To homeowners, the things that happen when you have missed mortgage payments and are facing eviction can be very traumatic. In pre-foreclosure, opportunities exist for buyers, motivated sellers and lenders to come together and close deals according to their best interests.
A mortgage payment gets a 15-day grace period each month. The lender will post a late fee to an account if it has not received the mortgage payment before the grace period expires. According to Investopedia, the mortgage loan falls into default after 30 days of missed payments. The mortgage default then appears on the homeowner’s credit report, and the home is now in pre-foreclosure.
In pre-foreclosure, the lender will try several times to communicate with the homeowner and demand that payments are made immediately to bring the mortgage current. The telephone calls should begin after the grace period comes and goes without the lender receiving its monthly payment. On the phone, bank representatives will seek out an explanation for the missed payments. Homeowners can also expect to receive a demand letter and notice of default in the mail within 90 days of missed payments.
A homeowner may work with the bank to set up a loan modification during pre-foreclosure. The U.S. Department of Housing and Urban Development describes a loan modification as a permanent change to reduce the mortgage principal and interest rate. After the loan modification, the monthly mortgage payments become more affordable, which allows a homeowner to keep the home and avoid foreclosure. Be advised that the bank will verify that the homeowner cannot realistically meet the current mortgage payment before it offers a loan modification.
If a homeowner cannot secure a loan modification, he may be forced to sell the property in pre-foreclosure to raise enough cash for paying off the outstanding mortgage loan. According to CNN Money, the house may be offered at a discount to the appraised value in order to attract a buyer. Prospective buyers recognize that a pre-foreclosed home may be in need of small repairs, because a financially distressed seller often lacks the funds to provide for routine maintenance. In a negative equity situation, a pre-foreclosure sale is further complicated. At that point, the homeowner may owe more on the home than it is actually worth and must arrange for a short sale. The bank is the primary figure in a short sale, as it must agree to accept less money for the home than its outstanding mortgage balance.
The home enters foreclosure if no mortgage payment deal or sale can be executed during the pre-foreclosure stage. After 180 days of missed payments, Investopedia says that a lender may post a notice of sale in the local newspaper to announce an auction date for the sale of the foreclosed home. If the home is successfully sold off, a homeowner may be evicted shortly thereafter.
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