Can I Sell My Home Before Foreclosure?

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Homeowners facing foreclosure often ask a common question: can I sell my home before foreclosure?  As with all legal questions, the answer depends.

A lender brings a foreclosure to recoup the money owned on the underlining mortgage loan.  Paying off this debt is the simplest way to avoid foreclosure. If a homeowner can sell the home and satisfy the loan, foreclosure is avoided.

This, however, is dependent on the home selling for equal to or greater than the mortgage loan.  If the home is worth less than the owed money, the home is underwater.  To sell the property, the borrower needs the permission of the lender to do a short sale (where the lender accepts less than the amount owed on the loan).

If the homeowner has equity in the property (where the home value is greater than the amount owed on the loan), a sale of the home to avoid foreclosure is a possibility.  In such a case, the homeowner simply sells the home, pays off the loan, and pockets the difference from the sale.  This choice is especially good for homeowners with alot of equity in their home, but insufficient income to support a modified loan payment.

What is the worst thing that a homeowner with equity in their home can do? Let the home get foreclosed.  In a foreclosure sale, the homeowner collects the difference in money between the foreclosure sale and the amount owed on the loan.  For example, if the home sells for $500,000 and the homeowner owed $400,000 on the loan, the homeowner is entitled to the surplus: $100,000 (minus legal fees and other foreclosure costs).  While a homeowner is entitled to such a surplus (if one exists),  a foreclosure sale almost never collects the same amount as a regular home sale.  This is because foreclosed properties come with a “stigma”, resulting in a lower sale price than the market average.  Simply put, the risk of purchasing a foreclosed property prevents many potential buyers from considering these home, which limits the pool of buyers in a foreclosure sale.  If a homeowner has no options for saving the home, and has equity in the property, they should give serious thought towards selling the home and maximize the amount they can get from the sale.

When considering whether to sell a home to avoid foreclosure, timing is of critical importance.  If the lender has proceeded with the foreclosure process, the lender may not willingly stop the foreclosure: even if the homeowner truly is committed to selling the home.   I have seen some outrageous behavior from banks, who appear “hell bent” on proceeding with a foreclosure despite a homeowner’s ability to sell the home on their own.  Fortunately, there are options in such a scenario.  In such a case, seek the help of a foreclosure defense lawyer right away.  An attorney may help you stop the foreclosure and get the time necessary to sell the home.