Selling A House In Foreclosure
Facing foreclosure of a property is downright stressful, especially if you’re facing financial hardship due to job loss, divorce, medical bills, or the death of a loved one. While it seems that there’s nothing you can do, you can actually sell your house in foreclosure before it goes to auction.
Selling a house during the foreclosure process is possible, but the lender and the bank should be informed. In most states, the bank cannot foreclose a property if it has a legitimate offer. The homeowner should prove that such a cash offer exists and arrange for closing as soon as possible.
There are a lot of benefits in selling your property in foreclosure as opposed to letting the bank sell it in an auction. If you want to learn about this and more, stick with us until the end of this guide!
What is Foreclosure?
Foreclosure means the mortgage company has obtained ownership of your house through a legal process–in short, the bank repossesses your house. Foreclosure happens when you fail to pay your mortgage, which is a violation of the loan.
Once a house is foreclosed, the lender then sells it to recoup the property’s losses. This has a number of consequences, including:
- Home Eviction: The most difficult impact of foreclosure is the loss of a home. It means you may have to start from scratch, including any equity you had already established.
- Credit Score Damage: If you lost your property to foreclosure, you would find it difficult to get a new house, credit, or even a job.
- Deficiency Balance: When the proceeds of the foreclosure aren’t enough to pay the entire mortgage, there would be a deficiency balance. The lender may sue you in order to collect this remaining payment.
The Timeline of the Foreclosure Process
To understand how to sell a house during the foreclosure process, we must first talk about the foreclosure timeline. Generally, this process has six phases, according to Forbes.
Phase 1: First Missed Payment
When a homeowner misses a payment, the lender could give a grace period of 15 days. If the homeowner fails to pay during the given grace period, they will pay an additional late fee.
Lenders who are more rigid with their contracts may also report the delay in payment to related credit bureaus.
Phase 2: Default
Continuously missing mortgage payments would put a homeowner into default. Usually, lenders consider a homeowner as default if they fail to pay the mortgage after 30 days.
Once in default, the succeeding steps will depend on the type of foreclosure process the homeowner is in. It can either be judicial or non-judicial.
A judicial foreclosure process takes place in the state’s court system because the mortgage agreement doesn’t have a “power of sale.” Meanwhile, a non-judicial foreclosure process gives the lender the power to foreclose a property without a court order.
Phase 3: Notice of Default or Foreclosure Lawsuit
If the foreclosure is non-judicial, the homeowner will receive a Notice of Default (NOD) which states how much needs to be paid, including the mortgage, late fees, and even foreclosure fees. The homeowner will be given 90 days to repay what you owe.
If the amount cannot be paid, the homeowner can ask the lender for a new repayment agreement.
In judicial foreclosure, a foreclosure lawsuit is filed by the lender. The homeowner must respond to this immediately unless he wants the judge to grant a default judgment in favor of the lender.
Once a response has been made, the case would go to trial and the homeowner can seek legal advice.
Phase 4: Pre-Foreclosure
The time between the issuance of a Notice of Default to the homeowner and the house’s foreclosure auction is called pre-foreclosure.
During this period, the homeowner can pay what is owed or talk to the lender about a possible relief plan or special payment to avoid foreclosure.
If the homeowner doesn’t have enough money to pay or the lender does not approve a new repayment agreement, a good alternative is selling the property. In fact, selling the house during this period is highly recommended.
Phase 5: Notice of Sale
When the homeowner fails to pay what is owed during the pre-foreclosure process, the lender will publish a Notice of Sale in the local paper. The time of the Notice of Sale to the actual foreclosure auction can span from two to three months, but most often, it is shorter.
The homeowner can still sell the property during this period, but obviously, time is of the essence to avoid foreclosure.
Phase 6: Eviction from Home
The homeowner will be issued an order to leave the house once it has been foreclosed. Typically, all the occupants of the property would only be given a few days to vacate it.
If they refuse, the local authority or sheriff will have to ask them to leave and impound their belongings if they still won’t budge.
Can You Sell a House in Foreclosure?
Yes. You can sell your home in foreclosure, but unlike selling a typical property, you are bound by time constraints considering the bank wants paid.
Selling a house while facing foreclosure has many advantages, and they are as follows:
- Your credit report won’t have a foreclosure record. Usually, a foreclosure stays on your credit record for seven years. That means you will have difficulty securing loans— a huge problem if you need money for medical procedures, etc.
- You can buy another property sooner. If you have a foreclosure on your credit history, it would be difficult to apply for a new mortgage. Selling your home would help you avoid this and you will secure new housing right away.
- There won’t be any deficiency balance. As mentioned earlier, the bank may ask you to pay for a deficiency balance if the proceeds of the property couldn’t cover the mortgage and other fees. If you sell your home during the foreclosure process, you’ll get enough money to pay the mortgage, especially if you hire a great real estate agent.
Note, however, that when you sell your home while facing foreclosure, everyone has to be on board. By this, we mean that if you have a co-owner, the decision should be made by both of you, not just one person.
