Pre-foreclosure offers homeowners the opportunity to work with their lender in an attempt to rectify the situation and avoid foreclosure. If the borrower is able to become current on their mortgage payments within a short period of time, the lender will generally reinstate the loan and no further action will be taken. If the borrower is unable to catch up on delinquent payments, the lender might offer additional options prior to filing foreclosure papers.



Pre-foreclosure is the first step in the foreclosure process. Most mortgage lenders will institute action when the borrower fails to remit their mortgage payment for two or more consecutive months. A few lenders are generous enough to wait three months before filing against the homeowner; however, this is rarely the case.

Some lenders may offer homeowners a special Forbearance Agreement. With this type of agreement, the lender will reduce or suspend payments for a specified period of time. Depending on the circumstances, a Forbearance Agreement may reduce the mortgage payment up to fifty percent for a maximum period of three years.

While a Forbearance Agreement can stop the pre-foreclosure process, it is not without drawbacks. First of all, the borrower will be paying on the loan for up to an additional three years. During this time they will also be paying additional interest. This could add up to several thousand dollars over the duration of the extended loan. In order to obtain a Special Forbearance, borrowers are required to provide financial documents and show proof they are able to meet the requirements of the plan.

Another option for individuals in the pre-foreclosure stage is known as Mortgage Modification. This type of agreement allows borrowers to refinance or extend the terms of their mortgage note. Mortgage modifications are typically offered to individuals who have recovered from the financial setback that caused them to fall behind in their mortgage payments.

The U.S. Department of Housing and Urban Development (HUD) allows lenders to file a partial claim on behalf of the borrower. This type of pre-foreclosure arrangement is offered to borrowers who are facing financial hardship due to serious illness or loss of employment.

To qualify for a Partial Claim, borrowers must be at least four months, but no more than twelve months, delinquent on their loan. If the Partial Claim is accepted the borrower must sign a promissory note and a lien is placed on the property until the note is paid in full.

HUD also offers the Pre-Foreclosure Sale Program (PFS) which allows the homeowner to place their house on the market. When the home is sold the profits are used to satisfy the mortgage debt. To qualify for PFS, borrowers must meet certain criteria and adhere to HUD policies.

Last, but not least, homeowners in the pre-foreclosure stage may qualify for a Short Sell. This option allows borrowers to sell their home for less than is owed on the note. Currently, banks are only accepting one out of ten short sale offers and few will accept less than ninety five cents on the dollar. While a short sale is a good option, it's important to thoroughly investigate the process and work with a professional who is well-versed in this type of real estate transaction.