What is Pre-Foreclosure?
Pre-foreclosure is the first step in the whole foreclosure process which notifies homeowners their property is getting repossessed. This happens if the homeowner falls three months behind on their payments. Preforeclosure cannot begin until the homeowner is at least three months delinquent. The lender will then file the default notice on the property notifying homeowners the lender will foreclose the property if the debt isn’t paid promptly.
It is essentially a final warning, homeowners don’t lose their home during pre-foreclosure. However, since it is the first step in the foreclosure process, if the homeowner failed to pay the debt or negotiate a loan modification, at the end of the process, the property will be repossessed. The pre-foreclosure period can last anywhere between 3 to 10 months and a public auction or trustee sale is arranged at the end of this period.
What Homeowners Should Do To Get Out of Pre-Foreclosure?
Once the pre-foreclosure process has started, there are ways homeowners can work with the mortgage company to stop the foreclosure proceedings:
A loan modification is a popular means to save the property from being foreclosed. If you are struggling to pay your monthly mortgage, talk to your lender so you and the lender can arrive at the best solution to remedy the situation. It is best to communicate with your lender from the first missed payment and communicate the reasons why you’ve had difficulty paying your mortgage. You can request that your lender extend the length of your loan, so you’re responsible for paying less each month, adding any missed payments onto the end of your loan. Lenders may also opt to lower the interest rate.
It is in the lender’s financial interest to work with you to keep your home so they don’t have to go through the hassle of completing the foreclosure process. If it looks like a loan modification can be arranged, then pre-foreclosure ends and you go back to making regular payments on your loan.
Pay the Outstanding Balance
Remedy the loan by paying the past due balance along with late fees and penalties. Most lenders will stop the pre-foreclosure process if you can begin paying again and pay the outstanding balance. Some lenders require the balance as a lump sum while others create a payment plan to get you caught up. The terms of the original mortgage, such as the payment amount and length, still stand. Again, it is best to communicate with your lender to come up with the best solution to get you out of pre-foreclosure.
Deed in Lieu of Foreclosure
This is another way to get out of pre-foreclosure if a loan modification isn’t an option. In this process, you will deed the property back to the lender in exchange for the release of all obligations under the mortgage. This means if you are behind on your mortgage, you can hand over your house’s deed to the bank to settle your debt and walk away. Both sides, you and the lender, must enter into the agreement voluntarily and in good faith. If the lender agrees to a deed in lieu of foreclosure, pre-foreclosure ends.
A mortgage refinance pays off a current loan with proceeds from a new loan and can be acquired either through your existing lender or through a different mortgage lender. The best way to refinance a mortgage to avoid foreclosure depends on what type of home loan you have and the status of your mortgage.
Refinancing a mortgage loan results in new closing costs, but can be a good option if you need to lower your monthly payment because of an unexpected change in income or financial situation. Your existing lender is the best place to start when trying to refinance your home as a result of financial difficulties because your lender may have additional options for you that can streamline the process. Note that your chances of refinancing are better when your existing mortgage loan is still in good standing.
Sell the Home: Short Sale
If a loan modification can’t be worked out, another step in the pre-foreclosure process may be a short sale. A short sale is a pre-foreclosure home that goes up for sale. The sale can be a private transaction between you and the buyer, but the buyer’s offer must be approved by the bank before the sale can be finalized.
During pre-foreclosure, many lenders agree to accept a sales price that’s lower than the loan balance which is why the sale is said to be “short.” This saves the lender time and expense involved in handling and selling a foreclosed property. Short selling doesn’t reap you any benefit from the equity in your home, but it could possibly encourage a buyer before the foreclosure process finalizes.
Short selling your Upstate home is safer than foreclosure. We’d love to sit down with you and discuss your real estate plans. If you are short selling, we can give a value estimate, guide you in the short sale process, and share all the tools that help us sell our client’s homes for more. No one can guarantee your short sale will be accepted by the bank, but as a top Upstate real estate team, we provide our clients with a success rate far above industry averages. We get the job done.