Pre-Foreclosure

• After 30 days of missed payments, your mortgage falls into default and the pre-foreclosure stage begins. The pre-foreclosure stage generally lasts 150 days. During this time you can either negotiate a successful loan modification or be forced to sell the home for enough cash to pay off the mortgage. A loan modification is a permanent reduction in your mortgage principal and interest rate that should result in an affordable home loan payment.
  
  

Loan Modification

• When attempting to secure a loan modification, you must put together a package that proves to the bank that you have exhausted as many financial resources as possible to stay current on the mortgage. To do so, you should withdraw bank deposits that exceed six months worth of your living expenses and sell off any investments held within taxable brokerage accounts for cash that can be put on the mortgage. After reviewing your personal finances, you should research property values for comparable real estate within your immediate neighborhood. You will improve your chances for a loan modification if you owe more on the home than it is worth due to significant property value declines.
  
  

Selling Your Home

• You will put your home up for sale in pre-foreclosure, if the bank rejects your loan modification package. For a pre-foreclosure sale, you should offer the home at a 10 percent discount to comparable real estate. The small discount should increase demand for the home and expedite a sale. The discount may also serve as compensation for a prospective buyer, who may need to spend money on maintenance projects that have arisen due to your lack of funds. If you owe more on the home than it is worth, you will attempt to coordinate a short sale. In a short sale, the bank accepts less cash for the home than the outstanding mortgage balance due.
  
  

Foreclosure Auction

• The bank will post a notice of sale in the local newspaper, if you cannot secure a loan modification or sell the home during the 150-day pre-foreclosure stage. The notice of sale announces a time and date for your home to be auctioned off. Immediately after the foreclosure auction, the home's new private owner can file an eviction lawsuit to have you removed from the premises.
  
  

Real Estate Owned

• The bank will repossess the property as real estate owned, if a buyer does not emerge with a winning bid at the foreclosure auction. The bank would then take steps to evict you from the home. In the real estate owned stage, a prospective buyer negotiates directly with the bank to acquire the property.