Foreclosure occurs when a mortgagor (the borrower) misses or fails to make mortgage payments to their lender. Basically, foreclosure terminates the purchaser’s rights to the property that is bought under the mortgage agreement.

Foreclosure allows the lender to sell the property in what is known as a foreclosure sale. Foreclosure sales can either be managed by the courts, by the mortgage lender themselves, or through a third party.

What is Pre-Foreclosure?

Pre-foreclosure is a property status in which the property owner is informed that the property may soon be repossessed. This usually happens on account of the homeowner defaulting on their mortgage. As such, it is typically the bank or mortgage lending institution that initiates the pre-foreclosure stage.

Pre-foreclosure formally begins when the mortgage lender files a “Notice of Default” for the property. This informs the homeowner that legal action and foreclosure may follow if the debt is not paid or addressed.

What is the Difference Between Pre-Foreclosure and Foreclosure?

Pre-foreclosure is when the homeowner has missed payments and is 90 days late on the mortgage payments and the bank has begun the foreclosure process. In the pre-foreclosure stage, the property is in the process of foreclosure, but still legally owned by the owner.

Foreclosure means that the property lender or bank has taken the property from the owner for not making payments. In the foreclosure stage, your house will go into foreclosure and will be auctioned off by the lender or bank to the highest bidder.

Can We Still Avoid Foreclosure at This Stage?

Yes- in fact, one of the main purposes of pre-foreclosure is to provide the homeowner with a chance to make some changes so that they can avoid foreclosure proceedings. Here, the homeowner can often take steps to avoid foreclosure, such as:

  • Paying off debts and back-payment amounts
  • Renegotiating different payment terms for future payments
  • Obtaining an additional mortgage or outside loan
  • Selling some of their assets and using the profits towards the debts
  • Enter into a short sale agreement

Thus, pre-foreclosure is sometimes seen as a “grace period” in which the debts can be settled so that the owner can keep title to the property. If this is not possible, foreclosure or other legal actions may result.

What are Some Differences Between Short Sales and Pre- Foreclosures?

A homeowner is often provided with a choice between undergoing pre-foreclosure and conducting a short sale of the house. Short Sale is not the same as a pre-foreclosure. Pre-foreclosure is the status of an account.

If you are late on your home mortgage payments and the lender has started the foreclosure process but it has not been completed then you are in pre-foreclosure. A Short Sale is when the lender agrees to take less than what is owed on a property as the payoff.

In order to understand which one would be more beneficial, it helps to review the different characteristics of each. Some characteristics of short sales include:

  • The homeowner conducts the sale and is in control of the property and the process until the sale is completed
  • Short sales typically result in a better overall credit score than foreclosure
  • The home sale is conducted through the normal public real estate market
  • Short sales can sometimes be difficult to obtain—they may not always be available under state laws, and can take a very long time to process (short sale approval can often take anywhere from 2-3 months)

Some characteristics of pre-foreclosures include:

  • Notice of default is given to homeowner of late payments
  • Foreclosures process is initiated by the lender after notice is given to homeowner
  • The homeowner is still the legal owner of the house
  • The homeowner still has the option of selling the home during the pre-foreclosure stage
  • The homeowner can still avoid foreclosure in the pre-foreclosure stage
  • The homeowner can still sell the home at a high price in the pre-foreclosure stage

What If Legal Disputes Arise during Pre-Foreclosure?

Legal disputes can sometimes arise during the pre-foreclosure stage. For instance, it the pre-foreclosure process may uncover more debt such as tax debt or other issues. Pre-foreclosure can sometimes reveal defects with title and other similar issues, including any issues with foreclosure fraud (where your property is wrongly foreclosed upon by a third-party).

In such cases, these legal issues will need to be dealt with before the property can be foreclosed upon or sold. This may require additional legal actions, which can sometimes change the outcome of the foreclosure process.

Do I Need a Lawyer for Help with Pre-Foreclosure issues?

While pre-foreclosure is an important issue when it comes to legal status of property, it typically does not require legal help or intervention from a lawyer. The most important thing is to check and see if you are able to stop the foreclosure process by paying off any balance that is due.

If you are able to pay off your balance, but your home is in pre-foreclosure, then contact your lender to find out if they would accept a late payment for your remaining balance. Keep in mind that your lender has the right to reject your late payment. The first step to fighting a foreclosure is to contact your lender and find out what options you might have.

But if your lender says you do not have a balance and you are not in pre-foreclosure, but you were sent a letter saying you were in pre-foreclosure, then it’s important to contact a local foreclosure lawyer right away.