You will likely see the term “pre-foreclosure” in a document given to you by your bank once you have missed payments. It can be hard to know how much time you have until you are actually in the foreclosure process.
The first thing to understand is that your foreclosure timeline is dictated by your state’s laws and the type of foreclosure that you have:
- A non-judicial foreclosure occurs outside the court system through a series of foreclosure notices issued by a foreclosure Trustee. The number of notices and the time frames between them are dedicated by your state’s laws. After receiving the requisite number of foreclosure notices, there will be a public auction of the home.
- A judicial foreclosure occurs within the court system. After missing payments, your bank will record a Lis Pendens (a formal notice of a pending legal action). At the conclusion of the legal action, your bank will receive a court order to foreclose on the home and hold the public auction.
The remainder of this post deals with Washington’s nonjudicial foreclosure laws. If you have a judicial foreclosure state, “pre-foreclosure” may mean something else and you should probably get an attorney consultation scheduled as soon as possible.
I am also using the term “pre-foreclosure” as broadly as possible to try and give you as much information as possible about what to expect once you’ve missed a mortgage payment.
Once you have missed payments, your lender will start referring to your mortgage as “in default” but this doesn’t necessarily mean that foreclosure activity has started on your loan.
Being “in default” on your mortgage is considered part of the “pre-foreclosure” process because defaulting on mortgage payments precedes the lender’s ability to foreclose.
As soon as you fail to pay your mortgage payment on the date the mortgage payment is due (and you pass whatever grace period is allowed by your particular lender), you have technically defaulted on your mortgage.
At this point, you will hear the phrase “in default” being used by the lender representatives when you talk to them.
Most commonly, if you call your bank after you have missed a payment (or payments), they will start all conversations with you by saying something like this:
“Your loan is showing due as of November 1st, 2021 (the date that you missed your payment). The amount needed to bring the account current is $2,789. Would you like to make this payment now?”
As soon as you are “in default,” the lender will start sending you aggressive “acceleration notices” and making collection calls to you
At this point, the lender starts trying to collect payment from you. You can expect to be bombarded with scary letters and aggressive collection calls from your lender.
It is normal to experience a large amount of unpleasantness from your lender during this time period. Sometimes, lenders hire companies to call you repeatedly until you pick up. Sometimes, calls come late at night or early in the morning and sometimes, they call from a blocked number to trick you into picking up the phone.
This part of the process is considered the “early” stages of pre-foreclosure.
Around the time when you miss your second payment, you will receive a Notice of Pre Foreclosure Options (NOPO)
This is a formal notice that usually says IMPORTANT RIGHTS FOR HOMEOWNERS at the top of the page.
The NOPO is several pages long. It tells you that you’re in default and that the bank is moving forward toward foreclosure.
But, the most important thing it tells you is that: you have a right to “meet and confer” with your lender.
A “meet and confer” meeting will stop the issuance of the next foreclosure notice (the Notice of Default) for 60-days
A meet and confer meeting must be requested within 30-days of receiving the Notice of Pre-Foreclosure options. This is considered an important part of the “pre-foreclosure process” because the meeting has the ability to hold off the issuance of the Notice of Default for 60-days once you request the meeting.
The meeting is typically a telephonic meeting and the purpose of the meeting is for your lender to discuss your account with you and make sure you understand all available loss mitigation options to avoid foreclosure.
The meeting sounds like a good idea in theory but the actual discussions and exchange of information that takes place during the meet and confer meetings aren’t super helpful.
All the lenders have to do is show up to the meeting – there isn’t a requirement that you be allowed to speak with someone who has a ton of information about your particular mortgage.
You can expect to be speaking with an uninformed customer service representative who will tell you that you are welcome to apply for loss mitigation options (like loan modifications, short sales, repayment plans etc.). They will offer to mail you their loss mitigation application or provide you a list of documents needed but outside of this type of general information, you can’t expect to gain much ground with your lender.
The meet and confer meeting doesn’t give you any special access or special line of communication with the bank (unlike foreclosure mediation) so if you know you need to apply for a loss mitigation option, the only real benefit you will get from the meet and confer meeting will be extra time.
30-days after you receive your NOPO (or 60-days after if you chose to request a meet and confer meeting), the bank will issue your Notice of Default
This is the moment that is considered the beginning of “foreclosure activity” and the end of the “pre-foreclosure phase.”
The pre-foreclosure time period is the perfect time to try and workout a solution with your lender.
The farther down the line the foreclosure activity gets, the harder and more stressful it becomes to work out a solution with your lender to avoid foreclosure.
Working out a solution with your bank during the pre-foreclosure period is good because:
- The information about your situation likely hasn’t been made public record yet. You can handle the matter in private.
