Over 300,000 people foreclosed on their homes last year. This may seem like a depressing state of affairs–and it is, to be sure. But many people are unaware that the process begins with a lesser-known phenomenon: pre-foreclosure.
Generally speaking, everyone understands what a foreclosure is, even if they may not understand the specifics. That said, pre-foreclosure is something you need to keep on your radar. It pays to know the difference between pre-foreclosure and foreclosure.
Read on as we discuss what it means to have a pre-foreclosure home, how the process works, and what you can do about it.
Pre-Foreclosure & Foreclosure: What Is Pre-Foreclosure?
The name gives it away, obviously. The pre-foreclosure phase is the time period before your bank decides to foreclose your mortgage.
To be clear, this will not come out of the blue. Before reaching pre-foreclosure status there will be ample warning in the form of either email, written notification or mail correspondence. Rest assured, you won’t suddenly wake up one morning and discover that your home is in pre-foreclosure.
Give or take, this process will begin once you have about 90 days of missed payments. The bank will advise you about the late mortgage payments and any resultant fees. But, they won’t take any serious action until this pre-foreclosure stage.
The Pre-Foreclosure Process
First, take a deep breath. You haven’t lost the home yet. The bank is not going to kick you out yet, so you do still have some breathing room to make a decision.
There are a lot of myths surrounding pre-foreclosure sales, and this is one of them. Immediate eviction will not happen.
Basically, think of this as a last chance. The bank is letting you make a choice here. Either you catch up with your payments, sell your home, or they will foreclose.
Once they foreclose, there is no going back. The bank will evict you from the home and auction off the house. Unfortunately, unless your foreclosed home sells for a lot more than you bought it, you may not get much money back.
Can You Work Things Out With the Lender?
Yes. Your mortgage lender initiates pre-foreclosure because they believe that you will default on your payments. This is a warning shot before they pull the trigger on the foreclosure.
This comes from most lenders in the form of a legal notice of default. In essence, it says that should you not pay your late payments, the bank will pursue legal action.
Things could get ugly. The bank or lender may send a notice of default to your county recorder’s office about the foreclosure, or file a lawsuit against you. This is where you get the 90 days to make good, or else reinstate your loan.
You can and should meet with them and discuss your options. Sometimes, lenders are understanding of your difficult circumstances. They may make alterations to your mortgage and allow you to make more affordable payments.
If not, you may have to consider selling your pre foreclosure home. We’ll get to how you can do that soon.
What Happens If You Do Not Comply?
Let’s assume the worst-case scenario. You are unable to make the monthly payments, so you simply do not make them. The 90 days come and go.
At this point, the lender will issue a notice of trustee sale. This is a public declaration that they will sell your home at a public auction somewhere. Your home will soon be up for sale on the housing market.
This process will take some time, as the bank or lender has to advertise a trustee sale for at least three weeks. This is where we get to interject some good news: pre-foreclosure takes time. It’s not a simple 90-day wait, and then poof, your house is gone.
In fact, pre-foreclosure can take up to 10 months. It is only when the foreclosure process is final that all of your options disappear.
So, what does the legal process for the complete foreclosure of real estate look like?
What Is Foreclosure?
Unfortunately, foreclosure is the point of no return for mortgage borrowers. The bank has already given you ample time to assess your options and make a decision. There’s nothing anyone can do once the foreclosure is complete.
Foreclosure means that the bank completely re-processes your property, removing your ownership rights. Of course, they are not interested in having a home; they want money. Their only goal is to auction off the house for as much as they can to recoup their losses.
Eviction may not be immediate, as the bank will focus on getting a bid. They will try to sell the home not just for its property value, but for liens and unpaid taxes as well. Once the bank gets the highest bidder, they will close and give that bidder immediate and full possession.
In some rare cases, they will struggle to find a buyer. They may try to hand it off to a broker or find some financial institution or other entity that will take it off their hands. However, this does not mean you are free to continue living there.
When Will They Evict the Previous Owners?
So, suppose you are in this unfortunate foreclosure situation. When will the bank–and more importantly, the law–force you to leave?
Unfortunately, we cannot say for certain. This will depend on the home’s new owner. Once they accept the contract and pay it off, they can demand that you vacate the premises immediately.
The real estate owner cannot force you off the property. However, your local sheriff can. If you do not leave of your own accord, then the sheriff will escort you off the property with your belongings.
How Does a Foreclosure Affect Your Credit Score?
Sadly, a foreclosure will deal a devastating blow to your own credit history. The damage will take years to recover from and will affect your options for loans and mortgages. Foreclosures also damage the property values of a community.
This can be a serious situation and a very troubling time. You may struggle to keep your job and may suffer consequences to your mental health.
Luckily, however, hope is not entirely lost. If you’re still in the pre-foreclosure process, you have a chance. Let’s discuss options.
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Make Those Mortgage Payments
If possible, you can simply make the payments that you were late on and end the pre-foreclosure phase. Of course, this is easier said than done. If you don’t have the money, how can you be expected to find a few thousand dollars lying around?
Further, you will be on the hook for any penalties and late fees. It goes without saying that this is not an option if you are strapped for cash.
Get a Loan Modification
As we said above, your next option is to negotiate. Speak with your lender and request a loan modification. Doing so may give you some breathing space to make future payments.
However, this will work to your detriment. By lengthening your term, or deferring some of your payment, you ensure that your home will cost more in the long run. It will make things easier now, but cost you an arm and a leg over time.
Go With a Deed in Lieu
You can hand over your deed of ownership to the lender. This absolves you of any and all debt on the home. While it will protect your credit score from taking a beating, it leaves you homeless.
These options don’t look too great. Luckily for you, we have a better one.
Selling a Pre-Foreclosed Home
By selling your pre-foreclosed home for cash, you get the best outcome in a difficult situation. For starters, it’s a lot less stressful and much easier than the lender putting it up at the foreclosure auction. There will be fewer tears and fewer sleepless nights.
Plus, you get to sell your home regardless of the condition that it is in. Even if your house requires significant renovations or repairs, a cash buyer will purchase it. They won’t ask as many questions as the lender.
Appraisal is easy with a cash buyer. They will simply ask for some pictures of the home along with a description of its current state. Usually, this is enough, but they may also do an inspection for good measure.
Believe it or not, banks are happy with this option. Foreclosure is a headache for them as much as it is for you. At the end of the day, a cash buyer’s offer is better financially than auctioning the home themselves.
Last but not least, this option does the least damage to your credit and will help you avoid foreclosure. You will be in a much better position to purchase a new home than if you had allowed foreclosure to happen.
Sell Your Home for Cash With TX Cash Home Buyers
Now it should be pretty clear what the difference is between pre-foreclosure and foreclosure. Pre-foreclosure is a window of opportunity for you to do something before the bank repossesses your home. We highly recommend that you sell it to a cash buyer as this is the best option for you financially.
TX Cash Home Buyers purchases pre-foreclosure properties all the time. Saving homeowners from the dreaded outcome of a foreclosed home. Check out how it works, and then give us an idea of what your property is like so we can take it off your hands.
About The Author
Lisa is a dedicated real estate professional specializing in assisting homeowners with burdensome houses and complex situations. Lisa and her team provide valuable guidance and solutions to homeowners navigating challenging real estate circumstances. Her commitment to delivering efficient and professional assistance makes her a trusted partner in helping homeowners find optimal resolutions for their property challenges.