Pre-foreclosure is the beginning of the foreclosure process, in which the lender files a notice of default on a property that belongs to a delinquent borrower. The notice of default will tell the borrower that the lender will be pursuing foreclosure if the payments are not made. If you are in pre-foreclosure, now is the time for action. Reach out to the legal experts and we can help you rectify the situation before it gets worse.
Under New York’s foreclosure laws, lenders are required to wait until payments are 120 days late before filing for foreclosure. This way, you have the chance to mitigate your losses. Furthermore, New York lenders must also send you to notice 90 days before starting the foreclosure procedures.
Keep in mind, though, that foreclosure and eviction proceedings are currently halted during the moratorium sanctioned by Gov. Cuomo. This moratorium was first put in place in March 2020, but it has been extended until October 20th, 2020. Still, do not let this lure you into a false sense of complacency.
How to Find Out If Your House Is in Pre-Foreclosure
Since New York lenders must send you the 90-day notice during pre-foreclosure, you will not be taken by surprise. However, there is still that 30-day gap of time between your first missed payment and when the lender is required to notify you.
To increase your chances of being able to pull yourself out of pre-foreclosure, you should not wait for the notice to arrive. That extra 30 days could be just what you need to mitigate your losses. So, how can you know if your house is in pre-foreclosure on your own?
If you’ve missed a mortgage payment and you anticipate being unable to pay it for 120 days due to a severe financial emergency, you will likely end up in pre-foreclosure. In such cases, there is no need to wait for notice – seek action and legal counsel right away.
How to Get Out of Pre-Foreclosure
When getting out of pre-foreclosure, there are a few options available to you. New York’s state government website has outlined steps you can take if you are having trouble paying your mortgage; we recommend reviewing them. Some common paths to take include:
Loan Modification
This is one of the most popular ways of saving your house during the loss mitigation period. You can meet with your lender and request for them to restructure your loan with more favorable terms – so that your monthly mortgage payment is reduced. The lender may increase the overall length of your mortgage, and they may also decide to lower your mortgage’s interest rate or even add your missed payments to the very end of your loan. It is in a lender’s best interest to pursue a loan modification with a homeowner – that way, they can avoid the hassle of the foreclosure and eviction process.
Deed in Lieu of Foreclosure
If modifying your loan simply isn’t in the cards, another option is a deed in lieu of foreclosure. Essentially, the homeowner will give the deed of their house to the lending bank in order to settle the debt. If you pursue this, you’ll be able to minimize any potential mortgage deficiency, and you might receive a “cash for keys” arrangement.
Pay the Outstanding Balance
This is the simplest way to get out of pre-foreclosure, but it often isn’t feasible. To avoid having to scrape for money, we recommend paying a little extra on your mortgage payments when you can afford it. For instance, some families receive holiday bonuses, which can be used to provide you with a bit of a buffer on your loan.
Short Sale
This step would be to sell your house upon the lender’s approval. All of the sale’s proceeds would go to the lender. The homeowner’s advantage is that the bank pays the fees and the real estate agent’s commissions associated with selling the property.
Lease Option
With this option, you would lease your property out to a tenant who is paying for the chance to buy your property later in time (usually in three to five years). You would then use the tenant’s monthly payments to take care of your outstanding mortgage debts and penalties.
How Does Pre-Foreclosure Affect Your Credit?
Credit scores are negatively impacted by missed payments. If you are in pre-foreclosure, this means that your lender has recorded your late payment – which is then reported to credit reporting agencies. Your credit score will drop further depending on how many mortgage payments you have missed. However, pre-foreclosure will have a lesser impact on your credit score than a full foreclosure would. Here’s what you could expect to happen to your credit score upon late payments and foreclosure:
- Payment is late by 30 days: Drop of 40 – 110 points
- Payment is late by 90 days: Drop of 70 – 135 points
- Foreclosure, deed in lieu, or short sale: 86 – 160 points
- Bankruptcy: 130 – 240 points
Furthermore, the better of a credit score you have, the more of a hit your score will take at any point in the foreclosure and pre-foreclosure process. So, as you can see, it’s best to address late payments as soon as possible in order to avoid a massive hit to your credit score.
However, if this is not feasible, fill out our contact form for a free consultation. We’d love to help you figure out your options and get through this with as little of a credit impact as possible.