If you find yourself facing foreclosure, you may be confused by the term pre-foreclosure. What’s the difference?
Here’s what you need to know.
What Is Pre-Foreclosure?
Your bank may begin the pre-foreclosure process when you are 90 days behind on your mortgage payments. You still own the property, but unless you work out an agreement with your lender or sell the house before it’s auctioned off, you will lose your home to foreclosure.
The bank will send you a notice of default that says it will pursue legal action if you don’t pay your debt. Your lender will also notify the county recorder’s office or file a lawsuit in court. The bank will give you 90 days to come up with the missing payments and reinstate your loan.
If the debt is not paid within 90 days of the notice of default, a notice of trustee sale will be issued to inform the public that your home will be sold at auction. The bank must run a newspaper ad about the trustee’s sale for three weeks that includes details on the property, as well as the date and time of the sale.
This pre-foreclosure process can last 3-10 months. However, until your home is officially foreclosed, you have options to prevent it.
What Is Foreclosure?
Foreclosure happens when the bank repossesses your property. The lender wants money, not your home, so it will try to sell your property in a public auction. The opening bid is usually based on the loan, liens, taxes, and sale costs associated with the house. In the end, your home will be awarded to the highest bidder (or the buyer most likely to close) who will get immediate possession.
How long you are allowed to stay in the house after the trustee sale is up to the new owner. If you do not comply, the sheriff will be instructed to evict you and your belongings. If your home does not sell during the auction, the lender will likely try to sell it through a broker or other entity. You still have to find another place to live.
The effects of foreclosure go far beyond losing your home. Your credit will be damaged and it will be some time before you can apply for another mortgage. You may have trouble getting a job in the future, and your mental health may suffer. Your community could also be affected by reduced property values.
What Are My Pre-Foreclosure Options?
There are steps you can take during the pre-foreclosure process to prevent your home from being sold in a trustee sale.
Make Up Missed Payments
You can get out of default by catching up on your missed payments. You’ll also have to pay late fees and penalties, as well as continue with your regularly scheduled payments.
Ask for Loan Modification
Your lender may work with you on a loan modification. This may involve shortening your rate, lengthening the term, deferring part of your payment, or making it easier for you to pay in some other way.
Obtain a Deed in Lieu of Foreclosure
A deed in lieu of foreclosure would turn over ownership of your home to the lender and absolve you of the debt. This option would prevent your credit score from taking a hit, but you’d still lose your home and have to move out.
Sell Your Home in a Short Sale
A short sale allows you to sell your home for less than what you owe your lender. Most banks will comply with this strategy because of the time and money involved in foreclosure. Your credit will remain intact, but you’re still left without a home.
What’s the Difference Between Pre-Foreclosure & Foreclosure?
Now you’re aware of the difference between pre-foreclosure and foreclosure. You also know your options up until your home is foreclosed.
Pre-foreclosure is the time between your notice of default on mortgage payments and the loss of your property to your lender or a buyer. Foreclosure is the end of the road: your home is sold at auction or the bank repossesses it.
If you sell your home during pre-foreclosure, you don’t have to worry about your credit score being affected or securing a future mortgage. With a cash buyer, the process is fast and there’s no financing involved.
Contact New Again Houses® today to speed up the process!