What is pre-foreclosure and why should I care?

Pre-foreclosure Defined: The period between the mortgage Lender's notice to the Borrowers of their default on the mortgage payments and the auction sale event that finalizes the transfer of title to the property to the Lender. from preforeclosure.com

Our Definition:

• When a seller is in financial distress and a lender approves a sale even though the property will sell for a price less than what is owed to the lender.
• Short sale and Pre-foreclosure sale are synonymous – Pre-foreclosure (PFS for short) is more correct. (As Flight Attendant is more correct than Stewardess)

Why you should care:

According to mortgage giant Freddie Mac…“The number of homes entering foreclosure is expected to top 1 million this year, with 60% of those being subprime mortgages.”

The Mortgage Bankers Association predicts that…“Adjustable-rate subprime foreclosures, already at a record, will rise into 2008, affecting borrowers, lenders and such Wall Street firms as Goldman Sachs and Bear Stearns, which packaged subprime loans into bonds.”


Wells Fargo Bank, Loss Mitigation Specialist…“Our borrowers are telling us that Realtors won’t work with them because they’re afraid they won’t get paid…but we pay the standard 6% on closed transactions.”

Here is a great article in the San Francisco Chronicle that describes the lending atmosphere today, markedly different from 10-15 year ago, where lenders are willing to negotiate workouts, loan modifications, forbearance agreements and "Short Sales"; what are now referred to as a Pre-foreclosure sales.

If you are a real estate agent interested in creating a Preforeclosure Strategy for your business of have already started this process. Please share your thoughts about the timing of this market opportunity and what how you have distiguished yourself. Feedback is crucial to making this blog a good resource for all invovled.

Short Sales Might Help Curb U.S. Housing Slump

A growing number of lenders are approving short sales as an alternative to foreclosure, says Doug Duncan, Mortgage Bankers Association chief economist.

The move is a way for lenders to avoid having to take over and manage property.

"The way banks see it, it's better than if the house goes into foreclosure, stands empty, and sees its value spiral downward before it's auctioned on the courthouse steps," says Duncan, who expects rising delinquencies to spark an increase in pre-foreclosure sales.

Though short sales put additional downward pressure on the national median home price, Fannie Mae chief economist David Berson says they also lower the number of foreclosures and can help ease the housing downturn. Short sales are hard to track, though, because they're not counted, making it impossible to know exactly how many occur.

Source: Bloomberg, Kathleen Howley (03/21/07)