners who cannot continue to afford their home, homebuyers looking for a good deal and mortgage lenders with homeowners in default status.

  • Benefits to Homeowners – While a home is in the pre-foreclosure stage of the foreclosure process, homeowners may be able to avoid foreclosure by selling the home or pursuing a foreclosure defense strategy. Selling the home during the Pre-foreclosure stage can help the homeowners get out from a property they cannot continue to afford without the damaging effects of a foreclosure. Pursuing a foreclosure defense strategy may help to stop the foreclosure process before the homeowner loses the home.
  • Benefits to Homebuyers – Homebuyers may be able to purchase homes in the pre-foreclosure process at a significantly reduced cost than the home’s current market value. Some homes may be sold for up to 40% below the fair market value.
  • Benefits to Lenders – Mortgage lenders typically prefer pre-foreclosure sales as opposed to following through with foreclosure proceedings. This way, mortgage lenders are often able to avoid the high costs associated with following through with foreclosure. Additionally, mortgage lenders can gain a financially stable homeowner as opposed to one who cannot continue to afford the home.

Pre-foreclosure Considerations

Pre-foreclosure considerations should be taken into account for homebuyers looking to pick up a home for a great deal. Homebuyers should remember the sale of a pre-foreclosed home may take longer than purchasing a home that is not in some stage of the foreclosure process. Also, homes in some stage of the foreclosure process are commonly sold “as-is” so the home may require significant repairs.