Also, you have to ensure that you have realistic expectations when you sell your home.
The goal is to pay off what you owe to your mortgage company by selling the house. But if the market value of the property is way less than what you owe, you may still face problems even after the sale. This is when you can explore a short sale. We discuss a short sale later in this article.
How Much Time Do You Have to Sell Your Home Before Losing it to Foreclosure?
We cannot exactly measure the time you have before you lose your property to foreclosure because it would depend on several factors such as your loan servicer, the type of foreclosure process (whether judicial or non-judicial), and the state’s specific rules.
However, in most cases, it takes six months to a year to complete the foreclosure process. If you can market and sell your home before auction, you have a higher change of receiving a great offer.
How Long Does it Take to Sell a Home in Foreclosure?
How long it takes to sell a home in foreclosure is similar to the timeline of selling a typical property. If the real estate market is hot, homeowners can sell their property in a few months or less.
However, you have to remember that the timeline of selling a property is affected by several factors, not just the real estate market in your area.
The state of your property, the neighborhood, the skills of the real estate agent who’s helping you, etc., can also significantly impact the sale.
Nevertheless, here’s what to expect from the process with an agent: determine your home’s fair market value, set a price, market the house, negotiate an offer, and close the deal.
The only difference is that when you sell your house in foreclosure, you have to notify your lender that you are selling it and that you actually have an offer. You must prove this to show your lender you are not just delaying foreclosure.
The Process of Selling a House in Foreclosure
Now that it’s clear that you can avoid foreclosure by selling your house, you should focus your time and energy on the actual sale. Given that the process is similar to selling a typical property, if you’ve sold a house before, this will be easier for you.
Here’s what you need to know about selling a property before it is foreclosed.
1. Find Out How Much the Home is Worth
To find out how much your property is worth, the best step to take is to have it appraised. But if you cannot find an appraiser given the time constraint, most homeowners suggest using online tools or asking for the help of a real estate agent that is well-versed in the financial aspects of home selling.
2. Set an Asking Price
Based on the appraised market value of your property, set an asking price. Note that this is not as easy as setting a price of a typical home.
For starters, in order to profit you must ensure that the price covers your unpaid mortgage payments, interest, and late fees. There are also the fees associated with selling a property like house repairs, staging, agent commissions, and closing fees, etc.
It’s better to set a fair asking price and potentially sell at a loss than to go too high and not sell at all.
3. Notify the Mortgage Lender
While it is difficult to talk to your lender during foreclosure, you must still notify them that you’re planning to sell the property and you’re already in the process of finding a buyer.
Most of the time, lenders support homeowners during property sales because it is much less work for the lender to have the owner sell the home before going to a foreclosure auction.
In states like California, there is a bill that prevents the bank from foreclosing a house if it has a legitimate offer. The homeowner will be given an additional 30 days to sell the house. Check the foreclosure laws in your state.
4. Find a Real Estate Agent or Sell it by Yourself
After you’ve notified your lender, you can seek the help of a qualified real estate agent or find a buyer by yourself. We recommend finding an agent or working with a cash home buyer since the sale is under time pressure.
5. Get an Offer and Negotiate
Unfortunately when your property is facing foreclosure, there is not much wiggle room for negotiating. Not only are you on a tight timeline, you are facing an auction where you may make nothing on the house.
Do not wait to reach out to companies that buy houses for cash. Get multiple cash offers from reliable home buyers and compare not just on price but the services included such as closing costs covered, as-is sale, and no fees.
6. Let the Lender Know That You Have a Buyer
Once you’ve landed a cash offer, call your lender immediately and inform them so you can avoid foreclosure. As mentioned, the foreclosure will not proceed if the home has a legitimate offer.
Lenders are willing to let you sell your house if you have proven that the sale will cover the mortgage payments and late fees. The bank just wants to gain back their money and avoid the hassle of going to auction, so a cash offer is a win-win for everyone.
7. Close the Property Deal
When you have already notified your lender, you can close the deal with the buyer, declare to the bank that the home is sold, and pay what you owe the lender.
If you are fortunate to receive a high cash offer, you may walk away with extra cash to start over. This is more likely when you start looking for offers sooner rather than later.
Challenges When Selling a Home in Foreclosure
Selling a house in foreclosure may be easy for some and hard for others due to several factors. It is crucial that you learn about the potential challenges you might face along the way so you can deal with them without taking much time.
The Owner is No Longer Living
Are you inheriting a property that is being foreclosed on? This situation can have many nuances depending on the probate process in your state. You may need to speak with multiple attorneys who can assist with legal matters related to both foreclosure and probate.
The Home is Tied to a Litigation
Another problem you may encounter if you want to sell the house in foreclosure is the possibility that it is tied to litigation— for instance, bankruptcy.
The timeline of the legal process for bankruptcy can be hard to predict, so the sale won’t be able to proceed right away. This will also be the case if the property is used as a lien.
