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Can I Sell My House If I'm Behind on Payments
When facing financial instability while paying for a mortgage loan, homeowners usually seek mortgage forbearance or a loan modification. But in cases where the missed payments have already piled up, it can be tough to negotiate with the mortgage company. This is when most people decide to sell their property to pay what they owe.
It is possible to sell a house even when the owner is behind on mortgage payments as long as it is not yet foreclosed. If the homeowner is really financially distressed, the lender may agree on a short sale. However, if the house has enough equity, an alternative is selling to a cash buyer or real estate investor since they purchase houses as-is and process sales faster.
To learn more about selling a house when behind on mortgage payments, continue on... We cover everything you need to know, from your options when selling to other alternatives to putting your house for sale.
Can I Sell My Home If I'm Behind on Mortgage Payments?
Yes. You can sell your home even if you are behind mortgage payments so long as it is not yet foreclosed and already at auction.
In fact, putting a house for sale before foreclosure has become a common real estate transaction since more and more individuals and families are falling behind on their mortgage payments.
To illustrate, in 2021, the Consumer Financial Protection Bureau (CFPB) reported that 2.1 million families in the United States alone are at least three months behind on paying their loans. That translates to around $90 billion in debt to real estate lenders and possibly thousands of short sales.
Before we proceed to discuss how you can go about selling your house, whether through a short sale or other means, it is crucial that you understand what happens when you miss paying your monthly mortgage payments.
Pre-Foreclosure Process
When you take out a mortgage loan, your property assumes a lien. In other words, if you fail to pay the agreed-upon amount, the mortgage servicer, bank, or lender will legally take ownership of your house and, almost in all cases, sell it to recoup their losses.
This can significantly damage your credit report and impact your chances to qualify for another mortgage.
Although the foreclosure process varies from state to state, here's how it generally works:
1. Default
If you missed your mortgage payments three months in a row, the lender would inform you that you're in default and give you a chance to catch up on your loan.
2. Public Notice
If you fail to pay, the mortgage lender files a notice of default or foreclosure notice in the county clerk and declares intent to sell your house. The foreclosure process would then commence.
3. Foreclosure
Foreclosure usually spans from 90 to 120 days, depending on the state. This is when it is most ideal to sell the property to a cash buyer or opt for a short sale.
4. Auction
If you did not ask the mortgage lender for new payment arrangements or you didn't sell the house through a short sale or a cash buyer, the property will be sold in an auction and the mortgage servicer will keep the money earned.
5. Post-foreclosure
Failure to move out will result in being evicted from your property usually 30 days from the auction.
Selling a House When Behind on Payments
Many homeowners who are being foreclosed on by lenders wait to sell the house. However, homeowners who act with urgency can sell the house before auction and use the proceeds to pay for their mortgage debt.
Selling a house when behind on your mortgage payments is not as daunting as it may seem— it only becomes difficult when a homeowner doesn't have an idea regarding real estate sales.
To help you navigate a home sale when you're behind on payments, here are your four main options:
1. Sell to a Cash Buyer
Selling to a cash buyer or real estate investor is probably the fastest way to sell your home to avoid foreclosure. Cash buyers are known to purchase houses in as fast as seven days, so you immediately get the money in your bank.
They also cover closing costs and other processing fees— another reason why they keep on dominating the real estate market.
Here's a detailed list of reasons why you should consider selling a house to a cash buyer:
- Fast and Flexible Closing: Selling off-market to a cash buyer means you get to pay your mortgage balance to the bank immediately. Most homebuyers close in less than two weeks. Meanwhile, selling a house on the real estate market can take 49 to 79 days on average. This can take longer when you are behind on your mortgage payments and facing foreclosure.
- No Appraisal: A traditional house sale requires an appraisal for mortgage companies to determine if the purchase of the property is worth financing. Cash buyers remove appraisal from the equation, which means a faster sale timeline and fewer expenses.
- No Repairs Needed: If you're behind on mortgage payments due to a hard financial situation, the last thing you want to spend money on is house repairs and renovations. Luckily, cash buyers purchase houses as-is, eliminating the cost of expensive repairs.
- No Marketing and Showings: Since selling to a cash buyer is direct, you won't have to list and market the property on the MLS as well as schedule showings. This saves you time, effort, and money.
- No Agent Commissions: There is no need for a real estate agent when you request a fair cash offer. This means you won't have to pay a 6% real estate agent commission.
- Less Paperwork: Selling a house on the traditional market would require you to deal with a lot of paperwork. Fortunately, since you're selling directly to a cash buyer, they'll handle almost everything for you and that includes paperwork.
- More Certainty: There is less uncertainty when selling to a cash buyer since they don't rely on financing. Remember, these prospective buyers have cash on hand, so they can really help you avoid foreclosure, unlike retail buyers who still need the approval of mortgage lenders.
5 Steps on Selling a House to a Cash Buyer When You're Behind on Payments
Now that we've gone over the perks of selling your home to a cash buyer when you're behind on your mortgage, let's talk about the steps to get you started.
1. Request a Fair Cash Offer
Requesting an offer from a cash buyer is simple. You just need to search for cash home buyers online and visit their website or give them a call. They'll typically provide you with a no-commitment offer.
