What Is Pre-Foreclosure?

The term “Pre-Foreclosure” is typically used to describe the period of time before a lender finishes the foreclosure process.

The pre-foreclosure period often starts when you first default on your loan, and can span the filing of your foreclosure case all the way through to judicial auction. Once the lender has completed the foreclosure process, you are no longer in pre-foreclosure and would instead be considered foreclosed upon.

‍How Can Properties in Pre-Foreclosure be Saved?

There are several ways that properties in pre-foreclosure can be saved. Generally, we use the term “loss mitigation” to describe those processes. Lost mitigation can include methods such as: 

Loan modifications 
Repayment plans
Discounted payoffs
Refinancing an existing mortgage loan.

These are all processes that can be pursued to save properties in pre-foreclosure. In these matters, homeowners often benefit from competent legal representation.

How Many Missed Mortgage Payments Will Send a Homeowner into Default?

Technically, the moment you miss one mortgage payment, your mortgage loan goes into default.

However, there are certain federal regulations under the Real Estate Settlement Procedures Act (RESPA) as well as other regulatory, legislative acts which prohibit lenders from immediately filing foreclosure lawsuits after one missed mortgage payment. Generally, these acts prevent lenders from filing foreclosure lawsuits until someone is at least 120 days in arrears.

When it’s Clear That a Homeowner Won’t be Able to Make Their Mortgage Payments, Should They Contact the Lender or Should They Wait Until They are in Default?

‍It is always a good idea for homeowners to have an open line of communication with their lender. That line of communication can be established and maintained between you (the homeowner and borrower) and the lender directly. However, sometimes it’s better to have an experienced, knowledgeable attorney act as a conduit for communication between you and your lender.

Different lenders, loan servicers, and investors have different sorts of loss mitigation programs already set up to help people keep their homes if possible. Some of them may have proprietary programs, meaning programs they offer independently. As such, we always encourage any homeowner that’s struggling with their mortgage loan to either retain an attorney that can negotiate on their behalf with the lender, or engage in communications directly with their lender.

Is it Beneficial to Hire an Attorney in the Pre-Foreclosure Phase or Should I Wait Until I’m in Default and my Home is Being Foreclosed Upon?

‍Homeowners don’t have to wait until they are already in foreclosure to hire an attorney. A good attorney can help a homeowner negotiate more aggressively and advocate more effectively with the lender before legal proceedings begin. Of course, once legal proceedings do begin -- which can be very technical both procedurally and substantively – a good attorney can help a homeowner craft creative solutions to get out of your default situation.
‍
Do Banks Want to Put Delinquent Homeowners Into Foreclosure at This Time?

‍The fact is that banks do put delinquent homeowners into foreclosure regularly, even during pandemics.

Banks regularly put delinquent homeowners into foreclosure because they have to. In the end, they are for-profit institutions that ultimately have to answer to their investors and their shareholders. Understanding this premise, we can extrapolate that banks will do whatever is best for them, during any given interaction and at any point in time. If that means finishing the foreclosure process on a delinquent homeowner and liquidating the bank’s collateral, then that’s what the bank will do.

This can also be used to the borrower’s advantage. If it is better for the bank to modify the loan and resume collecting monthly mortgage payments, then that is what the bank will do. If you want to keep yourself out of foreclosure, you need to figure out how to convince the bank that it is in their best interest to modify the loan and keep collecting monthly mortgage payments.

There are certain government regulations that can tamper what the bank can do in certain situations, so these must be accounted for. However, it’s always important to keep in mind that the bank will do whatever is best for the bank whenever possible. This includes putting delinquent homeowners into foreclosure.

Do Banks and Mortgage Servicers Have Incentive to Restructure Loans or Tack Missed Payments on the Back End of Mortgages?

There are no laws or regulations that obligate lenders to modify or restructure loans. However, a lender will be incentivized to modify a loan if that yields the lender a greater return on its investment—that is, if it is the best financial decision for the bank as a for-profit entity.

What this means for the average borrower is that if the bank can make more money by finishing the foreclosure process and liquidating your home, then that’s what it will try to do. On the other hand, if the bank can make more money by modifying your loan and staying in a borrower-lender relationship with you, then the bank may be more heavily incentivized to do that, and allow you to restructure your loan.

For more information on Foreclosure Law in Illinois, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (312) 600-8815 today.
‍