The Owner is Selling Alone
Unless you are a real estate agent yourself, don’t try to sell your property For Sale by Owner. There are many hoops your property needs to go through before it is sold and doing it all alone with the pressure of possible eviction is overwhelming.
If you really want to sell the property fast, avoid any repairs, and not worry about closing costs, work with a real estate investor who offers cash for houses.
5 Options Other Than Selling a Home in Foreclosure
If you’re facing financial hardship but don’t prefer selling your home in foreclosure, you actually have a lot of options like a short sale, loan modification, or refinancing. Often, selling is the last resort of homeowners when all the options below aren’t possible, except for short sale.
1. Paying Missed Payments
You can get out of default if you pay what’s due. This includes interest, late fees, and penalties aside from the missed mortgage payments.
If you can find a way to get the money despite the financial hardship or bankruptcy you are going through, you’ll save yourself from all the hassle.
2. Loan Modification
Before thinking of selling your house to avoid foreclosure, talk to your lender for a possible loan modification. The lender may lengthen the term of your existing loan and shorten the rate, defer parts of your payments, or give you other options to help you pay back the loan.
This could delay your eviction, but make sure you submit the loan modification form at least 45 days before the foreclosure auction date.
3. Refinancing Before Foreclosure
If your lender agrees, they could replace your current mortgage with a new loan so you won’t lose your property. However, refinancing must occur before foreclosure.
You can expect changes in the loan structure, which can save you money. The new mortgage may have a lower interest rate and longer term. You may also be allowed to cash out any equity.
4. Get a Deed in Lieu of Foreclosure
Getting a Deed in Lieu of Foreclosure could turn over the ownership of your property to your lender.
This will absolve you of your debt and save your credit score because your property won’t be foreclosed. However, despite not having to make any payments, you would still lose your property.
5. Short Sale
A short sale means selling your home for less than what you owe your creditor or lender. This is allowed when your lender accepts that they won’t recover from the outlay since you are really experiencing financial hardship and the market value of the property is really worth less than what you owe.
Although the short sale would still impact your credit history, it would help you avoid foreclosure, which has a bigger impact.
If you want to learn more about this, contact an attorney that specializes in the short sale process.
Related Foreclosure Questions
1. Can I Sell My Home in Pre-Foreclosure?
Yes. You can still sell your home in pre-foreclosure. In fact, this period is highly suggested when it comes to selling your home since there are still a few months before the foreclosure auction.
You won’t be pressured to take offers under your asking price because you still have time to entertain other offers or negotiate.
However, if your home’s market value is far below what you owe, you can opt for a short sale.
2. Will I Still Owe Money When I Sell My House in a Foreclosure Auction?
Yes. It is possible to owe the lender some more money even after foreclosure and it is called a deficiency judgment. This is if the sale proceeds did not cover the entire mortgage payments, interest, and late fees.
Depending on the state you’re in, the bank may sue you to recover the deficiency. However most lenders avoid suing their borrowers due to the costs of filing deficiency lawsuits.
If in case the bank files a lawsuit and you cannot pay the deficiency, they can place a lien on your assets, come after your wages, or even freeze your bank account.
To avoid these things from happening, you can talk to the lender for a possible repayment agreement or declare bankruptcy. We recommend speaking with an attorney to make the right decision in your financial situation.
3. Can I Sell My Home in Foreclosure to Cash Home Buyers?
Yes. You can sell your home in foreclosure to a cash home buyer, but you’ll receive a lesser cash offer compared to selling it through a real estate agent. In exchange for an offer below market value, you will be able to sell fast (as short as 7 days) and sell as-is meaning no repairs.
When facing foreclosure, an offer from a buyer that covers the mortgage and provides you with some cash, is a great deal.
Transactions with investors and cash home buyers are fast and hassle free. You’ll be able to sell your home before the foreclosure auction if you start getting offers from buyers today.
Key Takeaways: Can You Sell a House in Foreclosure?
There is no rule that prevents you from selling your house in foreclosure; however, the process is more complex compared to selling a typical property since there is a short deadline.
That said, once you receive a Notice of Default, you must take action immediately (that is, if you know you cannot pay the bank what you owe due to potential bankruptcy).
Get the contact info of an expert real estate agent and give him a call— this increases your chances of receiving a competitive cash offer. Don’t wait until it’s almost the date of the foreclosure auction before searching for home buyers.
If you don’t have much time left until the auction, you can reach out to us here at Sell My House Fast. We have helped many homeowners avoid foreclosure right before auction by offering cash for their house (our offers are free). Fill out the form below or call us at (844) 207-0788.
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Author: Andy Kolodgie
Andy Kolodgie is an experienced real estate investor with a network that expands nationwide. As owner of Sell My House Fast, Andy’s goal is to provide home sellers with more options to their real estate problems than a traditional home sale. He’s been featured on multiple publications including Yahoo Finance, MSN, HomeLight, Credit.com, Apartment Therapy, Business.com, LegalZoom, Zolo, and Creditcards.com.