In 2020 nearly 18 million Americans were overdue with their rent and mortgage payments. With many factors being responsible for an individual’s income, it is no surprise that there can sometimes be difficulties when it comes to making repayments.
If you are a home buyer and have been unable to keep up with your mortgage repayments, then you may have acquired a letter stating that your home is going through pre-foreclosure.
Alternatively, you may be looking to buy a property and see some listed as pre-foreclosure homes. Houses listed as so are those where home buyers have received a Notice of Default, but the properties have not sold at auction yet.
The technical term can be hard to understand, and it can seem overwhelming as both a buyer and a seller. We’ve collected everything you need to know about what pre-closure is, selling a pre-foreclosure property, and purchasing a pre-foreclosure property, and explained it all for you.
What Does Pre-Foreclosure Mean and What Is a Pre-Foreclosure Home?
Pre-foreclosure refers to the initial step in the foreclosure process, and this procedure enables homeowners to explore opportunities to keep their property before such a foreclosure happens. If a homeowner misses their mortgage payments, a default notice gets issued by the home lender. Subsequently, this commences the legal process of foreclosure.
A pre-foreclosure home is a distressed property that is off-market, the home lender has not reclaimed it, and it has not sold at auction yet. There is no guarantee when it comes to the condition of a pre-foreclosed property, as foreclosure can happen in various states depending on the options that the original homebuyers take.
What Is the Foreclosure Process?
The foreclosure process comprises several steps. It can be a costly and time-consuming process for all those involved. Unsettled mortgage payments breach a lenders agreement, and then the foreclosure process begins.
Step 1: Payment Default
The foreclosure process can be expensive so home lenders work with the home buyer to delay, lower, or restructure agreed payments. A formal notice gets sent to a buyer when they fail to make a payment to let them know they have missed it. If an agreement regarding the payments exists, the process ends here.
Step 2: Notice of Default
When missed payments occur for 3-6 months, and no new repayment plan exists, a Notice of Default gets issued to the property occupant. The notice gets recorded at the County Recorder’s Office with an official form distributed to the borrower. Within the notice, a specific reinstatement period gets declared.
Step 3: Notice of Trustee’s Sale
When the Notice of Default gets issued, the occupant has 90 days to catch up with the missed payments. If an occupant cannot do this, the lender can proceed with the foreclosure. The Notice of Trustee’s Sale gets recorded at the County Recorder’s Office before the process of foreclosing the property continues.
Step 4: Public Auction
A lender will first try to sell a property at a public auction. When doing so, they calculate an opening bid accounting for the outstanding loan balance, any unpaid liens, unpaid taxes, and sale costs. The property gets sold to whoever places the highest bid and they receive the Trustee’s Deed and become the legal owner of the property.
Step 5: Real Estate Owned Property
If a property does not sell at a public auction, it becomes a Real Estate Owned or Bank-Owned property. The lender becomes the homeowner and they will then try to sell it themselves.
If you need further information on the details of the foreclosure process, check out this article.
The Foreclosure Market
During the 2007-2009 financial crisis, the foreclosure rate reached its peak with over 5 million homes foreclosed. Since the recession, the rate has quelled, with the 2020 U.S. Foreclosure Report showing that new national records and historical lows are being reached.
Buying a House in Pre-Foreclosure
A property that is in pre-foreclosure gets listed as so, or as a short sale. The process of purchasing such a property diverges from the typical home buying process. Rather than buying a home for its current value, the mortgage balance gets bought alongside any liens and home insurance.
Further information exists that explains what a pre-foreclosure home is, what to consider, and how to buy a pre-foreclosed property.
Advantages of Buying a Pre-Foreclosure Property
There are a few advantages to buying a pre-foreclosure property that may make them more appealing than a typical home. They get sold off-market meaning that there is less competition to face when it comes to negotiating a price to pay. Pre-foreclosed properties are typically cheaper than other homes too, making them an ideal buy for those with smaller budgets.
Disadvantages of Buying a Pre-Foreclosure Property
The disadvantages of purchasing such a property must also get considered. Buyers must be aware of any property liens or unpaid taxes that may get transferred over to them. There is also a higher chance that pre-foreclosed properties may have more repair and maintenance jobs that need carrying out which can lead to buyers incurring extra costs.
Selling a Home in Pre-Foreclosure
Selling a distressed home can be a solution for all involved in the foreclosure process. Not only does it prevent the homebuyer from having their credit history affected, but it also means a lender will not have to incur the costs of the foreclosure process. Even when a property gets deemed a pre-foreclosure, there are still several options available to an owner and many considerations should get made.
What Is the Value of Your Home?
Before selling your property, you should understand the true value of your home. You can use our free home value estimator to understand what your home is worth in a matter of minutes. This means that you will be more informed when it comes to accepting any offers that get made for your property and you can be sure that you are getting a fair deal.
Can You Sell Your Home As-Is?
If you find yourself needing to meet a foreclosure deadline then it is important that you consider the time it will take for your property to be ready to sell. It is sometimes possible to sell your property in its current condition which allows for a quick turnaround. Through doing this, it can also save on the reliance you have on other people to help with the process.
An iBuyer is likely to be able to help with this. Through searching your home address, and setting up a free account, you are able to list any important information about your property. Potential buyers are then able to get matched to your property and you can start to gain offers on your house as-is.
What Are Your Options for Selling Your Home?
There are a couple of realistic options that can get considered when it comes to selling your pre-foreclosed home. Each has its own benefits and pitfalls and so it is important that each gets thought about carefully.
A House Flipper, which is usually a bigger organisation, may be a viable choice for you as they often accept a property as-is and they pay cash in hand. But they seldom pay a true value and it can be difficult to negotiate with them. It is also important to consider the time it can take to close a deal with them.
Buy and Hold Investors usually purchase properties requiring few repairs and then rent them out. This is a quicker option with turnaround usually being between 2 and 4 weeks, however, they can be quite picky when it comes to buying homes.
iBuyers are the latest buyers on the market and they are able to assist you in selling your house in a timely manner. Through using an iBuyer, there is no real-estate agent involvement, an expensive property appraisal is not required, and you can begin to receive offers in as few as 24 hours. This is often the best option for owners looking to sell their pre-foreclosed properties.
Don’t Just Take Our Word for It
We may be the experts in all things iBuyers, but you don’t just have to take our word for it. Read our comprehensive client reviews and hear from our satisfied customers about what we were able to offer them and the experience they had with us.
So what are you waiting for? Don’t get put off by the scary pre-foreclosure term anymore. Submit your address to find out your home value and receive a no-obligation cash offer on iBuyer.com today.