If you fail to make payments on your home, you could lose it through foreclosure. The foreclosure process has several steps, ultimately leading to your eviction from your home and the property being sold at a public auction or trustee sale. Pre-foreclosure is the first step. Homeowners can remain in pre-foreclosed homes while trying to negotiate with lenders, while the term “pre-foreclosure” may be seen in real estate listings.
How Does Pre-Foreclosure Work?
A homeowner is in default of their mortgage when they miss 3 mortgage payments. The lender will then issue a notice of default, indicating the legal process of foreclosure has begun. Lasting weeks to up to a year or more, pre-foreclosure may require a court proceeding and the exact process varies from one state to another. Typically, a judge must grant approval to begin the process and for the lender to obtain a lien on the property.
Options If Your Home Is in Pre-Foreclosure
The foreclosure process can be costly. You can try to negotiate with the lender to make backdated payments. Other measures you can take include:
- Loan Modification/Refinance: Refinancing your mortgage before you miss a payment can provide new terms that lower the cost of paying your loan. If you’ve missed one or more payments, a loan modification can extend your loan, spreading payments over more time so they’re more affordable. It also avoids paying closing costs.
- Short Sale: You can sell a pre-foreclosed home if the purchase price is less than the remaining loan balance (if the bank/lender approves). The short sale option is available whether your home is in pre-foreclosure or not, and is often preferred by investors looking to profit by later selling it at a higher price.
- Deed In Lieu of Foreclosure: Once you sign the deed, you must vacate the property and the lender is free to sell it. While they may still request reimbursement of any losses, you can avoid a drawn-out foreclosure process and major damage to your credit.
- Ask for Help: Catching up on your mortgage payments will stop the foreclosure process. This may require asking for help from a friend or relative. It’s not the most comfortable situation for most people, but it’s better to borrow and fulfill your mortgage obligations before dealing with foreclosure.
Tips to Buying a Pre-Foreclosed Home
A pre-foreclosed property can be purchased via a private transaction between the homeowner and buyer (whose offer must be approved by the bank). While it may not be easy and you’ll still owe past due payments, selling the home can protect you from bankruptcy and, after the sale, a lower-priced home may be affordable.
If you’re looking to buy a pre-foreclosed home, here are a few tips that can help:
- Start Looking: Check online listings for pre-foreclosures. These homes aren’t always officially on the market.
- Check Local Listings: Look for foreclosure notices in a local newspaper. Also, check for signs and fliers (they should say something like “Will pay for your home in cash”).
- See the Property: Drive by to get a feel for the location and condition of the home. Perhaps the owner or a next-door neighbor is willing to chat. Get any details you can while being cautious and respectful.
- Be Informed: Verify whether the property is still in default, check public records to determine how much is owed on the loan, and if there’s a lien on the home. Then subtract buying costs from the property’s estimated value; you can use this to negotiate with the buyer.
- Contact the Homeowner: Call or write to the homeowner letting them know you’re interested, although expect them to be in some distress. Tour the property if the owner allows it and be flexible. Allowing them time to stay on the property may enable you to succeed with a lower offer.
Remember, all agreements must be put in writing; you may want a real estate agent’s or attorney’s help. You can also work with an escrow company that manages the transfer of money and ownership—whatever makes it easier for the homeowner to salvage equity and preserve their credit record (emphasize the benefits of agreeing to sell you their home).
Contact Oak Tree Law
If you have any questions about a home in foreclosure or are interested in purchasing a pre-foreclosed home, we can help. The process can take place inside or outside the court. Either way, our attorneys are experienced in helping clients find the best option for their situation. To learn more, request your free evaluation online or call 888-348-2609.