If you’re a homeowner facing financial difficulties, you may have heard the terms “pre-foreclosure” and “foreclosure” used interchangeably. However, there is a big difference between the two—and it’s important to understand what those differences are if you’re struggling to keep up with your mortgage payments. Here’s a quick overview of the key differences between pre-foreclosure and foreclosure.
What is pre-foreclosure?
Pre-foreclosure is the stage of the foreclosure process during which the lender has not yet taken ownership of the property. The homeowner still has an opportunity to bring the mortgage current and avoid foreclosure. Depending on the bank, pre-foreclosure can start as soon as one mortgage payment is missed. However, many banks have a grace period of 90 days before starting the process. This should give you time to talk to friends and family for help or even work with a payday loan company to get the funds you need. Since payday loans typically have a higher interest rate, it’s ideal to only use this option if you know you’ll be able to quickly pay off the loan.
What is foreclosure?
Foreclosure is the legal process through which a lender takes ownership of a property after the homeowner has failed to make their mortgage payments.
When a home is purchased, it is typically purchased using a mortgage loan from the bank. This loan essentially means that the bank owns the property, since it was what paid for the property. The person who lives in the home typically pays the bank monthly mortgage payments, which include an interest rate so the bank get something back in return. This is similar to paying rent except instead of paying a landlord who also provides services such as landscaping and plumbing, the service the bank provides is financial.
If you fail to pay your mortgage and thus fail to provide what you promised the bank in return for paying for your home, then contractually, they are able to bring your home into foreclosure, which is when they repossess the home. Usually, a home in foreclosure is put up for auction and another investor or home buyer can purchase the home from the bank. The previous homeowners who went through foreclosure must vacate the home and find a different place to live.
Additionally, most foreclosures result in bankruptcy since anything you own can be used to pay toward the home. Most places have laws that require someone to go through bankruptcy before they are able to complete the foreclosure process. Any cars, RVs, or jewelry that has loans out on them may be repossessed to offset the loss that the bank may go through based on the terms of your mortgage.
How long does pre-foreclosure last?
The length of time that a property is in pre-foreclosure depends on state law. In some states, lenders can begin the foreclosure process as soon as the homeowner falls behind on their mortgage payments; in others, lenders must wait for the borrower to be significantly delinquent before starting foreclosure proceedings.
How long does foreclosure take?
The length of time that it takes for a property to be foreclosed also depends on state law. In some states, foreclosure can happen relatively quickly; in others, it can take many months or even years.
What are my rights during pre-foreclosure?
The rights of homeowners vary from state to state, but in general, homeowners have several options available to them during pre-foreclosure. These include: renting out the property, selling the property, refinancing the property, or taking out a home equity loan or line of credit. Homeowners should consult with an attorney to learn about their specific rights during pre-foreclosures.
What are my rights during foreclosure?
Once again, this varies from state to state, but generally speaking, homeowners do not have many options available to them once their home enters foreclosure proceedings. In some states, homeowners can file for bankruptcy protection, which will halt the foreclosure process; however, this does not mean that they will be able to keep their home—it simply gives them more time to find another place to live. Homeowners should consult with an attorney familiar with their state’s laws to learn about their specific rights during foreclosure proceedings.
Consider a loan modification before issues arise.
A loan modification is a change to the terms of your mortgage loan. It may involve extending the length of the loan, reducing the interest rate, or changing the type of loan. Loan modifications are generally used to help homeowners who are struggling to make their mortgage payments. If you’re considering a loan modification, you should speak with your lender to see what your options are. This can be essential to avoiding foreclosure if you anticipate payment issues.
If you’re struggling to make your mortgage payments, it’s important to understand the difference between pre-foreclosure and foreclosure—and what your rights are at each stage of the process. An experienced attorney can help you navigate this complex issue and protect your rights as a homeowner.