Pre-foreclosure is the first phase of the legal proceedings that end with repossessing defaulted borrower’s property. A lender starts the process by filing and sending a notice of default on the property. The pre-foreclosure begins after the borrower exceeds the contractual terms for delinquent payments in Chicago. A notice of default tells a borrower that the lender is pursuing legal actions, but some lenders may negotiate before the foreclosure phase.
How pre-foreclosure works
A buyer signs a contract with the lender to repay the mortgage when taking out a loan. Monthly payments usually cover a portion of the principal and interest payments on the mortgage. Standard contracts have lenders move to begin pre-foreclosure after the borrower fails to pay for three months. The borrower receives a notice of default at the same time as the court. Foreclosure defense may take weeks or over a year, depending on the court. Lenders need permission from a judge to put a lien on a property. Lenders are more willing to negotiate backdated payments during the pre-foreclosure stage to avoid legal fees. The judge may grant a foreclosure and send an eviction notice.
Short sales of pre-foreclosure homes
A short sale is when a pre-closure home is up for sale. The sale can be a private transaction between the owner and the buyer, but the bank needs to approve the offer. The sale may be less than the outstanding debt balance, but not all short sales are pre-foreclosures. The bank can hire real estate agents, brokers or attorneys to prepare a broker price opinion.
If the owner can repay, negotiate or sell their house, the bank won’t take control of the property to sell. There are pros and cons to a pre-foreclosure sale. The person selling the house may protect the homeowner from bankruptcy. The homeowner may be able to find a more affordable home after the sale. Selling a home during pre-foreclosure may be difficult and emotionally stressful. Failure to make up for past payments can still lead to foreclosure.