In simplest terms, a pre–foreclosure is a property in the process of foreclosure that is still legally owned by the owner. In Kansas City MO the foreclosure process can be divided into three stages:
As you know, when contracting a loan, the lender checks the potential borrower credit history and repaying capacity before signing the legal document (mortgage deed or promissory note in some states). Money is transferred only after this document is signed.
The mortgage deed or the promissory note specifies the terms and conditions of loan repayment, including interest, and fees owed by the borrower. Through the contract, the lender reserves the right to seize and sell the property at a public auction, if the borrower breaches the loan’s terms and conditions.
Let’s focus now on pre-foreclosure as this stage gives you, as borrower, more options than in the foreclosure stage.
Usually, if you are late with or miss one payment the lender will first notice and call you. Missouri Mortgages, most of the time, include a clause that requires the lender to send such a notice also called “demand letter” specifying the fact that your loan is in default, what actions you have to take to solve the situation, the deadline (no less than 30 days) for this action, and the consequences for the borrower if he/she cannot cure the default before the deadline. You might also have in the mortgage contract a late fee, generally 5% of the overdue payment of both principal and interest.
Our advice is to contact the lender explain the situation and explore the mitigation options given by the lender if any. So don’t avoid calls and dismiss the letters, face the situation and try to solve the problem.
Some of the options you might be offered is to reschedule the loan, enter into a special forbearance or renegotiate the payment according to your new financial situation. With the support of your lender, you can try to get into the government-sponsored program Home Affordable Refinance Program or sell the property during the pre-foreclosure period or short sell the property as it is commonly called.
If options are exhausted and you cannot repay the loan the lender has, as per the Federal Consumer Financial Protection Bureau servicing rules, 120 days before is allowed to file the case in state court and start the foreclosure. The clock starts ticking from the first delinquent day.
If the lender allows a short sale, generally a more efficient solution and costs conscious from both the lenders and your perspective, you will remain in the property possession and can list the house trying to get as much as possible out of this sale.
In these types of situations, time is of the essence and working with a cash home buyer can help you avoid a foreclosure and possible hits to your credit score.