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Foreclosure processPre-foreclosure

Pre-Foreclosure

In short

Pre-foreclosure is the period after a lender files a default notice or foreclosure lawsuit but before the property is sold at auction. The owner still holds title and can sell or catch up.

Starts with
Notice of default or lis pendens
Who owns the home
The original homeowner
Typical length
A few months to a year or more
How buyers purchase
Directly from the owner

Where it fits in a foreclosure

Pre-Foreclosure belongs to the pre-foreclosure stage.

  1. 1Missed paymentsThe owner falls behind; the servicer sends notices and may offer workout options.
  2. 2Pre-foreclosureA notice of default or lis pendens is filed. The owner can still sell, catch up or negotiate.You are here
  3. 3AuctionThe property goes to a public sale, usually for cash, as-is and often without an inspection.
  4. 4Bank-owned (REO)If no one outbids the lender, it takes the property back, clears most title issues and lists it.
  5. 5ResaleA buyer or investor purchases, repairs and occupies, rents or resells the home.

When pre-foreclosure begins

Pre-foreclosure starts when the lender takes its first public step toward foreclosure. In many deed-of-trust states that is a recorded notice of default. In judicial foreclosure states it is usually the filing of a lawsuit, often accompanied by a recorded lis pendens. These public records are how pre-foreclosure listings are identified.

Options for the homeowner

If none of these happens, the property moves to a foreclosure auction.

Buying a pre-foreclosure

Buyers deal with the owner, not the bank, unless the sale is a short sale. Because the owner still controls the property, you can usually inspect it, use conventional financing and buy with a standard contract. The challenge is timing: the sale must close before the auction date, and the owner must be willing to sell.

Many states have rules protecting owners in foreclosure from predatory purchase offers, so approach owners respectfully and have an attorney review any agreement.

Example

Buying before the auction

A homeowner owes $180,000 and is $9,000 behind on payments. A notice of default is recorded, and the auction is roughly four months away. The home is worth about $250,000. A buyer offers $225,000, the owner accepts, and the sale closes in 45 days. The lender is paid in full from the proceeds, the foreclosure is cancelled, and the owner keeps the remaining equity after closing costs.

Pre-Foreclosure vs. Foreclosure

Pre-Foreclosure

Pre-foreclosure is the period after a lender files a default notice or foreclosure lawsuit but before the property is sold at auction. The owner still holds title and can sell or catch up.

Foreclosure

Foreclosure is the legal process a lender uses to take back and sell a property after the borrower stops making mortgage payments, so the lender can recover what it is owed.

The differencePre-foreclosure is the window before the auction when the owner still holds title. Foreclosure describes the full legal process, including the sale that transfers ownership.

Frequently Asked Questions

Related terms

Notice of DefaultForeclosure processA notice of default (NOD) is a public notice, recorded with the county, stating that a borrower has fallen behind on a mortgage or deed of trust and that the lender may move toward foreclosure.Lis PendensForeclosure processA lis pendens is a recorded notice that a lawsuit has been filed involving title to or an interest in a property, such as a judicial foreclosure. It warns buyers that the outcome could affect ownership.Short SaleForeclosure processA short sale is the sale of a home for less than the amount owed on its mortgage, with the lender's approval. The lender agrees to accept the reduced proceeds to avoid a foreclosure.ReinstatementForeclosure processReinstatement is bringing a defaulted mortgage current by paying all past-due payments, late fees and foreclosure costs in one lump sum, which stops the foreclosure and restores the original loan.Foreclosure AuctionForeclosure processA foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.Loan ModificationForeclosure processA loan modification is a permanent change to a mortgage's terms, such as a lower rate, longer term or added past-due amounts, that a lender agrees to so a struggling borrower can afford payments.ForbearanceForeclosure processForbearance is a temporary agreement in which a mortgage servicer lets a borrower pause or reduce payments during a hardship. The skipped amounts must be repaid or resolved later.Deed in Lieu of ForeclosureForeclosure processA deed in lieu of foreclosure is an agreement in which a borrower voluntarily transfers ownership of a home to the lender to settle the mortgage and avoid the foreclosure process.

Learn more in the knowledge base

What Is a Pre-Foreclosure? How the Stage Works for BuyersGuide · 7 min readPre-foreclosure is the window between a lender starting foreclosure and the home being sold at auction. The owner still holds title and still has options, so any purchase is a negotiation with the owner rather than a bid or a bank sale. This guide explains how the stage starts, how it ends and how it compares with auctions and bank-owned homes.How to Buy a Pre-Foreclosure Home: A Step-by-Step GuideGuide · 6 min readBuying a pre-foreclosure means negotiating with an owner who is behind on the mortgage, before the lender sells the home at auction. The deal can close as a normal equity sale or as a short sale that needs the lender's approval. This guide walks through each step, from research to a clean closing through escrow.Approaching Distressed Homeowners Ethically in Pre-ForeclosureGuide · 7 min readHomeowners in pre-foreclosure are under real stress, and they have more options than selling to you. Buyers who are honest, respect those options and follow state rules for distressed-property purchases can make fair deals without exploiting anyone. This guide covers how to do that and which patterns to avoid.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.