Pre-foreclosures take place when homeowners are no longer able to afford paying their home mortgage. The lender normally steps in and begins the legal proceedings to let the owner know about the default in payments and give him or her a certain amount of time to correct the issue. A pre-foreclosure is different from a foreclosure in that during the time of pre-foreclosure, the bank or lender may not repossess the home. The owner has time to find a suitable place to move to if he or she will not be able to fix the defaulted home loan.
Once the home has entered pre-foreclosure, the homeowner may have the option to sell it and use the profits to pay the bank or lender what is owed. Every lender has different rules that must be followed for a pre-foreclosure sale, but normally this act can help a homeowner avoid a complete foreclosure. For example, the subject property typically must be appraised by a reputable firm, and the assessed value generally needs to be close to 70 percent or more of the total owed. Once the appraisal amount is approved, the owner usually must list the home for 95 percent of that sale price or more.
In most areas, the existing home or property loan must be at least two months behind in order for borrowers to apply for pre-foreclosures. Having a close dialogue with the bank, credit union, or mortgage company will help a borrower find out if he or she meets these qualifications. One of the most popular advantages of this process is avoiding a negative mark on a consumer’s credit report, which may cause problems later on in life.
Pre-foreclosure laws and processes are different for every area and lender, so it is imperative to fully understand what is required in order to qualify and not slip into full foreclosure. Missing any crucial deadlines or steps can easily disqualify a homeowner from being able to go through any pre-foreclosures. Once a home or property goes into foreclosure, the borrower losses almost all of the advantages of pre-foreclosure.
From the side of real estate buyers, pre-foreclosures are typically advantageous. The prices on these homes are generally lower than the market value, so they can be bought and then sold for profits. This is good news for those who must put their homes into pre-foreclosures, as it means it is quite common to sell them quickly.