November 7th, 2007 11:54 PM

Quite often I'm asked as an Appraiser, "what is Pre foreclosure?". The answer is rather simple: Pre Foreclosure is when a homeowner can no longer afford to pay their mortgage.

The bank, after making many attempts to collect late payments and set up payment arrangements, is basically forced to take legal action against the homeowner, per the financing instruments' legalese, to protect them from loss. The lender will start the repossession process which is basically the bank or mortgage company taking over your home. At some point in the future, the homeowner will be required to move out and the bank will assume ownership.

The pre-foreclosure period will permit the homeowner to put their house up for sale and pay off any outstanding debt (usually including penalties) to stay out of foreclosure and trash their credit score.

There are typically a few requirements that one must meet in order to have a pre-foreclosure sale. The home will need to be appraised to ascertain an opinion of value. The appraised opinion of value, which will be called the "as is" rate, will, in most cases, need to be at least 70% of the total owed and the sales price typically needs to be 95% of the appraised value.

The loan has to meet the criteria of being at least two months delinquent prior to the pre-foreclosure deals closing date. This is a requirement that the homeowner must meet in order for the pre-foreclosure not to damage their credit history.

In order to make sure that they meet those criteria one should start talking with their lender as soon as they realize they're running into financial difficulty. It's not recommended that one wait until several months of non-payment have occurred. Homeowners need to work with their lender so they can understand the problem and help the homeowner deal with it before both parties lose money.

In today's tough economic times, foreclosures are rampant throughout the country. Heading off potential credit and financial doom through the pre foreclosure process may be an option if homeowners are willing to be realistic when financial trouble appears and shows no signs of getting better.

If you think this may be where you're headed, It's highly recommended to get a current appraisal using a reputable company that is approved with the major banks and lenders.

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