What is a Pre-Foreclosure?

Pre-foreclosure is the beginning stage of the foreclosure process. It is the period between the day that a public default notice is filed and the day of the foreclosure auction. It is the homeowner’s grace period in which he is able to reinstate his loan (without ruining his credit score). Depending on where the property is located, the foreclosure process is initiated by one of two types of formal notices: In states that require foreclosures by judicial sale, mortgage lenders file a lis pendens (i.e. a formal notice of a pending lawsuit) against a property as a result of the owner’s default on a mortgage agreement. In states that require foreclosures by power of sale, the foreclosure process is triggered by what is called a public notice of default. In either case, when a lender files the appropriate notice (in accordance the state’s foreclosure laws), the property is deemed to be in pre-foreclosure until the foreclosure process runs its course and comes to an end at the foreclosure auction. At any point during the pre-foreclosure period, the owner-in-default is able to reinstate his loan by paying off the total amount that is owed to the lender. The reinstatement stops the foreclosure process, and the owner is able to retain ownership of the property. Up to the day of the foreclosure auction, the owner-in default holds the right to possession. Two ways in which the owner-in-default is able to salvage his or her credit score is either by squirreling up enough money to pay off his loan or by finding a buyer in order to avoid a foreclosure.

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