The hardest part about foreclosure is that it makes homeowners feel like they’ve failed in a tremendous way. They aren’t able to keep up the payments that they promised to make to the mortgage holder, and now they’re faced with hard decisions that are often overwhelming. Learning how to sell your house during foreclosure can help you feel better about what’s going on, saving you not only money but also preserving your peace of mind.
An essential piece of this is learning about the foreclosure process and how it affects your ability to keep your house. At the very least, knowing the foreclosure process will give you a real world understanding about your timeline for home sale.
Each step builds on itself. It’s critically important that you know that you can sell your home all the way up until the end of the sheriff’s sale. There’s a lot between your first missed payment and that final point. All along the way, you have lots of options.
Sometimes, the best option is for you to let go of the home.
The emotional toll of foreclosure
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When you buy a home, it’s usually with the idea of being in it for years or even decades. People often land in what they think will be their “forever home”, only to find that life circumstance ends up forcing them to rethink their dreams. Facing foreclosure is one of the toughest things anyone can go through.
By the time a homeowner has gotten to either the pre foreclosure stage or the foreclosure process begins, they’re generally exhausted and at the edge of their ability to cope. What’s important here is that homeowners take a moment to figure out what their options are, without emotion.
The phone calls and the tons of letters from the company might be easy to ignore for a while, but it’ll all become real serious real fast as time goes on. Though it can cause us to freeze up from the stress, judicial foreclosure will only get worse if you ignore it.
Potential foreclosure relief
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Oftentimes, there are many more possibilities than people realize. Whether it’s loan modification, short sales, choosing to file bankruptcy, or even getting the full market value for a home through a cash deal, homeowners can try avoiding foreclosure.
Even though this step won’t totally erase the struggles they’ve had, it can make a huge difference for many homeowners. Sometimes, looking after your emotional wellbeing is the most important thing.
The selling price of a home in foreclosure might not be as high as it would be if you worked with a real estate agent through a traditional sale, but it’s preferable to the alternative.
The short sale process, where the bank takes less money than what’s owed, is great if I want to sell my home and avoid a deficiency judgment. It’s much better to allow everyone to take a chunk of the loss than it is to take it all on yourself. To sell a home through a cash offer, even if it’s for less than what the bank has stated they need, is still much better than what the bank will get at auction.
What is pre-foreclosure?
Before formal foreclosure proceedings start, there’s a long run up to the final date that’s called pre-foreclosure. During this time, the homeowner still had possession of the home, and they still have the opportunity to get the loan back on track.
This is the point when it’s easiest to avoid foreclosure. There are lots of missed payments, and there will be a hit on the homeowner’s credit report, but there isn’t yet a final decision. Loan modification and negotiated terms are easiest to get through during the preforeclosure stage.
The importance of three missed payments
At the time of the original sale of the home, the homeowner signs a contract in which they agree to repay the amount borrowed through a mortgage loan. This is generally in the form of monthly payments, which can either stay the same throughout the life of the loan, or they can change in the case of balloon loans.
If, for any reason, the borrower doesn’t make those payments for three consecutive months, the lender starts the pre-foreclosure process. At this point, the loan is in default.
Default doesn’t sound overly ominous because it’s not. Default is really just a warning. Lenders want to get back what they’ve put into the house in the form of mortgage debt.
After three months of missed payments, the lender is now seriously concerned that the homeowner is not going to keep up their part of the agreement.
Catching up overdue mortgage payments
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Making mortgage payments isn’t the only way to catch up. The homeowner needs to start looking at other possibilities to pay off the loan. This could be in the form of a short sale, or working with a real estate agent.
Default is only the first step in the process, and homeowners have plenty of options to get their mortgage payments back going from this point. No mortgage company wants to go into foreclosure. This initial foray into the preforeclosure process is the lender’s way of getting the homeowner to come back around to paying their mortgage payments.
Whether a lender is using a law firm to go through judicial foreclosure, or if the state you live in uses the non-judicial foreclosure process, selling your home will stop the foreclosure process. The attorney client relationship means you can talk to your own law firm to get advice on timelines and options.
Options for homeowners in preforeclosure
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For people who are in a tough spot because of problems with tax returns, job loss, burdens from other lenders, medical bills, or any other serious financial situation, selling your home can be an option to stop home pre foreclosure. If you need to keep your home and have some financial improvements coming your way, then you can talk to the lender and avoid sale.