Ask several cash buyers for an offer if you have time before foreclosure and don't just settle with the one closest to the estimated fair market value of your home. Make sure they can actually close on your property before auction and are a reputable cash buyer.
2. Home Walkthrough
In order to make an accurate offer, the cash buyer may want to visit your home. They'll check for any repairs or improvements needed, especially structural ones. Note that they won't ask you to make any repairs since they buy houses as-is.
3. Select a Move-Out Date
If you're selling a house because you're behind on loan payments, you probably want to get rid of it fast. However, most cash buyers won't close on your property until you vacate it. Thus, select a move-out date and communicate it to your cash buyer to speed up the sale.
4. Review and Sign the Contract
If you accept a cash offer, the cash buyer will electronically provide you with a contract. They'll give you time to review the terms and ask questions. If everything is clear, you can sign the contract to make the home sale official.
5. Real Estate Closing
During closing, you would need to review and sign some paperwork. Once done, your house will be officially owned by the cash buyer and you'll receive the payment in your bank. You can then use the money to settle your missed loan payments, including late fees.
2. Short Sale
A short sale happens when a homeowner is in a difficult financial situation due to job loss, health issues, or other reasons and sells their property for less than what they owe their mortgage servicer.
Most lenders forgive the remaining mortgage balance and accept the loss to remove the hassle of foreclosure in a short sale. However, there are also cases when they get a deficiency judgment and ask the homeowner to pay the remaining balance once the short sale is over.
Typically, a home goes into a short sale when its value is less than what the owner owes and the homeowner has proven financial hardship through a proof of income/assets or a hardship letter.
A short sale can take a few months as it involves a lot of processing on the bank's end. Generally, though, the homeowner should submit the following in a timely fashion for a short sale to be approved:
- Comps or comparative market analysis of your home
- A hardship letter
- Tax returns from the past two years
- Payroll stubs
- Income statements
- Bank statements
- W-2s from the past two years
- Request for mortgage assistance or financial statement
- Medical bills (if applicable)
3. Sell with a Real Estate Agent
If you're still far from facing foreclosure (i.e., you just had your first missed payment) and the real estate market in your area is hot, you may consider selling your house with a real estate agent.
Selling property traditionally can possibly land you better offers since the buyer pool is larger. Agents will be able to sell your house for a fair price even when you haven't paid your mortgage in months.
The downside, however, of selling your house with a real estate agent and listing on the traditional market is that you would have to go through appraisal, inspection, repairs, and improvements like amping the curb appeal, etc.
You would also need enough money for staging and cleaning. These are expensive to keep up with and can be an additional burden to you financially while facing pre-foreclosure.
4. Sell For Sale by Owner (FSBO)
To avoid commission fees and gain as much money as possible, many homeowners try to sell their property on their own. While this may work for some, in most cases, this leads to failure in selling the house.
Alternatives to Selling Your Home When Behind on Payments
Although you're already thinking that selling your home is the only solution when you're behind on your mortgage payments, you actually have a few options to get back on track and avoid pre-foreclosure. They are the following:
Mortgage Forbearance
Mortgage forbearance is a short-term relief or an "extended grace period" provided by the lender to the homeowner when they owe money for monthly payments.
In other words, your mortgage servicer won't collect payments from you for a certain period until you can get your finances in order.
This can last from months to years, depending on what you have agreed upon with your lender.
Loan Modification
A loan modification is an agreement with your lender or bank to change the terms of the mortgage loan, so you avoid foreclosure. They may extend the length of payment of your loan, lower the interest rate, etc. This can help you avoid damaging your credit report.
To receive a loan modification, you must file a request for mortgage assistance and submit some financial documents. These include your pay stubs, income statements, monthly mortgage statements, bank statements, utility bills, etc.
Chapter 13 Bankruptcy
If you are a wage earner and experiencing financial difficulties, you can file for Chapter 13 bankruptcy in your local bankruptcy court. This is a last resort alternative if you are facing foreclosure as it negatively impacts your credit significantly.
Chapter 13 bankruptcy or the wage earner's plan allows you to pay your lender or bank in installments within three to five years.
According to the United States Courts, the most significant advantage of filing for Chapter 13 is that it saves houses from foreclosure. Check with your local bankruptcy court if you can still qualify for this relief.
Final Thoughts: Can I Sell My Home If I'm Behind on Payments from Mortgage Lenders?
Letting go of your property when facing financial distress is definitely heartbreaking. However, selling your house and downsizing when continuously behind on payments can save you from bigger headaches down the road such as losing your home to foreclosure.
If you are not granted mortgage forbearance or a loan modification doesn't make sense in your situation, you can start looking for prospective buyers. Prioritizing investors or cash buyers can make the home sale process faster and a lot easier compared to working with a real estate agent.
Here at Sell My House Fast, we'll buy your house fast and won't charge you any fees or extra costs. What's more, we won't ask you for any repairs and renovations, so the money you get at closing can potentially cover your debts!
To get a fair cash offer today, fill out our form below or contact us at (844) 207-0788 to learn more about selling your house when behind on payments.