- You avoid foreclosure fees getting attached to your account. If the lender has to pay a Trustee in your state to foreclose on their behalf (and you’re in a state where lenders are allowed to transfer foreclosure fees to you), resolving the matter sooner rather than later will help eliminate some of the foreclosure fees that may get attached to your account as you move closer to an auction date.
- You have plenty of time to get through the loss mitigation review. Lenders can be slow, hard to get ahold of and can make mistakes during a loss mitigation review. The more time you give yourself to get through the review and correct any lender mistakes, the less stressful the process will be.
There are many loss mitigation options available to you during the pre-foreclosure time period that you can be reviewed for
- You can use the loan modification process to help you achieve a mortgage modification so you can resume mortgage payments and keep your home. An approved and accepted loan modification will stop your foreclosure. If you have a Fannie Mae, Freddie Mac, FHA, VA, or USDA loan, there may be government programs to help you achieve a mortgage modification (to keep the home).
- You can request forbearance on your mortgage loan. If approved for forbearance, your mortgage servicer will temporarily stop requiring monthly mortgage payments for an agreed upon time.
- You can complete a reinstatement of the past due amounts in order to bring your loan current and keep the home. A reinstatement is a one-time payment in full of all your missed mortgage payments and any related fees. After you reinstate, you then resume your normal monthly mortgage payment.
- You can work out a new repayment plan with your bank or mortgage servicer to catch up on mortgage payments and keep the home. A repayment plan allows you to resume your regular mortgage payments with an agreed-upon extra amount on top of your regular payment that goes toward the arrears. Once your repayment plan is done, you continue with regular mortgage payments.
- If you want to short sell your home or deed it back to the bank (because you owe more than the home is worth), there are ways to apply and negotiate approval for a Deed in Lieu or a Short Sale Agreement with your lender. These agreements will help you stop foreclosure and get out of your home before the auction date.
You can even delay your foreclosure by applying for loss mitigation during the pre-foreclosure period even if you don’t expect to be approved
Even if you don’t end up approved for a loss mitigation or loan modification option, if you can get a complete application into review with your mortgage lender BEFORE you have a foreclosure sale date scheduled, this will likely delay your foreclosure timeline because the bank will put the foreclosure activity on hold for 30-days while they complete their review.
If you’re just looking for time in the home, it may be worth it to submit a complete loss mitigation application to get the standard 30-day hold period while the bank reviews the application.
If you already have a foreclosure sale date set, this delay tactic doesn’t help you because, if you end up denied prior to your sale date – the bank will likely just keep your foreclosure sale date in place. This is only a good strategy if you apply for loss mitigation before you have a foreclosure sale date scheduled against the home.
The pre-foreclosure time period is also a good time to complete an equity sale of your home (if that’s what you’re wanting to do)
If you want to sell your home and recover your equity, you may want to consider selling the property on the real estate market before your foreclosure auction date.
Some people who want to sell their home in order to avoid foreclosure think that waiting until it’s absolutely necessary is the right thing to do. While waiting may be what you absolutely need to do (based on circumstances outside your control), there is no real benefit to waiting to sell if you don’t have to.
If you wait to sell and allow the lender to record a public foreclosure notice against the home, you may face a hoard of real estate investors focusing on buying your pre foreclosure home. Real estate investors scour pre foreclosure listings looking for distressed homeowners needing to sell distressed properties.
If you choose to list your home with a real estate agent, potential buyers will then be able to see that you are facing foreclosure. On Zillow, your property will be marked as a pre-foreclosure listing. Then, you lose some of your negotiation position against potential buyers. Since you want the most money for your property, you don’t want to be viewed as being forced to sell your home. If buyers know you’re facing foreclosure, they will offer you less for the property once they realize that you’re up against a tight timeline.
(If you’re considering selling, you may want to partner with a distressed sale manager to handle the foreclosure aspect of the sale as these sales often take place on a tight timeline).
What foreclosure or pre-foreclosure stage are you in?
To figure out if you are in foreclosure or not, ask your bank these questions:
- Does my loan have a “foreclosure flag” attached to the account?
- Is my loan in an “active foreclosure status?”
- Do I have a foreclosure sale date attached to my property?
If they answer “yes” to any of these questions, you are past the pre-foreclosure phase and should likely consult with an attorney immediately.
If you’re in the early phase right now, you may want to reach out to an attorney right now to go over your options and make a plan. This can help reduce the amount of contact you’re receiving from the lender and can give you peace of mind – you’ll know what to expect and what’s expected of you.
If you are a homeowner in Washington state and would like some information about pre-foreclosure, where you fall on the pre-foreclosure timeline or what you can do to resolve your situation, give me a call at (425) 654-1674.