Can I Sell My House While In Foreclosure?
Foreclosure can be a stressful and uncertain time for homeowners.
If you find yourself falling behind on mortgage payments and facing foreclosure, you might be wondering if you can sell your home to avoid foreclosure or recoup any equity you have built up.
The answer is yes. You can sell your house while in foreclosure - and you SHOULD.
In this post, I’ll explain what foreclosure is and how long the process takes. And I’ll show you how to sell your house quickly before the sheriff's sale.
What Is Foreclosure?
Foreclosure is the legal process that allows a lender to seize a home when the homeowner falls too far behind on mortgage payments.
When a homeowner defaults on their mortgage, the lender can begin the foreclosure process to take possession of the home and sell it to recover the unpaid debt.
The first stage of foreclosure is called pre foreclosure and it begins when the lender sends the Notice of Default (NOD).
This stage ends and the actual foreclosure process begins when the lender files the Notice of Trustee Sale and schedules an auction date.
At the auction, the home will be sold to the highest bidder, even if that is not enough to cover the remaining loan amount.
And if it doesn't sell, the bank will repossess it.
How Long Is The Foreclosure Process
The length of the entire foreclosure process varies by state, but generally takes several months to over a year to fully complete.
In some states it could take over a year if the homeowner contests the foreclosure in court.
Generally, the foreclosure process takes longer in “judicial foreclosure” states where a court is involved. It's a lot quicker in “non-judicial foreclosure” states where the lender can foreclose outside of court.
That said, after the Notice of Trustee's Sale is issued, most states require a minimum waiting period of around 20-30 days before the auction date.
Generally you would have about 2-3 months before the auction.
Also Read: Types of distressed properties
Can You Sell A Home While In Foreclosure?
Yes, you can sell your home while in foreclosure.
You can sell it at any point right up until the auction day.
And you SHOULD definitely sell the house. You can avoid foreclosure and salvage your credit if you sell the home for enough to pay off your mortgage.
However, you will likely need to sell for below market value since buyers know you are desperate to sell.
If you don’t sell it, you’ll lose your home. And a foreclosure stays on your credit report for 7 years so you won't be able to get loans, rent apartments, or get other forms of credit.
How To Sell A Home In Foreclosure
You can sell your home like you would normally sell a house, but since you only have a couple of months, listing it with a real estate agent might not be feasible.
The best course of action would be to sell to a cash buyer.
These investors can check your property's value and make you a fair cash offer within days.
Because they have cash on hand and no need for mortgage financing, the deal can close in as little as 7-14 days.
Let me break down the process step by step:
Also Read: Calculate Distress Value Of Property
Get An Offer
The first step is to reach out to a cash buying company and give them some basic details about your home's size, condition, location, etc.
They will schedule a walk-through and do a quick inspection and put together a concrete cash offer obligation-free.
Cash buyers' offers are based on comparable recent sales in the area and the repairs. And there's no need to list, show, or market the home!
You can choose to accept, reject or negotiate the offer.
Notify Your Lender
If you accept the cash buyer's offer, the next step is to contact the lender immediately.
Most banks and lenders strongly prefer to avoid the foreclosure process if possible, as it is costly and time-consuming.
When you present them with a committed cash offer and buyer, they become motivated to pursue a short sale instead of foreclosure.
Even a short sale allows them to get the debt paid off for less than the total amount owed.
Your lender will want to review and approve the buyer, the purchase price, and other details. But if approved, they can cancel the scheduled foreclosure auction and pave the way for a fast closing.
Close The Sale
After you get the lender's approval you can go ahead with the deal.
Cash buyers aren't bound by lender underwriting timelines and red tape. They handle all the paperwork and procedures for the closing.
And there's no need to pay any agent commission fees - which will save you thousands.
At the closing, proceeds go to pay off the remaining mortgage balance, with anything extra will go directly to you.
But you will have to walk away without a home.
Also Read: Selling A House With A Tax Lien
Bottom Line
Selling a home in foreclosure is still possible even after you receive the sale notice.
While not an ideal situation, it does give homeowners an option to avoid foreclosure, save their credit and potentially transition out of a home they can no longer afford.
FAQs
How Much Will A Bank Sell A Foreclosed Home For
Banks will look to recover as much of the loan amount as possible. They will generally set the opening bid amount to the approximate loan balance.
If no one bids higher, the bank will take ownership and look to resell it.
Many foreclosed homes sell for far less than market value. Bank owned property could sell for 5% - 50% below market value.
Can I Stop My Foreclosure Process Once It Starts?
Yes, you can potentially stop the foreclosure process even after it starts, although the closer you get to the auction date, the fewer options become available.
You can stop it by paying all the missed payments along with late / legal fees. Or you can sell the house.
You could also try to negotiate an alternative, such as a repayment plan, with the lender.
Will I Still Owe Money After The Foreclosure?
Yes, you may still owe money after a foreclosure in some cases.
If your home sells at foreclosure auction for less than what you owed on the mortgage, the remaining balance becomes a deficiency debt that you still owe to the lender
In some states, lenders have options to pursue this debt.
Can You Sell A Foreclosed Home?
No. You no longer own the property. The new owner, whoever bought it at the auction, has legal possession and the right to occupy or sell it.