Preforeclosure

Talk to them immediately. Lenders generally do not want to own your house—they want the interest from your loan. The moment you miss a payment, or even if you know you will miss the next one, call their “Loss Mitigation” department. They have specific programs designed to help you stay in the home that they can only offer if you are communicative.

This is often called “giving back the keys.” You voluntarily transfer the deed of the property to the lender in exchange for them canceling your debt. It’s faster than a foreclosure and looks slightly better on a credit report, but you will still lose the home and any equity you’ve built.

The preforeclosure status itself isn’t a single line item on your credit report, but the missed payments leading up to it are. By the time you receive a Notice of Default, your score has likely already dropped significantly (often 100 points or more). Avoiding the final “Foreclosure” entry is vital, as a completed foreclosure stays on your credit report for seven years and can make it very difficult to buy another home.

Because preforeclosure listings are public knowledge, they attract a specific group of buyers:

• Real Estate Investors: They look for “fix-and-flip” opportunities or rental properties.

• Wholesalers: They contract the home and then sell that contract to another investor.

• Traditional Buyers: Some individuals look for preforeclosures to find a bargain in a competitive market, though they must be prepared for a potentially complicated closing.

If you owe more than your home is worth (you are “underwater”), you can ask your lender for a short sale. This is where the lender agrees to let you sell the home for less than the remaining mortgage balance and accepts the proceeds as payment in full. This requires lender approval and can be a lengthy process, but it is less damaging to your credit than a foreclosure.

Yes. As long as the home has not been sold at a foreclosure auction, you have the right to sell it. In fact, many homeowners choose to sell during preforeclosure to pay off the mortgage in full and walk away with their remaining equity, which is much better for their credit than a foreclosure.

The most direct way is reinstatement, which involves paying the full past-due balance, including late fees and legal costs, in one lump sum. If that isn’t possible, you can request:

• Loan Modification: The lender changes your loan terms (like extending the length or lowering the interest rate) to make your monthly payments more affordable.

• Repayment Plan: You pay your regular monthly mortgage plus a portion of the past-due amount over a set period until you are caught up.

• Forbearance: A temporary pause or reduction in payments while you resolve a short-term hardship, like a medical emergency.

You will receive a formal Notice of Default or a Notice of Intent to Foreclose via certified mail. Additionally, since this notice is filed with the county recorder’s office, it becomes public information. You may notice an influx of mail from investors or “foreclosure specialists” who track these public records.

While it varies by state law, most lenders cannot officially start foreclosure until you are at least 120 days delinquent. In some “judicial foreclosure” states, the process from the first missed payment to the actual auction can take anywhere from six months to over a year. This provides a crucial window of time for you to negotiate a solution.

Preforeclosure is the period between when a homeowner defaults on their mortgage and when the lender officially forecloses and sells the property. It typically begins after 90 consecutive days of missed payments. At this point, the lender issues a Notice of Default (NOD), which is a public record stating that the legal process to reclaim the home has begun. Importantly, you still legally own the home and can live in it during this phase.