Pre-foreclosed homes are homes that are in the early stages of foreclosure. Foreclosure is a long, complicated process with several stages. With homes in the pre-foreclosed stage, there are options and opportunities to avoid full foreclosure. An experienced foreclosure attorney will know those options and help determine which might work best for you.
What is the Pre-Foreclosure Stage?
This is the first step in a foreclosure proceeding. It’s the period between when someone has fallen behind on their mortgage payments but before the lender officially begins the foreclosure process. They’ll send a notice of intent to start foreclosure, often referred to as a breach letter. The goal is to encourage the debtor to contact them to discuss ways to avoid foreclosure, which is suitable for both the lender and the debtor.
What Can Lenders Do During Pre-Foreclosure?
Lenders can continue to charge late fees and/or interest and penalties for every missed payment. They also have the right to protect the property, which is technically theirs, since the debtor hasn’t paid it off. That means they can conduct inspections to determine that the home is still lived in and being appropriately maintained. The fees associated with these inspections will be passed on to the debtors.
When Can Actual Foreclosure Begin?
Federal law requires debtors to be more than 120 days past due on payments before the full foreclosure process can begin. Part of the reason for this timing is to allow debtors to seek out options to catch up on the loan through several arrangements:
- Loan modification. This process involves negotiating the existing loan terms to find ways to make it easier for the debtor to catch up on the mortgage eventually. That can include reducing or switching from variable to fixed interest rates, starting a forbearance period, or possibly reducing the principal amount owed, among others.
- Loan redemption. During foreclosure, there’s a required period called the redemption period. This provides the debtor time to try and pay off the total debt, plus interest and other fees, to reclaim the home. Illinois law requires the redemption period to be completed before the lender can sell the house.
- Filing for bankruptcy causes something called an automatic stay to go into effect. That means the lender cannot evict someone or go forward with the sale while the bankruptcy is in process. This buys the debtor time to stay in the home longer while working out other solutions.
Can Lenders Hold Debtors Liable for Deficiencies?
Sometimes the debtor’s total debt exceeds the value of the house. Once the home is sold, the lender may try to recoup the difference from the debtor. Illinois allows lenders to do this with certain restrictions. Contact a foreclosure defense lawyer for assistance if you’re facing foreclosure and are concerned about a potential deficiency.
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If you or someone you know needs help navigating the world of bankruptcy and foreclosure, call us at 708-575-1500 to work with one of our experienced bankruptcy and foreclosure attorneys.