Depending on each jurisdiction, the rules of pre-foreclosure will vary. There is a consensus among the states regarding the start of the pre-foreclosure process. Below is a brief overview of what the pre-closure process entails.
First, there is a mortgage default, and the pre-foreclosure usually starts 90 days after a borrower misses their first mortgage payment. The homeowner needs to miss three monthly payments consecutively. Once this occurs, the borrower is considered to default on the loan. Check your local laws on foreclosure to find the exact amount of days.
Next is the notice of the default, the lender must provide the homeowner with a proper notice. The pre-foreclosure period starts when the lender notifies the borrower by certified letter that they intend to begin foreclosure proceedings within 30 days. In most states, once a lender issues a pre-foreclosure notice, the borrower’s name is also posted to a public listing of individuals subject to foreclosure.
The final stage of a foreclosure order ends the pre-foreclosure period. However, the deadlines can be different depending on the state. Some states require the lender to submit evidence of nonpayment for review by a judge, which can take several months. Other states allow foreclosure authorizations within a few weeks. Once the home is foreclosed, the homeowner must leave the property.
What Should You Do if Your Home Goes Into Pre-foreclosure?
There are some actions to take if you want to prevent a foreclosure. You have time to act if your home is in the pre-foreclosure stage. You have limited options available and they are meant to prevent further financial harm.
First, you can create a realistic plan to make the mortgage payments. This can ensure that you have a current balance in your account. You can determine your financial options and set up a way to remove past-due statements. You can seek a new income stream by selling assets, arranging a private loan from a family member, or otherwise making progress against your debts.
Another option is mortgage forbearance, which can be useful if missed mortgage payments result from a temporary loss or reduction in income. If you know you can make those missed payments within a year, you can apply for a mortgage forbearance.
It is recommended to apply for forbearance before you miss any payments or as soon as you miss your first payment. Sometimes, people can provide evidence of future income through a pending contract, for instance. Then, your lender may agree to a temporary suspension or reduction in your monthly payments even after you have defaulted on the loan.
Lastly, you can request a loan modification. This new loan amount can meet the needs of your financial constraints. The mortgage lender may be willing to adjust your monthly payment to an amount you can afford. However, you may have higher interest rates over the life of the loan. Lenders usually do not need to offer any loan modifications, but you can explain your financial situation to them.
How Does Pre-foreclosure Affect Your Credit?
There is no direct impact on your credit report if you are in the pre-foreclosure stage with your mortgage payments. However, if the pre-foreclosure is not mitigated early on, the events that occur after can negatively impact your credit score. Once a foreclosure is declared, then there are major financial consequences that occur for the borrower.
Generally, pre-foreclosure happens after three successive missed mortgage payments. During this stage, the borrower’s credit scores have already declined significantly. Even a single missed loan payment directly impacts credit scores, and other missed payments on bills can reduce the score even more.
Foreclosure can have a more severe effect on your credit scores and can remain on your credit report for seven years. However, during the pre-foreclosure stage, you still have time to rectify your situation and avoid foreclosure.
If you’re facing pre-foreclosure, it is critical to take immediate action and consult an expert in the field to determine your financial options. Be sure to keep in contact with your lender and cooperate with them to figure out a plan to ensure that you do not end up with a foreclosure.
Throughout the process, it is critical to monitor and review your finances. Losing your home over missed mortgage payments can be devastating, as can all the stress of a financial crisis. Plan for your mortgage payments and ensure you do not find yourself in foreclosure. As stated earlier, if you are in the pre-foreclosure phase, you can avoid the negative consequences of a complete foreclosure.
How Long Is the Pre- Foreclosure Process?
State laws govern the foreclosure process, which can also vary depending on the lender. It can take anywhere from several months to a couple of years. In some jurisdictions, the lender must file a lawsuit to repossess the home, meaning a judge must hear the case. This process can take longer due to the court formalities.
The short sales of pre-foreclosure homes can be another option for homeowners. This process allows you to seek the home at a lesser value to pay off the debt and forgive the remaining amount. But this all depends on your lender and what they are willing to do for you in your case. This means that with this short sale, you can prevent foreclosure and do not have to risk your financial status on the credit report. Even though the result is similar to a foreclosure in that the homeowner loses their home, a short sale is not considered damaging to the credit report. People also consider this because obtaining a mortgage after foreclosure will be more challenging.
However, are there some benefits and drawbacks to pre-foreclosure sales? Below are some of the benefits regarding it:
- Lower price: These homes are generally more affordable since they are priced below market value; and
- Better condition: Pre-foreclosure homes are in better condition than a foreclosed property. This is generally the case because the homeowner is still living in the house.
Furthermore, below are some of the drawbacks that come with a pre-foreclosure property:
- Property is as-is: People buying properties in preforeclosure commit to purchasing the property “as-is,” meaning that the lender and seller will not do any repairs to it;
- Length of transaction: Generally, buyers send offers to the lender or servicer, not the homeowner, and this process can take longer than the usual real estate transaction;
- Failure of the sale: potentially, the sale could not go through. This means that a sale agreement does not necessarily stop the pre-foreclosure process.
In some states, the home can still move toward a judicial foreclosure hearing, even when an interested buyer exists. The court will make that decision ultimately.
When Do I Need to Contact a Lawyer?
The pre-foreclosure stage in the real estate industry does not automatically equate to a foreclosure. Therefore, in this situation, you must act immediately to prevent and avoid a foreclosure. You can contact a local foreclosure lawyer to guide you through the process if you need further legal assistance.