A pre-foreclosure is the most critical stage of the foreclosure process. It is during this period that the homeowner has the opportunity to become current on delinquent payments or sell the home to avoid long-term damage to their credit rating.
When a borrower defaults on their mortgage and no longer has the ability to pay, the lender can elect to initiate legal proceedings.
Typically, lenders will send a letter via registered mail informing the borrower of the delinquency and informing them of their intention to foreclose on the property.
The pre-foreclosure letter includes specific details including the note balance, interest rate, penalties, late fees and a specific date by which the borrower must comply.
Lenders refer to this as the grace period. If you are able to pay the outstanding balance during the grace period, the lender will reinstate the loan and no further action will be taken.
If you cannot pay the full amount or unable to provide a satisfactory repayment plan your lender may offer other options to keep your house from falling into foreclosure.
Some aspects of foreclosure are regulated by state law and there are many variables in the pre-foreclosure process. However, lenders have some flexibility in reorganizing your mortgage note.
If you put forth serious effort into working with them, chances are they will provide you with better options and more flexible terms.
If you are currently in the pre-foreclosure stage and defaulted due to unemployment or health complications, your lender may offer you a Loan Modification.
Typically, the lender will reduce or suspend payments for a specific period of time and roll those payments to the end of the loan. This can be a costly option, so be certain you understand the ramifications if you decide to go this route.
If you owe more on your home than it’s worth and has no equity in the home, your lender may accept a Short Sale. Basically, this means the lender will accept less than what is owed on the note.
Short sales are somewhat tricky and best handled by a professional who has a thorough understanding of the process.
While it can be intimidating to work with your lender during the pre-foreclosure stage, it’s crucial to stay in contact with them and lay all your cards out on the table.
If you find it difficult to work with your lender, you can obtain assistance with pre-foreclosure negotiations through the U.S. Department of Housing and Urban Development. HUD agencies are located across the U.S. and provide free housing counseling to all U.S. citizens.
By becoming proactive in the pre-foreclosure stage, you will have more control over the final outcome. Ignoring the situation will leave you with few options and little to no bargaining options.
Make that call to your lender before it’s too late.