Whatever terms the lender agrees to, whether it’s a fair price or a loan modification, that can help you to get out of preforeclosure. If you can’t afford to keep your house though, it’s just time to sell it.
It’s much worse to go through the entire process in a state of denial than it is to find out you’ve crossed past the point of no return on your loan.
Talk to the lender
The faster you can get yourself together, the better. Many people are frozen and totally helpless at this point. That’s a dangerous place to be. When you reach out to your lender, you can work through all kinds of methods to keep your home. They can put a forbearance on the loan to give you more time. They can also use loan modification.
Typically lenders are forgiving and, if requested, can allow you more time to sell before losing your property to an auction or the bank.
Even after contacting your lender, you will want to take action quickly. If you cannot sell your home in time, you won’t only lose your home and thousands of dollars, but serious damage can be done to your credit.
What is a notice of default?
When someone is going through significant financial hardship, things can start to snowball and they can end up getting further and further behind. After three to six months of missed mortgage payments, the lender will send out a notice of default.
This is a significant step in the foreclosure process because it’s a matter of public record. While this letter goes out personally to the homeowner via certified mail, it also goes to the courthouse. This is the first real red flag in terms of financial health, and it will absolutely place a black mark on a person’s credit history.
Here, the homeowner has a good chance to negotiate lower payments, delay payments, or even restructure the home loan.
The whole process from this point forward lasts somewhere between three months and a year. That’s from the issuing of the notice of default to the auction, which is the last step. How long it takes depends on the state the home is in.
What is a notice of trustee’s sale?
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There are lots of words for the actual sale of a foreclosed house. Sometimes it’s called a sheriff’s auction, a trustee’s sale, or a foreclosure auction. All of these mean the same thing – the bank is officially selling the home to a third party.
A trustee’s sale is the end of the line, but it doesn’t happen immediately. Depending on the state a home is in, from the time foreclosure starts with the notice of default to the time they get a notice of sale could be as long as a year. If the homeowner comes up with enough money during that time, they can stop the home from being foreclosed on.
After the home loan goes into default, the lender will still give the homeowner time to catch up the loan. Phone messages from the mortgage lender are consistent throughout this process. They’ll also send emails and continue to send letters. All of this is with an eye to avoid foreclosure and engage in loss mitigation. It’s much better for the lender to sell a home facing foreclosure than it is to foreclose on the property!
Last-minute foreclosure sale
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The whole idea of getting a basketball through the hoop in just before the buzzer or sliding under the door just before your hat is lost forever is exactly what some foreclosure deals feel like. If you’re in a dire situation, selling your home before it’s foreclosed can be a life saver.
A sherrif’s sale is a public event. Anyone can come to the table to buy a house with a foreclosure notice at the sale. If you are able to sell your home prior to that date through a short sale, you can stop all of this and avoid foreclosure. Though you might be in the middle of the foreclosure process, that doesn’t matter until it’s finished.
There is time all the way until the very last moment to avoid foreclosure. Most lenders will keep sending letters and calling to attempt to work out a repayment plan all the way until the date of the auction. This is important – the foreclosure isn’t final until the auction is complete.
Your property will be published in the local newspaper indicating that the property will be available at public auction. The owner’s name will be printed in the notice and newspaper, as well as its address, a brief description of the property, and when and where the sale will take place.
If you are unable to sell your home to pay off the mortgage loan prior to the auction date, then your home will go up for bidding. The lender will sell your home to the highest bidder.
The property address and the information about the property are first published in the local newspaper. Foreclosures generally avoid large papers like the Washington Post. This lets potential buyers know the pertinent information. Included here are the owner’s name, the address of the property, a short description, and the details of when and where the sale will occur.
At the public auction, the house is sold to the highest bidder.
What if no one buys the home at auction?
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It’s possible that the mortgage company won’t be able to sell your home at auction. The foreclosure process is similar to a traditional home sale in that someone still has to want to buy the house.
There are two common reasons that a home doesn’t sell during foreclosure.
First of all, there might be too many liens on the property that make it unattractive to buyers. This kind of financial information can be detrimental to potential buyers. The remaining balance of the other debts besides the mortgage can make it not worthwhile for a person to buy the home.
The other reason people might not go for a foreclosed home is lots of needed repairs. If it’s going to cost far too much to fix up the house, then potential buyers might not be able to justify that cost.
For whatever reason, if no one buys the home at auction, it then becomes the property of the bank. Bank-owned homes are the end of the line for houses that have a defaulted mortgage. The bank is still going to try to get their money back out of the house. In working to sell my house, the bank might have repairs done. the might also work to remove liens to make it more attractive to buyers.
