DEFINITION of 'Pre-Foreclosure'
The status of a property which is in the early stages of being repossessed due to the property owner's inability to pay an outstanding mortgage obligation. Reaching pre-foreclosure status begins when the lender files a default notice on the property, which informs the property owner that the lender will proceed with pursuing legal action if the debt is not taken care of. At this point, the property owner has the opportunity to pay off the outstanding debt or sell the property before it is foreclosed.
BREAKING DOWN 'Pre-Foreclosure'
Property owners who are in the pre-foreclosure stage may enter into a short sale in order to pay off outstanding debts. Because the property owner is looking to avoid being foreclosed upon, an interested party may be able to purchase the property for less than if he or she waited until the property went into foreclosure. After a property is foreclosed upon, the lender is more likely to try to sell the property at lower prices.