Foreclosure is the sale at auction of a repossessed property. When the owner fails to make their regular mortgage payments, the lender is usually forced to sell the property to recoup as much of the original loan as they can. The process can be time-consuming, however, and involves several formal stages. Preforeclosure is the period immediately preceding the auction, during which the seller and lender make last-ditch efforts to prevent foreclosure by either renegotiating the mortgage or finding a buyer. Homes for sale at auction provide buyers with the deepest discounts, but preforeclosure properties are still considered excellent bargains and are more attainable.
Identification
Preforeclosure is the period after a homeowner has defaulted on their mortgage and the Notice of Default (N.O.D.) has been registered in the county courthouse and issued to the homeowner, but before the house has been sold at auction. It is essentially a term that refers to properties scheduled to be foreclosed and auctioned off, but which have not yet completed the process.
Features
Typically, homes in preforeclosure are more than 90 days late on the mortgage payments. The homeowner can still sell the property before its scheduled foreclosure auction, but might be limited by a scheduled auction date. Thus, sellers of homes in preforeclosure are distressed sellers who are usually willing to accept below-market-value offers if they are better than what might be expected at auction.
Significance
Preforeclosure sellers have several incentives to sell their property before it comes to a foreclosure auction. One of the most important is that doing so prevents some of the negative consequences of having a foreclosure on their credit record. Having such a designation usually prevents them from obtaining a new mortgage for several years. Also, because the preforeclosure offer is often higher than the auction bid, the seller has a better chance to get some of their equity out of the property by selling during preforeclosure.
Significance
Homeowners who receives a default notice, and technically enter the preforeclosure stage, can still avoid losing their home. If they are able to catch up on their payments, they might experience nothing more than a moderate drop in their credit score because of the delinquent payments. They can also renegotiate the terms of their mortgage with the help of professional realtors or attorneys. Reducing the monthly payments during preforeclosure by lowering the interest rate and extending the duration of the mortgage can prevent a foreclosure.
Considerations
Preforeclosure lists are a valuable source of information for real estate speculators. The data comes from court records, newspaper listings, lenders hoping for a better return on their loan and from private websites. These sources can provide addresses of properties scheduled for foreclosure auction. A savvy buyer can then make competitive offers on homes in the preforeclosure stage at a significant bargain, while still benefiting the homeowner and their lender.
Tags: foreclosure auction, homes preforeclosure, during preforeclosure, more than, mortgage payments, Preforeclosure period, preforeclosure stage