How long can a property be in pre-foreclosure?

Sometimes the terms in use relating to the repossession of a property after default by the borrower can be a little confusing. This article will hopefully help you understand how long a property could be in pre-foreclosure. Some terms may relate to the process, i.e., judicial or the action of taking back the property (foreclosing), which may be unfamiliar to some. We will do our best to help break these term down in a easy to consume way.

First, it's worth mentioning that, in reality, no lender wishes to foreclose on a property. The hassles associated with repossessing a property, not to mention the legal and other costs, can cause unnecessary problems which lenders prefer to avoid. They'd rather the borrower comply with their mortgage loan terms and pay the monthly installments on time. But persistently defaulting on a loan means that the lender finally has little choice but to take action.

Start of the Pre-foreclosure Period

Pre-foreclosure is one of the first steps in the foreclosure process. The pre-foreclosure period technically begins when a homeowner fails to make mortgage payments for a couple of months or longer. Not paying your mortgage puts the homeowner in breach of the terms of the mortgage agreement with the lender. 

During a pre-foreclosure period, lenders usually try to work with borrowers on options for them to stay in their homes before foreclosure occurs. Indeed, most lenders allow a few months of "grace" to borrowers if they default on their mortgage payments. However, once three months of payments have been missed, the mortgage is put into default.

Notice Of Default

After 3 – 6 months of missed payments and with no sign of cure or redemption. The lender will arrange for the issuance of a notice of default to be served on the borrower.

Notice of default is a written legal notice to the homeowner and means that the lender is about to or has begun the legal foreclosure process. The lender will also give public notice to the County Recorder's office or file a lawsuit with the relevant court. 

At this point, the County Recorder officially begins the pre-foreclosure process, which can last 3 – 10 months depending upon the amount of arrears, whether dialogue to resolve the outstanding arrears is in hand and how busy the court's schedule is.

Further time may be needed to arrange for the property to go to an auction, typically the sales method used to dispose of foreclosed properties. Once the foreclosure process has been started, the bank's primary aim is to get back the money they are owed on the property. 

At an auction, foreclosed homes are sold to the highest bidder. Once a home is sold during a house auction, the lender will be required to move out, thereby effectively ending the foreclosure process.

Pre-foreclosure Period Resolution

As mentioned above, the foreclosure process is costly and time-consuming for lenders, so they'll try to avoid it if possible. 

Wherever possible, lenders will often work with homeowners to:

  • Lower, either temporarily or permanently monthly repayments depending upon the reason for the default in payments
  • Defer payments for a period until the homeowner can find a new job, and then catch up on late or missed payments; or
  • Restructure the loan by extending the period from 20 to 40 years to create more affordable payments
  • Change the basis of interest from variable to fixed so that the borrower has a more transparent plan of future repayments. 

How long can a property be in pre-foreclosure?

Overall, pre-foreclosure period is challenging to predict, especially if the lender and borrower are trying to prevent a foreclosure. However, up to one year is not uncommon.