Pre-foreclosure means that your lender has issued a notice of default (a public notice filed with a court) and that they are beginning the process of foreclosure. Fortunately, pre-foreclosure does not mean that your house will be foreclosed upon and there are many ways to get out of pre-foreclosure.
While pre-foreclosure may seem like a scary process, it is also an opportunity for you to get your finances back in order and to keep your house or walk away with cash-in-hand. Foreclosure is very expensive for your lender and oftentimes they will be ready to work with you on a solution that saves you your home and saves them their money.
Fortunately, there are solutions to get you out of debt and help you escape foreclosure without losing your house, and that is what you will learn in this post.
Below you’ll discover the process of pre-foreclosure and the options you have to avoid the bank completely foreclosing on you. But first, let’s learn the difference between pre-foreclosure and foreclosure.
What’s the Difference Between Foreclosure and Pre-Foreclosure?
The difference between foreclosure and pre-foreclosure is that foreclosure enables lenders to reclaim the remaining balance on your loan, typically by auctioning off your home. Pre-foreclosure is the preliminary process that gives homeowners a heads up that their lender has begun the process of foreclosure.
Fortunately, foreclosure can be avoided and many lenders actively seek to avoid it in pre-foreclosure.
The most straightforward method is to get you back on track with your payments, which is where pre-foreclosure begins. During this step you can explore solutions from loan modifications to a short sale of your home, which we will discuss below.
Common Problems that Lead to Pre-Foreclosure
The good news is that your situation is not unique, and millions of homeowners just like you have found themselves in pre-foreclosure and escaped it while still keeping their house and their money.
Common problems that lead to pre-foreclosure include:
- Medical bills piling up
- Accruing too much credit card debt
- Suddenly becoming unemployed
- Using an adjustable-rate loan
- Losing a family member or financial contributor in your home
- Moving residences without selling your previous home
- Having to pay for expensive repairs
You can’t always predict the future, and if you find yourself facing this situation here are some of the ways you can get out of pre-foreclosure.
How to Get Out of Pre-Foreclosure
Five ways you can get out of pre-foreclosure and avoid moving into the foreclosure process include:
Sell Your Home
Selling your home is an excellent option if you cannot afford to keep up with your monthly mortgage payments. When you sell your home, you generally have two options. You can conduct a short sale or sell for cash to a reputable real estate investor or home buying company.A short sale is a sale of a home for less than the value of what it’s worth. Lenders will often welcome a short sale to help them keep some of their money and save time on the lengthy process it takes to sell a home once they have foreclosed on it.
A short sale allows you to be forgiven for the rest of the loan, even though the sale doesn’t cover the entire balance. A short sale is always preferable to foreclosure, as you get to walk away without potentially damaging your credit as much as a foreclosure would or getting kicked out of your house. Additionally, you can avoid foreclosure by selling your home directly for cash to a reputable company.
Selling your home for cash is a quick and easy option if you are facing foreclosure and want to get back some of your money. Research companies and look at their reviews to find one you can trust and who is experienced enough to buy your home in the time you need. Companies like Express Homebuyers have helped thousands of homeowners just like you sell their homes and avoid foreclosure altogether.
Negotiate a Loan Modification
You can talk to your lender about modifying the terms of your loan if you are late on payments. Your lender will be open to finding any solution that helps them get money back in their pocket. For example, your lender may consider lowering your interest rate, adding additional years to the loan, or even allow you to pay a little bit more each month to make up for missed payments.The only thing you have to do is pick up the phone and ask to begin the process of loan modification.
Refinance Your Mortgage
You can refinance your mortgage through your lender or a new lender to acquire a new loan that pays off the existing one. Refinancing a loan can result in lower monthly payments, but may also come with its own set of closing costs. If you have access to some money set aside, this can be a straightforward option and may benefit you in the long run.
Transfer Your Deed to Your Lender
If none of the options above work, you can also offer to transfer the title of your property as collateral to help pay off your loan in the event of foreclosure. You will still have the opportunity to make up for late payments, but you will also be given a reprieve if you cannot make up those payments. This is a great option for those who can’t afford or sell their homes but don’t want to damage their credit with foreclosure.
File for Bankruptcy
While often seen as the option of last resort, bankruptcy is an excellent option for those who do not want to lose their homes. Chapter 13 bankruptcy allows you to still reside in your home, while the trustee of your bankruptcy proceedings and your lender work out a payment plan for the outstanding debt on the home.While many worry about the impact this has on their credit, you can make up for this by continuing to live in your home and meeting the monthly payments required by your lender.
Now that you know what pre-foreclosure means and how to get out of it, you can begin to stop the process of losing your home.