What is Pre-Foreclosure of a Commercial Property?

Commercial Building in Pre-Foreclosure

What borrowers think of as foreclosure is often the point of being issued the Notice of Sale. However, the foreclosure process for lenders starts at the point of default. The time between the borrower going into default and the foreclosure sale date being set is known as pre-foreclosure.

The pre-foreclosure period of a nonjudicial foreclosure is crucial because it comes with its own set of compliance rules, depending on the state. Lenders should consult a foreclosure service to ensure they follow all the compliance requirements for the state of the property.

What is Pre-Foreclosure?

When a borrower defaults on their payment, they are in the pre-foreclosure stage. Because it is often more costly for lenders to foreclose than to help a borrower out of default, the pre-foreclosure stage is often the stage in which a lender will try to negotiate alternative terms.

If it is impossible for a borrower to get out of their default, the lender must move through the foreclosure process. In many states that issue nonjudicial foreclosures, the next step in pre-foreclosure is to issue a Notice of Default. In many states, this notice must be recorded in the county where the property is located. In some states, like California, the notice must be published, posted, or personally served on the Trustor.

Pre-foreclosure may have other actions associated with the time period before the Notice of Sale is issued. The lender may issue a Danger Notice, like in the state of Nevada, or may issue a Balloon Payment Notice, like in California.

What Are Some Alternative Resolution Options Before Foreclosure?

Because the foreclosure process is so arduous, pre-foreclosure is the primary time for lenders to help their borrowers get out of default. Before foreclosing on a property, lenders have at least four alternatives for negotiating with borrowers.


Borrowers may consider refinancing the loan with another lender. Refinancing is typically reserved for borrowers that are already current, so refinancing is often more difficult to achieve for defaulted borrowers.

Loan Modification

Lenders might agree to modify the terms of the loan by reducing monthly payments and lengthening the term of the loan. This is a good option for borrowers whose financial setbacks may be long-term.

Forbearance or Temporary Stays

If the lender can determine that the financial setback for a borrower is only temporary, they may suspend payments on the loan for a short period of time. This may result in a balloon payment at the end of the forbearance period.

Short Sale

Lenders can use the surrounding property values to determine whether or not a short sale of the property may be a better option than a long sale. Short sales may make it difficult for a lender to retrieve a deficiency.

Need Help During Pre-Foreclosure?

Having a partner during the pre-foreclosure stage can ensure that your small-to-medium lending business stays fully compliant while protecting your assets. The Total Lender Solutions team works alongside your team so that lenders can remain focused on their customers.

The Premier Foreclosure Service for California, Nevada, Oregon, Texas, Missouri, and Arizona.

At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.