For many homeowners struggling to make mortgage payments or dealing with delinquency (when a mortgage loan borrower is late on or missed payments), nothing’s more worrying than the thought of foreclosure. But before your lender can try to repossess your home, they must proceed through the pre-foreclosure process.
In this guide, we’ll explore what pre-foreclosure is and how long the pre-foreclosure process takes. We’ll also explore ways in which you can avoid pre-foreclosure altogether. Let’s get started.
Pre-foreclosure is the initial phase of the foreclosure process. In pre-foreclosure, a lender officially files a “notice of default” on the property they wish to repossess from the borrower. Think of pre-foreclosure as the first step a lender or mortgage owner must take before they can legally file for the right to remove you from your property.
However, pre-foreclosure doesn’t mean you’ve already lost control of your home. Even if you are in pre-foreclosure, you still have the chance to request a loan modification or make payments to your lender to cure the outstanding balance and get caught up.
The pre-foreclosure process should not be taken lightly. It should be an alarm to homeowners that they need financial assistance financial assistance or take action quickly to avoid losing their home and negatively impacting their credit to a foreclosure. While they still have time, the foreclosure clock has started ticking; the wheels are set in motion and will not stop unless they take swift action to save themselves.
Pre-foreclosure and foreclosure are similar but not the same.
Pre-foreclosure can be considered an unofficial start to the foreclosure process since it's not an official legal phase. While delinquency begins when a homeowner misses a monthly payment (even if it’s by accident and the homeowner makes the payment a few days later), pre-foreclosure starts when a lender officially files a notice of default or lis pendens.
Since pre-foreclosure isn’t an official legal phase, it doesn’t result in any legal consequences for the homeowner. If you are in pre-foreclosure, you haven’t yet lost control of your home, nor do you (necessarily) face extra fees. Additionally, pre-foreclosure doesn’t necessarily result in a lower credit score, although in most cases your credit score will be negatively affected due to missing payments.
However, pre-foreclosure comes with severe consequences. Not only does the homeowner face the risk of losing their home, but they may also endure a substantial credit score drop, hindering their chances of obtaining loans or credit cards in the future. Moreover, the overwhelming pressure of dealing with creditors and potential lawsuits, combined with the constant fear of losing their home, can lead to detrimental stress-related health issues.
Simultaneously, when mortgage payments are missed, leading to delinquency, a harmful snowball effect can be set in motion. Initially, the lender may impose late fees and higher interest rates, compounding the amount owed by the homeowner. As missed payments persist, the lender may even reject partial payments, insisting on the full outstanding amount instead.
This can rapidly escalate the homeowner's debt, as accruing interest and penalties worsen their financial hardship. Adding to the burden, the lender might report the missed payments to credit bureaus, resulting in a lower credit score and making it more challenging and costly for the homeowner to obtain future credit.
Over time, these circumstances may lead to a default, beginning the process of foreclosure and potentially culminating in the homeowner losing their property.
Foreclosure is an official legal process. It marks the end of your homeownership for the property. If your home is in foreclosure, it means the lender is in the process of repossessing it. It can be difficult, if not impossible, to stop this process once it has begun.
The pre-foreclosure process timeline can vary depending on whether your lender starts the foreclosure process through or outside the courts. However, the timeline and procedure also depend on the state.
The judicial pre-foreclosure process involves the courts. It only happens in states that require judicial foreclosure as a matter of law.
The judicial pre-foreclosure process can take an extended period of time and depends on the speed of the state legal system. This can buy a homeowner more time to get caught up.
For example, New York State's pre-foreclosure process often lasts more than 13 months. That’s because New York only allows judicial foreclosures (i.e., lenders must go through the courts to initiate foreclosures at all).
Nonjudicial pre-foreclosure differs from judicial pre-foreclosure in that it doesn’t have to pass through the legal system. Regardless, this process remains incredibly significant and no less “official.”Just like judicial pre-foreclosure, it is still leading up to the homeowner losing ownership of their property. Non-judicial pre-foreclosure starts as soon as the lender records a missed payment and decides to send a notice of default.
In most states, when you default on your mortgage to any amount, your lender must legally give you a notice of default. Your lender is then legally required to provide you with a certain amount of time to “cure” that default (e.g., make the payment you owe). This period of time depends on your state, typically a 30-day notice, a 60-day notice, or a 90-day notice.
In nonjudicial pre-foreclosure situations, the pre-foreclosure process is usually quick. For example, the pre-foreclosure process can be as short as 111 days in California. This includes a 90-day default notice period and a 21-day foreclosure sale notice.
Pre-foreclosure can take anywhere between a few months to over a year, depending on your state of residence. If pre-foreclosure and foreclosure must happen in the courts, it takes longer. If pre-foreclosure doesn't have to go through the courts, it's usually shorter.
In either case, you should immediately try to pay off mortgage debt and stop defaulting on your loan. If you cannot do so, it may be a wise idea to speak to a representative at Balance to understand your options.
Pre-foreclosure can be stressful, time-consuming, expensive, and damaging to your credit.
If you’re struggling to make mortgage payments and worried about the future, Balance may be able to help. If approved for a Balance equity investment, Balance will pay off your current mortgage, stopping the foreclosure process and providing access to additional equity to consolidate other debts.
We can give you a fresh start and stop the spiral of debt – all you have to make is a simplified monthly occupancy payment for your exclusive occupancy of the home and your share of the home’s expenses, such as insurance and taxes. As a co-investor, Balance pays for its share of the home's monthly expenses.
By consolidating debt and decreasing your monthly obligations you can increase, you can increase cash flow, pay other debts, build your credit, and more. Since there's no minimum term for the co-ownership agreement, homeowners have the flexibility to refinance, sell, or buy Balance out anytime during the 7-year term.
With Balance, you'll have a co-ownership partner that is able to provide a flexible plan to help you get back on track and get the restart you have been looking for. We’ve helped homeowners like you get out of the financial hole and restart their lives with more freedom than ever.
Why wait? Avoid the pre-foreclosure process before it begins by contacting Balance today.
Sources:
Pre-foreclosure: How it Works in Real Estate, FAQs | Investopedia
notice of default | Wex | US Law | LII / Legal Information Institute
Foreclosure: Definition, Process, Downside, and Ways To Avoid | Investopedia
