A pre foreclosure is a sale arranged by someone who can’t pay the mortgage. The sale funds go to the institution that makes the loan to pay off its debt, though it’s less than the amount owed.
A pre foreclosure is possible when someone defaults on the loan. A default is when someone can’t meet the contract’s payment requirements.
The person defaulting on the loan may make a sale to an interested party. The person or institution owed must allow this first.
The person selling the home receives none of the income for selling the home, as it is by definition less than owed. The proceeds go to the lender entirely.
By selling in the pre foreclosure process, the home is not foreclosed. This keeps the property from going to public auction.
The institution that is owed money is the entity that lent the funds to the person now defaulting on the loan. This can be a public or private legal entity.