The Pre-foreclosure Period starts with the filing of the Notice of Default (NOD) by one or more lender on property. NODs are filed due to non-payment of the debt, usually for 60 or 90 days, so there are some that argue that the Pre-foreclosure period actually starts at the time that the homeowner stops paying their mortgage. From the filing of the NOD until the time the property becomes a Foreclosure or goes to Trustee Sale (ie. sold on the courthouse steps to the highest bidder, which quite often is the lender who initiated the foreclosure proceeding) is no less than 111 days in California. During this time, the home owner has several options:
1. Pay the arrearages and reinstate the loan. (This solution was used alot when property values were going up. The owner would either refinance the foreclosing loan or take out a second against the property and pay the foreclosing loan current.)
2. Sell the property.
3. Wait for the lender to foreclose and then have to move out.
Many realtors seem to equate Pre-Foreclosure with Short Sales. This is not always the case. Sometimes there is some, or even alot of equity in the property, and the homeowner is paralyzed into inaction. (I have worked the pre-foreclosure market since 3/2004 and some examples of people I have helped are a retired gentleman with $700k in equity that was going to trustee sale in 7 days, a couple on disability with $220K in equity going to trustee sale in 22 days, and a single woman waiting for worker's comp settlement with $140K in equity and just 20 days into the NOD process.) A good real estate professional with a qualified buyer may be able to move these homeowners to action and get you a good deal on the property. More often than not, in today's declining market, Pre-foreclosures are short sales, and that adds another level of complexity to the transaction.
Some other items of which a buyer of a pre-foreclosure should be aware. There may be underlying notes and deeds of trust that are also in default and need to be cured and paid off. There might be tax liens, mechanic's liens or judgment liens against the property. The homeowner may not have paid their homeowner's insurance so the property is uninsured during your negotiating period.
Make sure if you want to get involved in this area of real estate that you work with a REALTOR who has lots of experience. If you would like help in developing questions to ask a realtor to confirm their qualifications, please feel free to contact me.
Best wishes to you in your journey towards home ownership and Dare to Dream.
Real Estate Consultant
RE/MAX Palos Verdes Realty