For the homeowner who is behind on house payments, the threat of foreclosure looms large especially as months pass without a payment. 
In some markets owners may fall behind by two or three months before foreclosure action is taken, while in other markets — particularly those with a high percentage of foreclosures — it could take many more months to occur.
Regardless, if you have fallen behind on payments, then your home loan lender has every right to take back your home.
Notice of Default & a Grace Period
Once legal action has been initiated by the lender, both parties enter a pre-foreclosure period. This means that the days from when the Notice of Default has been received up to the court date, a state-mandated grace period kicks in. Also known as a “default cure” period, this timeframe is designed to give homeowners a remedy before foreclosure sets in.
In most cases, few homeowners will have the means to sufficiently satisfy the legal complaint against them, specifically come up with all of the funds owed to the lender which would prevent foreclosure.
Four Resolutions To A Pre-Foreclosure
Once pre-foreclosure has been started it must be ended in one of four ways:
- The homeowner reestablishes the loan by paying off the default amount during the grace period set by state law. This grace period is also known as pre-foreclosure or “default cure.”
- The homeowner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan, thereby avoiding having a foreclosure included in his credit report.
- A third party comes to terms to purchase the property at a public auction at the end of the pre-foreclosure period.
- The lender takes ownership of the property, usually with the intention of selling it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).
Most homeowners go through a drawn out warning period before they lose their home. Usually, several notices have already been sent by the lender reminding borrowers that funds are due, including phone calls, email messages, perhaps a visit to the home seeking collection.
During the default cure period which averages thirty days in most states, homeowners can still attempt to raise the funds needed to satisfy the lender’s complaint or entertain offers from interested buyers.
Investors make a habit of learning which homes are in pre-foreclosure and will contact owners if interested. Homeowners are urged to retain legal counsel before agreeing to any sale which may also require the approval of the lender especially if their debt isn’t satisfied with the sale.
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