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Sell your home

If you have lost your job, incurred a huge unexpected expense or are facing an uncertain economic future, and are behind mortgage payments, selling your home may be a great solution to avoid foreclosure.

A foreclosure is a lose-lose proposition for all parties involved. You lose your home. Your lender has to spend money to complete the foreclosure process. The value of neighbouring property falls.

The good news is that there are a few ways to avoid foreclosure. (CFPB)

Listing your home for sale pre-foreclosure is the best way to get the full market value for it. (FTC) This proactive approach will buy you time to find a buyer who can offer a premium price on your home.

You can try to sell your home after the foreclosure process commences but not after the completion of a foreclosure action. Many banks will slow the foreclosure process if you tell them you can sell your home and pay off everything you owe.

How Selling Your Home Works

Up until your home is sold at auction, you can clear the outstanding debt by selling it. (HUD)

Selling your home may seem easy, but there are procedures you need to follow.

Your home is probably your greatest asset. With so much at stake, you do not want to make impulsive decisions that you may regret later.

  • Find out approximately how much your home is worth – Several online tools will allow you to get a home value estimate in minutes. These tools compare the info you provide about your home to housing market data to better determine your home’s worth.
  • Calculate what you owe on your mortgage + any late fees – Contact your lender and ask exactly what you will owe if you decide to sell, so you can be financially ready. If you have already received notice of foreclosure, it means you have missed at least a few months of mortgage payments. When you sell your home, you will owe that money and any extra late fees. Mortgage lenders typically charge late fees 2 weeks after the first missed payment.
  • Get permission from your lender – Organize a meeting with your lender to obtain permission to sell your house. Find someone who calls the shots instead of talking to front-desk personnel who will possibly have to pass the decision to someone else. Explain to them why you’ve fallen behind with your payments.
  • Find a real estate agent – Even if money is tight, hiring a professional can benefit you in the long run. You will get a little bit less money when the sale happens, but the real estate agent’s commission is likely going to be insignificant compared to the benefits that they’ll offer you. You want a price as close to the money you owe on the home loan as possible, the agent’s commission, plus other sales costs. In addition to the principal, you will need enough money to pay any fees, penalties, and fees. The real estate agent can help you set an asking price.
  • Present the highest bid you get to your lender and ask for approval – If the lender forecloses and your home is auctioned off, the top bidder will assume ownership regardless of how low the bid is. So, a good offer may present an attractive alternative for the lender. Be ready to provide more details of your financial situation, proving that if the sale does not go through, there’s no way you can pay off the mortgage yourself.
  • Inspections and buyer contingencies.
  • Closing and moving out.
Pro Tip: Continue paying your HOA and city utilities even if you plan to sell your home. These are non-negotiable, even if you can’t pay your mortgage. In the unfortunate event that you lose your home to foreclosure, these bills will keep following you until paid.

If you’re debating whether to sell your home or just let the bank foreclose, here are some pros and cons on why selling your home to avoid foreclosure may or may not be a great option for you.

Pros of Selling Your Home to Avoid Foreclosure

  • Helps you avoid public auctions and loss of equity. Selling your home before foreclosure helps restore your family’s happiness and allows you to live life on your own terms.  
  • Sell as-is. Selling your home to a cash buyer often means that the purchase will happen quickly and without needing repairs, remodeling, etc.
  • More options to buy another home. While loan programs for people who have gone through foreclosure exist, they’re very limited. If you wish to own a home again in the future, selling your home to avoid foreclosure gives you access to more home loan programs.
  • Stay in control and reduce your stress. Selling your home will be much less stressful than waiting for the knock at the door telling you that your home has been foreclosed. By being proactive, you can stay in control of your move.
  • You will have more flexibility to set your own timetable and more control over the sale price. When your home is sold at foreclosure, the auction company, foreclosure attorneys, and lender are paid first. If there are any funds left over, that’s what you’ll get. By avoiding a foreclosure auction, the money that usually would go to the other parties would go to you.

Cons of Selling Your Home to Avoid Foreclosure

  • Risk of getting scammed if you sell on your own. Ask for proof of funds if selling to an individual. Have a contract lawyer go over the contract before you sign. And above all, follow your guts.
  • It may not assist homeowners who are underwater in their mortgage.

Who Is This Option Good/Not Good For?

If you’re out of work, behind on payments, and upside down on your mortgage, selling your home may make sense instead of foreclosure.

This may not be a good option if you’re not willing to sell and surrender your home to new owners.

How Much Can You Sell Your Home for Before a Foreclosure?

For as much as anyone is willing to pay for it!

This is great news if you do not owe a lot on your defaulted mortgage. If you owe $150k to your lender, and your home is valued at $400k, the difference belongs to you.

You’re only responsible for paying your lender the amount you owe, together with any interest that applies to the loan.

However, the truth is, no matter which real estate agent you choose to sell with, you’ll likely receive lower than full market value

This is okay, though. The goal is not to profit from the sale (even though it’s nice if you can). Rather, the goal is to pay off what you owe your lender. As long as you can cover what you owe (or at least most of it), you’ll be in a much better position than not.

How Long Does It Take to Sell A Foreclosure Home?

Generally, selling a home facing foreclosure isn’t much different than a traditional home sale. (NOLO)

The amount of time it takes a home to sell is all about the home’s condition, the local market, and pricing, not its foreclosure status. But when foreclosure is looming, you need to price to sell.

For instance, let’s say the home values in your neighborhood are between $600k and $650k. When you’re up against a ticking clock, you’ll want to list your home closer to $500k to attract more offers than other higher-priced homes.

When Is It Too Late to Sell My Home During the Foreclosure Process?

After the mortgage lender sells your foreclosed home at auction, you have a redemption period (typically between 6-12 months) to pay the lender in full to retain ownership of your home.

After this period, you no longer own the home and can’t sell it.

Works Cited

"CFPB." 9 9 2020. If I can't pay my mortgage loan, what are my options? <>.

"FTC." 6 2021. Trouble Paying Your Mortgage or Facing Foreclosure? <>.

"HUD." 13 11 2022. Foreclosure Timeline. <>.

"NOLO." n.d. How much time do we have to sell our house before we lose it to foreclosure? 13 11 2022. <>.

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