Pre-foreclosure When a homeowner defaults on a mortgage payment for one reason or another, they basically are in the beginning of the pre-foreclosure stage. After a payment is 15 days late, a late fee will be assessed on the payment. After 30 days, they most likely would receive a phone call from the mortgage servicer in an attempt to find out what happened to the payment. At this point the homeowner can still resolve their situation by paying the delinquent amount owed plus late charge and bring the account current. They could also inquire about a Temporary Indulgence Plan. If accepted, it would give them a short period of time, usually 30 days or less to cure the entire delinquency by paying the delinquent amount in a lump sum. A temporary Indulgence plan could be considered if the borrower is expecting to receive funds, such as a payment for work preformed, the sale of a property is pending or if the borrower suffered a short interruption in his or her income. If they are unable to make payments and should fall more than 45-60 days behind, they then would receive a "Demand or Breach" letter. This purpose of this letter will be to point out the terms of the mortgage that have been violated and to give the borrower a 30 day notice to resolve the situation by paying the delinquent amount. Even within the first 90 days of being late, the home owner still could cure the loan by paying all delinquent payments and late charges. During this time they also could be offered a Liquidation Plan or a Forebearance Plan. The Liquidation Plan would allow the borrower to make installment payments to eliminate the delinquency over a defined period of time. Such plans may call for a borrower to make multiple payments such as 2 payments a month or payment plus a portion such as one and a half payments per month. It may also be structured so that the borrower pays a payment every two weeks until the delinquency is cured. A borrower might qualify for a Liquidation Plan if certain conditions created the delinquency to begin with, such as a temporary loss of job, a temporary loss of income due to illness or injury, or an unexpected emergency. The Forbearance Plan is an agreement to suspend or reduce mortgage payments for a defined period of time. Usually the qualifications for a forbearance plan are basically the same as for a liquidation plan. In order to qualify for a special forbearance, the borrower would have to be able to show that he or she will be able to cure the delinquency in a lump sum or over a period of time after the temporary condition no longer exist. A verification of employment and other information might be required. If after 90 days the borrower and mortgage company have not worked out a plan and the delinquent amount owed plus late charges has not been paid, the servicer will then refer the loan to its foreclosure department and a local attorney or firm will be hired to initiate foreclosure proceedings. At this time a Lis-Pendens or Notice of Default will be recorded in the appropriate county giving notice of the pending action. The pre-foreclosure time period will continue until the Trustee Sale or Sherriff Sale auctioning of the property. This could take another 90 days but could happen sooner or take much longer depending on the amount of property auctions on the schedule. The ideal time to purchase a pre-foreclosure home is in its first 90 days because the penalties and unpaid interest are still at a minimum. But until the Lis-Pendens or Notice of Default is recorded, it’s almost impossible to find them. Most of the time you will have 90 days or less to find the property, do all your due diligence and get to the closing table. Pre-foreclosure deals can be very good for the buyer or investor and the seller. The buyer may be able to buy the property for the balance of the loan plus late fees and penalties or a reasonable agreed upon amount still below market value. It becomes a good deal for the seller as well, saving their credit rating and sparing them from having to go through the foreclosure process. This of course is assuming that the homeowner has some equity in the home and its worth more than what’s owed on the note. If the value of the property on the open market is worth less than what’s owed to the lien holder or holders, the property would have to be sold in a Short Sale, which is a whole different process. The key to buying pre-foreclosure homes is: - Knowing how to find them
- How to value the home through a Pricing Study Analysis
- How to communicate with a distressed home owner
- Researching the title and condition of the property
- Finding an experienced Real Estate Agent who understands the process
All before it goes to auction. If finding Pre-Foreclosures interest you, please contact me today at (603) 610-8595 or (603) 755-1229 and I would be more than happy to assist you in the process. Paul Martin GRI e-PRO Realtor 
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