Think it’s too late to sell a house once it’s in foreclosure? Think again.
A house is the biggest purchase that most people will ever make, and it’s a process that generally takes years of saving and building credit to make happen. Though people tend to think that getting a foreclosure notice means you’re out of luck, the great news is that it’s not the end!
To know how to sell a house during foreclosure, you first should have a grounded understanding of what the whole thing looks like. There is a definitive point at which you can no longer sell your property in foreclosure, but up until then it’s possible to work with a we buy houses company, a cash buyer, or even a traditional real estate agent. Pulling the your home back from the brink gets you back some of the equity you put into it. When you’re in financial trouble, it’s always a good idea to get legal advice for how to deal with a mortgage company.
Types of foreclosure
There are two different types of foreclosure – non-judicial and judicial. These are exactly what they sound like. A court proceeding oversees judicial foreclosure. The lender or other foreclosing party files a lawsuit that starts the gears turning. In non-judicial foreclosure, the lender follows a proscribed series of steps that are built into the laws of that particular state.
Some states have both options, and some states only have judicial foreclosure. Generally, one state has one kind or the other that is more common.
Depending on the state you’re in, you could also be subject to a deficiency judgment. This means that you’ll have to pay the balance of the mortgage after the lender sells the home. For instance, if your home sells at auction for $70,000 but you still owe $100,000 on the loan, then the lender can come after you personally for $30,000.
Federal laws surrounding foreclosure
Did you know that there is no deadline set in stone for the time between a missed payment and foreclosure proceedings? All fifty states have slightly different processing times. Federal guidelines mandate how long you have to bring mortgage payments up to date before you are in danger of having a piece of real estate foreclosed on.
United States federal laws protect homeowners from being foreclosed on too quickly. For most homeowners, there is a minimum of 120 days between the first missing house payment and the lender being able to initiate a foreclosure proceeding. That’s roughly four months, and any mortgage payment that you make during those months extends that timeline.
Financial hardship is a common problem that affects many homeowners, who find themselves either having to declare bankruptcy, come up with a plan to pay the balance remaining, or go through the short sale process. Unfortunately, a foreclosed home is not going to go for market value.
Steps in the foreclosure process
There are many steps in foreclosure, and it only starts with that official notice that the mortgage lender has moved to start proceedings. Here are five steps in the foreclosure process.
1. Default
The homeowner misses mortgage payments for three months. This is the first step in the pre-foreclosure process and it’s the first red flag for someone facing foreclosure.
2. Notice of default
After 90 days of missed mortgage payments, the lender sends a notice of default to the homeowner. This actually a public notice that gives the homeowner thirty days to catch up the loan.
3. Notice of trustee’s sale
This is where things take a turn towards finality. The lender, in conjunction with their attorney or a trustee, schedules a sale of the property. This sale doesn’t usually happen for two or even three months.
4. Trustee’s sale
The property sells in this auction. The highest bidder who can meet the requirements of the foreclosure sale will get the property. Note that, depending on the state, offers from competing buyers push the final date of the trustee’s sale out for months before the final sale.
5. Eviction
When the sale is complete, the homeowner now faces eviction from the home. An eviction notice mandates that the individual leave the property immediately. At the time of the final eviction, a law enforcement officer will often go to the home to ensure that the former homeowner removes all of their belongings and exits the property.
If bids on the property do not reach the minimum amount owed on the mortgage, the property becomes “bank owned” or “real estate owned”, which means that the lender takes possession of the property.
Date of sale is the end of the line
A homeowner can make an arrangement with the lender to pull the house out of foreclosure all the way up until the final sale date. This means that they can find some way to get the money together to pay off the past due mortgage amount and keep the house, or they can sell the house to another party.
If a homeowner gets a new job or has some other new stream of income, the lender can work with them to extend the deadline for foreclosure through loan modification to repay the remaining mortgage debt. Keep in mind that it’s in the best interest of the lender to keep the homeowner in the house. Foreclosure generally represents a loss of money and time for the bank. There is no guarantee they will get the full amount of the mortgage on a piece of real estate in a foreclosure proceeding.
Pre-foreclosure specifics
Cash buyers can pay off the mortgage amount all the way up to the auction date. Potential buyers are willing to pay cash for foreclosed real estate, which can help to mitigate the negative impact on the credit score of a homeowner facing foreclosure.
Pre-foreclosure goes all the way up to the moment that the mortgage lender actually transfers the deed out of the name of the homeowner who can no longer afford to pay the remaining balance or even just catch up on delinquent payments. Sale proceeds from selling a piece of real estate to a bank or third party will go to pay legal fees and foreclosure costs as well as going directly towards the remaining balance owed to the mortgage lender.
Sharing financial information or writing a hardship letter can make it easier for a mortgage to stay in preforeclosure and prevent an unwanted change in ownership. Even if the homeowner is not able to maintain ownership of the home, in most cases they can at least get a market value for the property.
What is a short sale?
A short sale is when a homeowner sells the home that they own and the money goes directly to the bank. This kind of sale doesn’t always cover the total amount of the mortgage, and the homeowner can be expected to cover the balance if it doesn’t. A deficiency judgment can be awarded to the lender if the short sale doesn’t cover the amount of the remaining loan on the property.
Working with a real estate agent or an attorney can help you to navigate a short sale, and it’s possible to save money when you avoid foreclosure with this method.
Once a person decides to go for a short sale to avoid foreclosure, then they have to find a buyer for the home. A real estate agent can help to find a potential buyer, or we buy houses companies can let you know what options they offer for getting a short sale on a home. Getting a cash offer for the price of the mortgage is a great way to avoid foreclosure.
Remember, with a short sale to pull the homeowner out of foreclosure, only expect to get back the money owed on the home.
Work with your lender to avoid foreclosure
Just as a homeowner worked closely with their lender to get the original loan on the home, so too must they work closely with their lender to pull the home out of foreclosure through a short sale. Be careful about giving too much personal information to the lender, however, as this can be used against the homeowner in the case of a default.
Reach out to your home lender to find out what options you have to sell your home during foreclosure. They have much more latitude than most people realize to alleviate foreclosure. A great short sale can be a much better solution for a lender than sending the property to auction!
The bottom line here is that if a lender agrees to stop foreclosure because of a solution to sell the house fast, as is, and at a fair market price, then both the homeowner and the mortgage lender come out on top. The foreclosure process can be intimidating, but it doesn’t have to end badly.
