Preforeclosure is any homeowner who is currently delinquent on their mortgage loan and in impending danger of losing their home to foreclosure due to nonpayment, explains SF Gate Home Guides. Most lenders file default notices as a matter of public record after three consecutive missed payments, cites Nolo.
Once a lender files a default notice on a property, the lender notifies the borrower that the next step is to pursue legal action if the borrower does not meet the debt obligation immediately, explains Investopedia. Property owners in preforeclosure can avoid full foreclosure proceedings by meeting the debt obligation or pursuing a short sale arranged by the lender.
Many property owners try to avoid foreclosure by selling the property before proceedings begin, states Investopedia. The process, known as a short sale, allows borrowers to sell their homes prior to foreclosure for less than the balance of debts incurred. Short sale properties are different than real-estate owned properties, known as REOs. Once properties become real-estate owned, banks now have full possession of the properties and homeowners no longer possess any legal rights to the properties. Banks still possess the legal right to pursue borrowers for the original loan balance after the property becomes real-estate owned.