Preforeclosure is a stage in the foreclosure process that begins when a homeowner has fallen behind on their mortgage payments and the lender has initiated foreclosure proceedings but has not yet taken legal ownership of the property. During the preforeclosure stage, the homeowner may still be able to avoid foreclosure by bringing their mortgage payments up to date, negotiating a loan modification or other repayment plan with the lender, or selling the property to pay off the outstanding debt.
The preforeclosure stage typically begins when the lender sends the homeowner a notice of default, which is a formal notice that the homeowner is in breach of their mortgage agreement and that foreclosure proceedings may begin if the debt is not brought up to date within a specified period of time. The length of the preforeclosure period can vary by state and by lender, but typically lasts several months.
During the preforeclosure stage, the homeowner may receive offers from investors or other parties who are interested in purchasing the property before it goes to foreclosure auction. These offers may be lower than the current market value of the property, but can provide the homeowner with a way to avoid foreclosure and potentially avoid damage to their credit.
If the homeowner is unable to bring their mortgage payments up to date or negotiate a repayment plan with the lender, the property will typically be sold at a foreclosure auction, and the proceeds from the sale will be used to pay off the outstanding debt. If the sale proceeds do not cover the entire amount owed, the lender may pursue a deficiency judgment against the homeowner for the remaining balance.
It is important to note that many real estate marketing websites pick up on preforeclosure filings and advertise these homes among their other property listings, but they aren’t for sale unless they’ve specifically been listed by the owner. Most homes that are marked for preforeclosure will never be foreclosed on. The lender doesn’t want to foreclose, and there are options for the owner to bring their accounts current.
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