Oftentimes, when we are working with a buyer client, we are asked, "What is a pre-foreclosure?" Some of our clients request to see homes that are marked as "pre-foreclosure" (most often in Zillow), and confusion arises when we have to explain that those homes are not actually for sale. Let me do my best to explain what a "pre-foreclosure" is, why they appear on the internet this way, and what it really means.
What is a Pre-Foreclosure?
The most -- and least -- simple answer to this question is that there is no such thing as a pre-foreclosure listing. Before you think I'm out of my gourd and don't know what I'm talking about, let me explain further.
A "pre-foreclosure" describes a situation in which a homeowner has missed one or more mortgage payments, so pre-foreclosure, by definition (in the lending world) is a home on which a lien holder (the bank that holds the mortgage) could possibly begin foreclosure proceedings against the homeowner/borrower.
Unfortunately, and also causing much confusion, "pre-foreclosure" is also a listing category popularized on Zillow (and is even one of their search categories), but there is really no such thing as a "pre-foreclosure listing" (except on Zillow), and these homes are certainly not for sale...at least not yet.
So what does it mean? It may mean nothing at all. Zillow (like other third-party marketing websites, such as Trulia and Realtor.com) pulls its listings from Multiple Listing Services (also called MLSs) -- the databases into which real estate agents put their listings for sale. Zillow also pulls home information from other public sources, such as public tax and court records.
When a homeowner misses one or more mortgage payments, in order for the lien holder (the bank that holds their mortgage) to begin foreclosure proceedings, they must file a Notice of Default or a Notice of Sale, in other words, official notice that the borrower has missed mortgage payment(s), in order for the mortgage holder(s) to officially begin foreclosure proceedings. (Georgia is a non-judicial foreclosure state, meaning the lien holder does not have to sue the borrower in order to foreclose.)
It's important to note that a Notice of Default or a Notice of Sale does not necessarily mean that foreclosure proceedings have begun. It just means that they can. A borrower may have an opportunity to work out a payment plan -- perhaps via forbearance or a payment plan -- to bring their mortgage status back to a non-default status. However, the Notice of Default or Notice of Sale may have been officially recorded, and hence be a part of public record and part of what Zillow shows as "pre-foreclosure" status on their site. This status may stay that way for a very long time, long after the homeowner brings their payments back up to date and perhaps even after they sell the home in a fair market sale.
We frequently have clients identify "Pre-Foreclosure" properties on Zillow during their home search, and we will always research the property. The best way to know if a property is actually for sale, though, is by asking your REALTOR® to cross-reference the property in the MLS to see if the home is really available, and to research it in the public record to see the date of the Notice of Sale, to see if it was even a recent filing.
Why does Zillow use this category?
I can't really say why Zillow uses this misleading category of listing on their site, except that, in our experience, it gets a lot of eyeballs. Consumers always want a deal in real estate, especially right now when the market is in a high state of demand -- a seller's market with rapidly rising prices and historically low housing inventory available for sale. "Foreclosure" signals a deal, and "pre-foreclosure" makes the hopeful buyer think there might be an opportunity to buy a home in less competitive circumstances, which frankly, don't exist right now.
What's the best way to find a great deal on a house right now?
A true "deal" -- a below-market sale -- doesn't exist in today's market. While hopeful consumers wish for the deals of the past on foreclosures and short sales, let's all cross our fingers that those days don't actually return. The housing market is a strong driver of the economy, and a healthy real estate market is a sign of a healthy economy, so the plunge in home values that comes along with foreclosure and short sale listings is not something we should hope for.
While "deals" on real estate aren't really on the table right now, real estate is a long-term investment and can still be a good way to diversify your investments and to fulfill the American dream. Even in a fast-moving, low-inventory market like the one we are currently in, homebuyers can be successful, if they have experienced and knowledgeable representation on their side. If you decide now is the right time for you to buy a home, give us a call today for a no-obligation consultation about what buying a home in today's market looks like for buyers and how we work with our clients.
Give us a call today at 404-944-2181 or email us at Ben(at)BuySellLiveAtlanta(dot)com.