Pre-foreclosure is the first step in the foreclosure process, which occurs when a homeowner misses several mortgage payments, prompting the lender to issue a notice of default. It is a legal notice that means the homeowner is in jeopardy of the lender foreclosing on their home if they don’t quickly work to resolve the matter. Pre-foreclosure is designed to give homeowners options to stay in their home before a foreclosure. During pre-foreclosure, the homeowner has an opportunity to work with the lender to either keep the home or negotiate a short sale. The pre-foreclosure process consists of a few steps, and when a homeowner misses three months of mortgage payments, they’re typically in default of their mortgage. The pre-foreclosure period typically marks the borrowers last opportunity to take action to prevent the loss of their property and avoid the serious, long-lasting damage to their credit history that foreclosure can bring.

It is important to note that pre-foreclosure is not the same as foreclosure. Foreclosure means the home can now be put up for sale by the lender, and an eviction notice will be served if the homeowner hasn’t vacated the property. During pre-foreclosure, the homeowner may still have some options to save their home, such as paying what’s owed, working with their lender to modify the mortgage to reduce their monthly payment, or settling the debt through a short sale or deed-in-lieu-of-foreclosure.

If you are interested in purchasing a pre-foreclosure home, it is important to note that a pre-foreclosure home is a distressed property that the lender has not yet repossessed and sold at auction. Pre-foreclosure homes are generally still occupied by their owners, who have fallen behind on monthly mortgage payments. The occupants of pre-foreclosure homes will have received a default notice, but may still be working to stave off foreclosure. If you decide to purchase a pre-foreclosure property, you won’t necessarily arrange a mortgage and make a down payment like you would for a normal home purchase. Instead, you’ll cover what the current homeowner owes, which means you’ll be responsible for the loan balance, any liens on the property, and any unpaid mortgage and homeowners insurance.