What Does Pre-Foreclosure Mean?

Leaning foreclosure sign in front of a modern single family home on a cloudy cold day

Are you at risk of pre-foreclosure? Do you even know what that is? Pre-foreclosure happens when a homeowner is in default on their mortgage but has not yet been taken to court or had their property seized by the lender.

Homeowners may explore options for avoiding foreclosures, such as loan modification or short sale. If you’re wondering what happens before a home goes into foreclosure, here’s a quick overview.

What Is Pre-Foreclosure?

A pre-foreclosure is a home that is in the process of being foreclosed on by the lender.

This can happen if the homeowner falls behind on their mortgage payments for three months or more or violates the terms of their mortgage in some other way. Pre-foreclosures are also sometimes referred to as “notice of defaults” or simply “defaults.” 

What Happens When You Are in Pre-Foreclosure?

You’ll get a notice of default, which is filed through the court and of public record. It takes anywhere from weeks to a year.

What happens next? Well, the bank will try to work with you to get you back on track. If that doesn’t work, they’ll contact a real estate agent to sell your house.

If that still doesn’t work, they’ll file for foreclosure and the process will start all over again. So, what can you do to avoid all this? The best thing to do is to act fast and talk to your lender. They may be willing to work with you to modify your loan or even give you a forbearance.

But the sooner you act, the better your chances of avoiding foreclosure.

Steps Involved in a Pre-Foreclosure Process

The first step of a pre-foreclosure is the homeowner falling behind on their mortgage payments. This can happen for several reasons, such as job loss, illness, or divorce. The second step is when the lender sends a notice of default to the homeowner.

This is a formal notice that the homeowner is in default and that they have a certain amount of time to bring their payments current.

The third step is when the lender files a notice of sale with the court. It means that the property goes to auction.

The fourth and final step is when the property is sold at auction. This is usually done by the sheriff or a professional auctioneer.

What to Do if You’re in Pre-Foreclosure

There are several steps you can take if you’re in pre-foreclosure. The first and most important step is to contact your lender as soon as possible. You should explain your situation and try to work out a payment plan or some other arrangement.

You may also want to consider hiring a lawyer who specializes in foreclosure defense.

Get a Deed Instead of a Foreclosure

One option available to you is a deed in lieu of foreclosure. What this means is that instead of going through the foreclosure process, you simply hand over the deed to your lender. They then cancel the mortgage and you walk away from the property; it’s as simple as that.

Of course, this option isn’t for everyone. But if you’re struggling to keep up with your mortgage payments and tired of the stress of the foreclosure process, a deed in lieu of foreclosure might be just what you need.

Deed in lieu of foreclosure may be an option if you’re facing foreclosure and:

  • You can’t sell your home for enough to pay off your mortgage debt 
  • You’re unable to make your mortgage payments and don’t see a way to get back on track
  • You don’t want to go through the foreclosure process
  • You don’t want to damage your credit any further

Before you decide to sign over your deed, it’s important to speak with a lawyer or housing counselor who can help you understand the consequences.

Loan Modification

A loan modification is another option for homeowners who are struggling to make their mortgage payments. In a loan modification, the lender may update the terms of your loan so it fits your budget better and is more affordable. This can involve extending the term of your loan, lowering your interest rate, or changing the type of loan you have.

A loan modification is often an option for homeowners who:

  • Have experienced a change in their income or financial situation
  • Are behind on their mortgage payments but can catch up if given some time
  • Are at risk of foreclosure

Short Sale

A short sale is another option for avoiding foreclosure. In a short sale, the homeowner sells their home for less than they owe on their mortgage. The proceeds from the sale go to the lender, and the homeowner is released from their mortgage debt.

Short sales are often an option for homeowners who:

  • Owe more on their mortgage than their home is worth
  • Are unable to make their mortgage payments
  • Are facing foreclosure

There are both advantages and disadvantages to short sales. On the plus side, a short sale can help you avoid foreclosure and damage to your credit. It can also be less expensive and time-consuming than the foreclosure process.

On the downside, a short sale will still result in a negative mark on your credit report. And if your home sells for less than you owe, you may be responsible for paying the difference.

Get a Loan to Bring Your Mortgage Current

If you’re behind on your mortgage payments but still want to keep your home, you may be able to get a loan to bring your mortgage current. This is a “reinstatement loan.”

Reinstatement loans are often an option for homeowners who:

  • Have experienced a temporary financial setback
  • Are behind on their mortgage payments but can catch up if given some time
  • Are at risk of foreclosure

Refinance Your Mortgage

If you’re current on your mortgage payments but struggling to make ends meet, you may be able to refinance your mortgage. This can lower your monthly payments and make it easier to keep up with your financial obligations.

Refinancing is often an option for homeowners who:

  • Have good credit and a steady income
  • Are current on their mortgage payments but want to lower their monthly payments
  • Want to take cash out of their home equity

Foreclosures Can Be Stopped

If you’re facing foreclosure, it’s important to know that there are options available to you. You may be able to work out a payment plan or some other arrangement with your lender.

You may also be able to get a loan to bring your mortgage current. And in some cases, you may be able to avoid foreclosure altogether by selling your home through a short sale.

Buying A Pre-Foreclosure Home

If you’re thinking about buying a pre-foreclosure, there are a few things you should keep in mind. First, you’ll need to be prepared to act quickly. The timeline for a pre-foreclosure is relatively short, and if you’re not ready to move forward with an offer, another buyer may snatch up the property before you have a chance.

Second, you’ll need to be prepared to pay cash. Mortgage lenders are often unwilling to lend money to buyers who are looking to purchase a pre-foreclosure, so unless you have cash on hand, you may be out of luck. 

As with any real estate transaction, it’s important to do your homework before making an offer on a pre-foreclosure. Be sure to research the property itself so you know what you’re getting yourself into. With a little bit of planning and preparation, buying a pre-foreclosure can be a great way to get a good deal on a property.

Advantages and Disadvantages of Buying a Pre-Foreclosure Home

Purchasing a pre-foreclosure home is often seen as a way to get a great deal, but there are also some potential risks. Before you decide to buy, be sure to consider the advantages and disadvantages.

Some of the advantages include:

  • Purchasing the property at a lower price than its market value
  • Getting a shorter timeline to complete the purchase (since you’re working with the current owner rather than going through the traditional home-buying process)
  • Negotiating with the seller on repairs or other terms of the sale


  • The property may need significant repairs
  • The owner may be unwilling to negotiate the price or terms of the sale
  • You may have a limited time to complete due diligence on the property before closing
  • You may not be able to get a mortgage to finance the purchase

Pre-Foreclosure Isn’t the End

So what does pre-foreclosure mean for homeowners and aspiring homeowners? It’s not the end of the world. There are still plenty of ways to avoid foreclosure if it becomes a reality.

Millennial Home Solutions is here to help you protect your biggest investment. Contact us today to learn more about our services.

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