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What Pre-Foreclosure Means

Lisa Loper of the Scott Loper Team explains a frequently misunderstood term in the real estate market.

We frequently have buyers asking us about pre-foreclosure homes that they found on the internet.  There are many sites that will give consumers this type of information.  Most of these homes are not listed for sale, but some buyers want to know if they can still see the property with the possibility of buying it.

Pre-foreclosure simply means that a homeowner has fallen behind on their mortgage payments.  And while a foreclosure may eventually happen, at the current time, the home is still rightfully owned by the mortgagor (i.e. homeowner).  It does NOT mean that the home is available for sale.  In fact, that home may never be available for sale.

In most cases, a homeowner does NOT want to sell OR lose their home to a foreclosure.  The following are the potential outcomes of a pre-foreclosure situation:

  • The homeowner gets caught up on their mortgage payments.
  • The homeowner refinances or modifies their loan to make the payments more affordable.
  • The homeowner tries to sell the home to avoid foreclosure.  In this case, there are a few potential scenarios:

1. If the homeowner has enough equity, they will likely list with a Realtor® and sell for market value.

2. If the homeowner has negative equity, they will likely list with a Realtor® and try to have a short sale approved by the bank that holds the mortgage.  In this case, the house may or may not sell for below market value.

3. The homeowner may try to sell it themselves.  If the home has negative equity, selling it as a For Sale by Owner is very risky as the successful completion of a short sale requires specific skills and knowledge.

  • The bank eventually forecloses on the property (a foreclosure can take several months to a few years to complete).  Upon completion of the foreclosure process, the house goes up for Sheriff’s Sale with the bank sending a representative bidder to ensure that they will get what they are owed.  If no one bids high enough, the bank will be the highest bidder and take ownership of the property.

At some point after the foreclosure, the bank will typically list the home for sale.  Currently, many banks are holding a high level of foreclosure inventory.  They are not automatically listing their properties for sale at once to avoid flooding the market and thereby protecting their assets.

The bank will make highly calculated decisions on when to sell a property and at what price to list it.  In some cases, a bank will price the home under market value to get it off their books quickly.  Other times, the bank will get market value or close to it if the home is in good condition and a desirable location.

So while a “pre-foreclosure” home may sound like a terrific opportunity to buy a home at a steep discount, serious buyers are better off concerning themselves with properties that are actually for sale.

 

The Scott Loper Team includes Scott & Lisa Loper, Keller Williams Real Estate, 601 Bethlehem Pike, Bldg. B, Ste. 100, Montgomeryville, PA 18936, (215) 631-1900, www.ScottLoperTeam.com.

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