Preforeclosure Options for Homeowners: What You Can Do Before It’s Too Late
Facing the possibility of foreclosure can be overwhelming and emotional, but homeowners in preforeclosure still have options. Preforeclosure is the period after a homeowner has missed several mortgage payments but before the home is officially foreclosed and sold at auction. During this time, lenders will typically issue a Notice of Default or Lis Pendens, depending on the state. This is a critical window when action can still make a difference.
Here are several options homeowners can explore to avoid losing their home:
1. Loan Reinstatement
A straightforward but often challenging option is to pay the missed payments in full, including any late fees and penalties. This is called reinstating the loan. If you’ve recently come into money—through a tax refund, inheritance, or bonus—this might be viable. Lenders must accept a reinstatement if it’s done before a specific deadline, which varies by state.
2. Loan Modification
If you’re struggling with a long-term financial hardship, you may qualify for a loan modification, which changes the terms of your mortgage. This might include reducing the interest rate, extending the loan term, or adding missed payments to the back of the loan. This can make monthly payments more affordable and allow you to stay in your home.
3. Repayment Plan
Some lenders offer repayment plans that let you catch up on missed payments over a period of time by adding a portion of the arrears to your monthly mortgage. This spreads out the debt and helps you stay on track without paying a lump sum.
4. Forbearance
If your financial hardship is temporary—like job loss, medical emergency, or natural disaster—you might qualify for forbearance. This pauses or reduces your mortgage payments for a set period. However, you’ll still owe the deferred amount after the forbearance ends, so it’s important to understand the terms.
5. Sell the Property
If keeping the home isn’t realistic, selling the home before foreclosure can help preserve your credit and potentially give you some equity to move forward. In a strong housing market, you may be able to sell the home for more than you owe.
6. Short Sale
If your home is worth less than the mortgage balance, you might be eligible for a short sale. This means selling the property for less than you owe, with the lender’s approval. While this can still hurt your credit, it’s less damaging than a full foreclosure.
7. Deed in Lieu of Foreclosure
As a last resort, you can voluntarily transfer the title of your home to the lender to avoid foreclosure. This option, called a deed in lieu of foreclosure, may not be accepted by all lenders and can still affect your credit score, but it can be less stressful than going through a foreclosure auction.
Final Thoughts
If you’re in pre-foreclosure, don’t ignore the problem. The sooner you contact your lender or a HUD-approved housing counselor, the more options you’ll have. Every situation is unique, so getting professional guidance tailored to your finances is essential. With the right steps, many homeowners can avoid foreclosure and regain financial stability.