What is Pre-foreclosure?

Pre-foreclosure is a term used to describe the time period where a notice of default has been received by the property owner, but the house has not yet been foreclosed on. What happens during this time and what you should you do if you are in a pre-foreclosure situation?

If you are behind on your mortgage payments, pre-foreclosure or foreclosure may be just around the corner. A number of homeowners go into denial thinking that their home can't really be taken from them and so they choose to ignore the warnings from the lending company. It is imperative that if you get any kind of notice or letter regarding late payments from a lending company that you do not ignore it! Your home can be taken from you. But it doesn't necessarily have to be that way. Be smart about your decisions during this time and you may be able to keep your home, or at least walk away from the situation with credit still intact.

The pre-foreclosure period gives borrowers a change to get their financial lives in order and stop the foreclosure of the home. If you haven't been making your mortgage payments for any reason, but are able to make the mortgage current, then by all means do so. That is why there is a period before foreclosure. Laws are in place to give you every possible opportunity to keep your home and avoid the foreclosure.

It may be smart to consider a pre-foreclosure sale. Selling your home before the foreclosure gives you an opportunity to keep your equity and keep that foreclosure from your record. If you can sell it for full price or at a price equal to or above the amount required to satisfy the loan, then you are in excellent shape and should probably do what it takes to steer clear of foreclosure.

However, if you can't sell your property for a high enough price to satisfy the loan, then there other options where the lender may settle with you for a lower amount than what is due on the mortgage. Many times homes that are in pre-foreclosure cannot be sold for full price for several reasons. There may not be enough time to find a buyer. Or if a potential buyer knows you are in foreclosure, they may use that to their advantage and expect a lower price. But selling low is better than not selling and finding that can't keep your home anyway.

If a pre-foreclosure sale is an option in your situation, you may want to take it. As always, you must communicate with the lender and you may be given some slack in some areas if you are willing to work with the lender. Sometimes the lender will allow forbearance where you have a predetermined amount of time to make the loan current. If you are able to make your loan current, you may not have to deal with foreclosure. Try not to let your emotions get in the way of doing what is best for your situation. Remember, the pre-foreclosure period is time that is a benefit to you if you take action to remedy the situation.