One thing a bank is unlikely to do is to involve a real estate agent in selling your home. At least, they won’t do this in a meaningful way. They might enlist an experienced agent to come in and work on behalf of the lender to work on the home or to stage it.
Selling your home is not about going all in for the lender. The goal is to get it gone without paying closing costs. They just need to get it off their hands as quickly as possible.
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The eviction process for a foreclosed home is extremely similar to the eviction process for a rental property.
The homeowner can stay in the house until the foreclosure is complete. Once the property is sold, a homeowner will get an eviction notice that orders anyone who is on the property to leave immediately. This is served by the local sheriff.
The bank will give the homeowners a few days to get their things together and leave. Personal property left on the premises becomes property of the bank. These houses are sold as is, so the new owner will take possession of whatever is still there. Furniture, clothes, equipment, and any other kind of personal property is the responsibility of the new owner to handle.
If a homeowner refuses to leave the property after foreclosure, then law enforcement can remove them by force. Continuing to stay on the property is trespassing after the auction.
When you owe more than the house is worth
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In some instances, the house has depreciated and you owe more than the house is worth. Settling the mortgage through a short sale will keep your credit report clear. Maybe you had a high interest rate or took on a mortgage you couldn’t afford.
This is an instance where knowing how to sell your house during foreclosure can help you to avoid foreclosure altogether. This could save your credit report from a big hit and also allow you to sell your home.
In a short sale, you sell the home for less than the debt you owe. For this reason, a short sale might sound like a bad deal for the bank, but that’s not true. The prospect of going through a foreclosure is so distasteful to the bank that they’re willing to negotiate.
Though the mortgage holder might lose some money on the short sale, they’ll probably make more than if they sell the home themselves. A short sale offers them a chance to get more money with less hassle.
Banks hate to take possession of a house. A bank isn’t a real estate agent, and they aren’t interested in holding real property for long. Remember, a bank’s business is money and transactions. A mortgage is their end goal, not to have a piece of real estate.
A short sale will still save you from the huge hit your credit score takes if you let the bank take your home. If I want to sell my home when I owe more money than the mortgage, I need to take hold of the situation.
The trick with a short sale is that you have to find a buyer. The good news there is that there are lots of people who are willing to buy your home in preforeclosure, all the way up to that magic auction date. A short sale option is attractive to a buyer because they can then turn around and sell the home themselves. They won’t have the time crunch that you have when you’re facing foreclosure.
Stopping foreclosure without selling
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The worst thing that people do is to hide from their mortgage lender. If you don’t make some effort, a lender will naturally take legal action to get their money back. That’s understandable.
You need to reach out to your lender and ask them about ways to catch up your mortgage. Lenders will take legal action if a homeowner doesn’t try to work out a deal with them. The best option for homeowners is to reach out and ask for more time to catch up.
A lender might be willing to restructure the loan with a different interest rate. They could refinance the home. You could also restructure the loan to allow you to catch up on missed payments.
The final option would be to to file Chapter 13 bankruptcy. That is something you should talk to a law firm about, as it’s a major step. Chapter 13 is likely better for your credit score than foreclosing. Again, I might decide to sell my home before choosing bankruptcy.
A foreclosure specialist can help
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There are some real estate companies out there who specialized specifically in foreclosure. These companies work with people who are in danger of losing their homes and help them get a sale going.
This could be through a no obligation cash offer, or it could be as a more traditional real estate sale. The latter only works if the owner is able to catch the mortgage up in the meantime. That’s because the bank has to have some leeway before a home goes into default.
A foreclosure specialist will offer quick, experienced real estate options for avoiding foreclosure. They can help owners to wade through the neverending paperwork to get out from under the mortgage. It’s good to have someone on your side during a tough loss like the one you face when you’re not able to cover your mortgage.
Though you’re probably new to this as a homeowner, this is their profession. A foreclosure company is above board, and they will spend time working to get a deal that works for you. Remember, you’ve still got your home as leverage. That’s an asset that people are willing to pay for. Leverage that asset!
Avoiding the worst case scenario
What you need to decide is what your worst case scenario looks like. You might be overwhelmed at the start of this process, but the more you learn, the more empowered you’ll feel.
Look for a company that offers a free consultation and will give you lots of options. Often, the worst case scenario is not nearly as horrible as you think it is.