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What is Preforeclosure NJ?

James Anderson

March 6, 2021

What is Preforeclosure NJ? As the name suggests, it implies a legal action and condition that precedes the primary foreclosure process. 

Preforeclosure and foreclosure laws can vary wildly depending on the locality and the state. For the most part, this article will target what is Preforeclosure NJ. If you live in any other state, please consult your local laws. 

How it starts

Preforeclosure represents the incipient phase of the foreclosure legal process. The end goal is for a property to be repossessed due to loan payment irregularities. Of course, it is often pursued by a lender against a borrower that defaulted on his/her loan. 

The lender will start by filing a notice to default, signifying that the current owner has neglected his contractual payments. The Notice to Default announces to the borrower that the lender has started to pursue legal action against him. 

Every property owner served with this notice should understand what is preforeclosure NJ, and how it applies to their particular situation. Last rights negotiations can be on the table if the lender consents to such action.

People can receive a chance to remove their defaulted loan status by negotiating some rate modifications, compensating for overdue payments, or selling the real estate property to avoid a foreclosure eviction.

What is Preforeclosure NJ; the essentials:

  • The process is triggered by the lender who provided the funds for the owner to purchase the property. The standard for missing or delinquent payments is not set in stone, but three months of missed payments are usually the trigger. 
  • Even in the middle of pre-foreclosure, the borrower can still negotiate himself into a better position. It is possible to ask for a modification, pay the overdue rates, or starting a short sale. 
  • If the Government backs your loan, you may be in luck. Such mortgages have effectively paused any foreclosure, forbearance, and eviction actions. Due to state-imposed lockdowns, people who would otherwise never miss a payment cannot afford to pay their mortgage. 

This moratorium on legal action against defaulting loans for state-backed mortgages is very dependant on the state itself. In NJ, it is applicable at least until March 31, 2021, with possible extensions to follow. 

What Is Preforeclosure Nj? House Keys

What is Preforeclosure NJ, and how it works

When a person decides to purchase real estate property, they may need to rely on a loan. A contract is drafted between the lender and the borrower, specifying the interest and payment rates. The most common form of payment is in monthly installments.

Ideally, these monthly payments will cover both interest and principal payments on the loan. The most common variety of mortgage contracts will specify that a defaulted state is reached after three consecutive monthly payments are missing. 

After these requirements are met, the lender is well-within his rights to trigger the pre-foreclosure process. As previously mentioned, a notice of default will be sent to the borrower. This notice will be filed with a court, making it a matter of public record.

The initial step of serving a notice to default is the official signifier that the foreclosure process has started. Foreclosure can be very complicated, depending on the situation, the contract, and the local laws. 

The timeline can last more than an entire year, or it can be completed in a few weeks. However, regardless of the inconvenience caused, a lender has no other choice. Eviction and foreclosure cannot be pursued outside the court system. 

Most lenders do not want to go through these legal procedures. Most of their profits come from regular payment of interest, and foreclosure can cost them as well. Given this situation, most of them are willing to negotiate the payments and cancel the process if they receive the overdue amounts. 

If every attempt falls through, the lender can proceed towards a trustee sale or a public auction. Depending on the market, this can recuperate some of the sunk cost.

Drawbacks and perks

When considering what is preforeclosure NJ, we must first consider its main advantages and disadvantages. 

The owner has the option to sell the property as soon as the pre-foreclosure event is triggered. By taking this action, he will spare himself from having a damaged credit history. 

The person or institution who ends up buying the house will benefit from a property that is usually sold for less than its current market value. Even the lender is put at an advantage.

Lenders will not have to organize a sale themselves, and they will not have to cover any foreclosure costs. 

In essence, this situation represents a win-win-win for the owner, the buyer, and the lender.

That being said, selling a house can be complicated. All parties must consider property liens. 

It is possible that any outstanding payments and taxes to be transferred to the new owner if the current owner has not paid them. The seller must conform to any disclosure and legal specifications. Failing to disclose what is legally required is a crime. 

For more information on how to sell a house "by owner", click here.

If all falls through 

If there is a conclusion to be drawn from this article on what is preforeclosure NJ: nobody wants to go through this process. However, sometimes the lender does not have a choice. 

If the borrower refuses to cover outstanding payments, negotiate a better rate, or attempt to sell the property, no other course remains. 

The lender will receive legal authority to evict the current owner due to the defaulted loan. Following the eviction, the bank will own the property. As previously mentioned, if the mortgage is from the government, there is a hiatus on foreclosures and evictions.

Usually, properties that pass-on to the bank will be sold as quickly as possible for less than their current market value. It is in the bank's financial interest to sell it even for a lower rate, sparing the institution from covering insurance payments and other expenses and taxes. 

Conclusion 

So, what is preforeclosure NJ? 

It is an unfortunate process that no party wants. It is against the lender's financial interest and the current owner, yet it must be triggered if payments fail to manifest. Still, pre-foreclosure is a warning shot, giving the borrower options to negotiate for a better outcome. 

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