Pre-Foreclosure: What it is and How it can Help
The act of foreclosure is a relatively long process that begins when a borrower neglects to make his monthly mortgage payment. Once three consecutive payments have been missed, the bank that holds the mortgage has the legal right to "call" the loan, which means they can demand payment in full for the entire principle balance. Since most people cannot cough up a large amount of money to satisfy the loan, foreclosure proceedings begin at this point. However, those who find themselves in this situation can still find a way out during the pre-foreclosure time frame.
The Search for a Buyer
Pre-foreclosure is the time period where a borrower who is in default on his mortgage loan can try to sell his property. The money that is recouped by the sale can be used to settle the outstanding mortgage debt, even if the sale price is lower than the remaining principle balance. Why would a bank agree to the pre-foreclosure process? Foreclosures are an expensive problem for lenders, and can be a black mark on their loan portfolio. After all, this is the company who gave money to someone who was unable to pay it back. Keeping a foreclosure and trying to sell it on the auction block can also be an expensive endeavor for a bank, who is in the business of lending money and not particularly adept at real estate transactions.
For a borrower, selling the home during the pre-foreclosure process allows him to get out from under the burden of a mortgage he can no longer afford without a foreclosure ending up on his credit history. Since foreclosures can remain on a credit report for many years and prohibit the ability to borrow money for purchases like cars or other homes, the pre-foreclosure process can also be an attractive option to the homeowner. This is a person who is highly motivated to make the sale on his home to find relief from his debt and protect his credit rating.
The Attraction to a Buyer
The pre-foreclosure home is an attractive prospect to many potential buyers, since the property in question will generally be sold under market value. If you are in the market for a pre-foreclosure, whether as a primary residence or an investment opportunity, you can find these homes through a variety of means. Once you have located a pre-foreclosure property that you are interested in, you can approach the homeowner or real estate agent directly to negotiate a deal.
The pre-foreclosure period can be thought of as a sort of grace period that allows the borrower to dig out from under his debt and save his credit rating. Whether you are a homeowner facing foreclosure, a bank who is about to take possession of a property or a buyer looking for a bargain, the pre-foreclosure period may be the perfect time to take action on the property in question.
