24 Sep What Is the Pre-Foreclosure Process?
Foreclosure is nothing to laugh at – in fact, it’s something that brings most people on the brink of desperation. Many people believe that foreclosure and pre-foreclosure are one and the same; however, that is not exactly true. During pre-foreclosure, you actually have the option of keeping your home – that is, if you work hard enough. With foreclosure, however, you are out of options – and you are one step away from being evicted out of your own home.
Breaking Down the Pre-Foreclosure Process
When a person decides to take on a loan in order to buy a property, he or she agrees that said property will have to be repaid in monthly installments. These installments will cover both the principal and interest that make your mortgage.
If the borrower does not manage to make the payments for at least three months in a row, he or she will be sent into default. If this happens, they would get a notice of default – which will also be recorded publicly by the bank. This action, in particular, is what marks the start of the pre-foreclosure process.
The Homeowner’s Options
The pre-foreclosure is like the rainfall before the actual thunderstorm. You receive the notice, which will give you time to take action – and maybe save your investment.
The homeowner’s first option is, obviously, to make the payments that were missed. The means are irrelevant; he can borrow the sum, or he can refinance his or her mortgage so that the missed payments are late.
Ideally, the homeowner should contact the lender as soon as possible. No party wants to have the home repossessed by the bank – which is why the chances are high that your lender will try to find a solution.
As (still) an owner, you have the option of selling your home before the bank completes the foreclosure. Selling your home during the pre-foreclosure state is called “short sale” – and it’s basically an emergency sale.
However, this option will depend on whether the seller can find a buyer or not. Most prices generally drop when the house enters foreclosure state – which is why the majority of the buyers prefer to wait out the pre-foreclosure.
Buying the house in this stage, however, will still mean a better price than they would normally get under usual circumstances. Plus, while you will indeed lose your home, you will be able to pay off your debt and start off with a new deposit.
Credit vs. Pre-Foreclosure
Once you have reached pre-foreclosure, your credit will have a lot to suffer. If you keep being late on your payments, the banks will know – and it will make it all the more difficult for you to get a new loan. On the other hand, if you sell the house and manage to pay back the money, your credit will not take such a bad hit.
In conclusion, pre-foreclosure should be considered a warning. It’s the notice that will give you enough time to act so that you can actually save your finances.