As its name suggests, pre-foreclosure refers to the initial stage of the process that can eventually lead to a home being foreclosed on. If you’re a homeowner facing financial stress, understanding pre-foreclosure is important — as the decisions you make at this stage can seriously impact your financial situation, not just your housing situation.
In this post, we take a closer look at what pre-foreclosure is, including what the typical process of pre-foreclosure entails and what your primary options are, so that you can make a more well-informed decision if you are ever faced with the unfortunate circumstances of pre-foreclosure.
What is a Pre-Foreclosure?
When a homeowner defaults on their mortgage payments, their lenders will often seek to recover the monies that they are owed through a process of foreclosure. The legal process of foreclosure is one that enables the lender to repossess the house upon which the loan is secured.
Pre-foreclosure is a general term that refers to the process that’s initiated by the lender, and it is most commonly triggered when a homeowner misses payments on their mortgage.
How Long is The Pre-Foreclosure Process?
On average, the pre-foreclosure process can take anywhere from 3–6 months.
However, this timeline is also dependent on various factors like state laws, the lender’s policies and the defaulting homeowner’s response to the pre-foreclosure.
For instance, certain states are judicial foreclosure states, including Pennsylvania. This means that lenders must file lawsuits before they can foreclose on a property, and in states such as New York which have long court backlogs, this can lead to a significantly lengthier foreclosure timeline. In any case, most pre-foreclosure process tend to be similar and usually involve the following stages:
Missed Payments
Once a homeowner begins to miss payments on their loan, the lender will typically issue a warning and late fees will accumulate on the payments due. This stage of the pre-foreclosure process can range from anywhere between 30–90 days, depending on factors such as the homeowner’s responses to the lender’s warnings and requests for payment.
Are you a homeowner under financial duress? See our Mortgage Forbearance post to learn about available options in the event that you face missed mortgage payments.
Notice of Default
If a homeowner continues to miss payments even after receiving warnings or is otherwise unresponsive, the lender will often then initiate the next stage of the pre-foreclosure process. This usually occurs at or after 90 days from the initial missed payment.
At this stage, the lender will issue the homeowner with a formal notice of default, which informs the homeowner of the home’s pre-foreclosure status and provides the homeowner with a fixed period of time to resolve their delinquency.
Resolution
Upon receiving the notice of default, homeowners usually have three to six months to take their next steps. This can involve negotiating with the lender to refinance their mortgage, reinstating or modifying their loan, and even selling the home to pay off their mortgage loan.
Foreclosure
If the homeowner does not take any action at the resolution stage or if the lender and the homeowner are unable to come to a satisfactory resolution, the lender will usually then move to begin foreclosure proceedings on the home.
This often ends with the home being repossessed or auctioned off to repay the outstanding amounts owed by the homeowner.
What Are Your Options in Pre-Foreclosure?
Of course, the most straightforward way to get out of pre-foreclosure is to reinstate the loan by catching up on the payments that you missed. However, this is often not an option for homeowners in many cases where the pre-foreclosure process has been initiated, especially if they are dealing with financial hardship.
Some of the other options that may be available to homeowners in such situations include:
- Loan Modification or Refinancing: If you missed your mortgage payments due to financial hardship, certain lenders may also be agreeable to modifying the terms of your loan or refinancing it. This may include changing the repayment term or the monthly repayment amount to a lower amount that might be more affordable.
- Short Sale: A short sale involves selling a home for less than the amount that is owed on the mortgage. This is usually done when property prices have declined and the lender agrees to accept just the sale proceeds from the home as the repayment for the mortgage. However, it is important to note that a short sale can only be done with the lender’s approval.
Should You Sell Your Home to Avoid Foreclosure?
Selling your home to pay off debts or to avoid foreclosure is also an option and it may be a good decision in some situations.
However, whether you should ultimately do so would depend on various factors such as market conditions, your financial situation and your long-term goals. One of the advantages of selling your home to avoid foreclosure is that you can protect your credit score, which may otherwise be severely damaged by a foreclosure. Moreover, foreclosures can also lead to lengthy legal battles which can have adverse financial consequences.
However, it is important to remember at the same time that market conditions may be unfavorable — and if you are unable to sell your home for a good price, you may be forced to take on additional debt.
Last, to state the obvious, selling your home to avoid foreclosure would also typically mean that you’d need to find a new place to live, and this can lead to you incurring significant moving expenses as well as potentially higher rent or mortgages elsewhere.
Sell Your Home to HomeBuyers of Pittsburgh
Nevertheless, if you do decide to sell your home, selling to HomeBuyers of Pittsburgh is one of the best ways to get a fast cash offer on your home. Our team of professional homebuyers specializes in buying and selling homes in Pittsburgh. The offers we make are based on market value and free from hidden fees and costs.
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