Is it possible to sell a house in foreclosure? If so, what options are there? How does it work? What are the best ways to do it? We cover every question you may have related to selling a home while in foreclosure.
Being in foreclosure can be an incredibly stressful situation. It happens. It has happened to millions of American households. What is more important, is what you do once you find yourself in foreclosure. There is hope. Yet, there are also many dangerous pitfalls. So, if you are in foreclosure, or fear you may end up there, what can you do? What should you do?
Foreclosure is a legal process by which a creditor attempts to collect on a debt, or recover what they can from a pending loss.
The most common form of foreclosure we hear about is house foreclosures. Specifically, when a borrower fails to make their loan payments. These are what reportedly made up the bulk of the foreclosure crisis of 2008. Millions of homes were lost in foreclosure during this period. Though experts point out there is always some level of default rate.
While the most well-known form of foreclosure is failing to make mortgage payments on time. There are actually a wide variety of ways that homeowners can find themselves in foreclosure, such as delinquent property taxes, condemned properties, condemned properties, Liens, and fraud. For this article we’ll focus on the most common foreclosure type: mortgage defaults.
What Happens if My House is in Foreclosure?
Foreclosure can be scary. What’s worse is not understanding the process. Or even ignoring the warnings and help to solve it early.
Foreclosures work differently in different states. There can also be slight variances depending on the number of foreclosures happening, why you are being foreclosed on, regulatory changes, and the position that lenders are in.
In most cases you will receive several warnings. If you are late on paying your mortgage payment, you can bet your lender and loan servicer will make multiple attempts to reach out and let you know. They’ll send you mail, email, and call you on the phone. They may even stalk you by text message, voicemail, send out inspectors, and hunt you on Facebook.
If you have a residential home mortgage on a house you live in, you will have 30 days from your payment due date before things really begin to snowball. After that, your credit will start to be impacted, and your options will begin shrinking. After this you may get letters from attorneys representing the lender. With each letter you will have been accruing back interest, late fees, and attorney’s fees on top of that. You will typically have 90 days before a Notice of Default (NOD) is filed with the courts, and the foreclosure process really kicks in.
What happens next can generally be broken down by the state in which you live. There are ‘judicial states’ and ‘non-judicial’ states.
Judicial vs. Non-Judicial Foreclosures
According to the Mortgage Bankers Association judicial foreclosure states include:
- New Jersey
- New Mexico
- New York
- North Dakota
- South Carolina
The foreclosure process in judicial states
The judicial foreclosure process is typically notoriously longer than in non-judicial states. The exact time it takes can vary widely, depending on how desirable the property is for the lender to take, the financial condition of the lender, current regulations, and court backlogs.
Once a borrower is late on their mortgage payment, they will begin getting notices from loan servicers. Once the loan becomes 30 days late, it will be reported to the credit bureaus. Expect attorney letters to start coming in. Fees and back interest begin to mount up.
This begins to snowball through the 90-day market. Since the crisis of 2008, and the new pressure it put on lenders, the actual court case to pursue foreclosure may not be filed until this 90 -day point. Sometimes it may be longer. Yet, it is a huge mistake to try and guess. Expect it to happen swiftly.
The court will approve the filing, and a date will be set for the foreclosure sale. The property goes to auction. If no one bids higher than the lender, they will take possession of it, and be issued the title.
If you haven’t already moved out, the sheriff will have the job of evicting you, and removing your belongings from the property. This is not a pleasant experience.
These are found in:
- New Hampshire
- North Carolina
- Rhode Island
- South Dakota
- West Virginia
The non-judicial foreclosure process
Non-judicial foreclosures are much faster. They don’t have to wait to go through the court process. Once borrowers receive a notice of default (NOD), and the notice of trustee sale, the property goes right to auction. If you can’t catch up before the auction, the bank may get possession of the property, or another third party may bid and win it, and the deed.
Deficiency Judgments & Tax Consequences
What many homeowners don’t realize is that in some states a deficiency judgement is allowed. When a property is sold at auction, but the price doesn’t cover all the interest, balance, fees, and costs owed, then the lender can win a judgement for the outstanding balance. That means you can lose your home, and still owe the money for the mortgage, etc.
Depending on how aggressive they are allowed to pursue you, they may be able to seize personal property or garnish your wages to collect. If they forgive the outstanding balance, then the IRS can consider this extra income. This can trigger more taxes or even a higher income tax rate. The IRS can then garnish wages, put a tax lien on you, block your passport, and seize cars and other belongings.
These are some of the things which make it so vital to get help and find a solution when in foreclosure. Foreclosure in itself is not the worst thing that can happen, it is all the things that comes along with it.
How Does a Foreclosure Affect my Credit?
Sadly, many homeowners have let themselves get down when their credit starts to take hits in the process. Late mortgage payments can be very damaging to credit and credit scores. Too many people don’t reach out for the help they need. A few 30 day late marks, or even a 90 day late mark aren’t great, but they will fall off of your credit report in a couple years and will no longer be a factor.
Having a foreclosure on your credit is a lot different. It will be on there for the best part of a decade. It can take years to even get a shot at new credit, or prepaid credit cards to rebuild credit. That means no emergency credit for medical emergencies, home appliances, cars. It can also be a factor in trying to rent an apartment, insurance, and even trying to get a job or promotion.
What Are My Options When in Foreclosure?
Reinstate Your Loan
If you can come up with the money fast enough, and can cover all the extra fees, then you can pay it up, and buy your way out of foreclosure.
You may also try to work with your lender or loan servicer. It certain hardship scenarios they may grant a temporary forbearance, allowing you to skip a few payments. In the midst of the crisis, some began offering loan modifications or catch up plans. Today lenders are far less likely to grant these, especially on new foreclosures and delinquencies.
Lose the Home
This really shouldn’t be an option, but it happens. Some are paralyzed by indecision, or drag their feet on getting help. Then their homes to auction and they are evicted. This doesn’t have to happen! Get help before it’s too late!
Bankruptcy is often posed as an option for stalling foreclosure. It can work, in some cases. However, it isn’t free, and you’ll need to be up to date on your income taxes. Unfortunately, many aren’t aware how heavy the costs of bankruptcy can really be. It’s just like going through a foreclosure as far as credit is concerned, and probably worse.
Sell Your Home
If you can’t catch up, and your lender isn’t working fast enough to help, then the best option is to sell the house. Many would prefer not to, but it is typically the most attractive scenario. You can get out from under the burden, get a fresh start with a clean slate, dodge all the negatives, and enjoy more hope of a better future.
How to Sell a House in Foreclosure
You can sell a house in foreclosure.
There are a couple of options, or frequently tried methods, including:
- Listing with a real estate agent
- Marketing it yourself as a for as a For Sale By Owner (FSBO)
- Selling it direct to a company that buys houses (investor)
In the unique situation of being in foreclosure the dynamics of the situation are quite different to a regular home sale. That can make the FSBO and Realtor listing route more complicated and challenging. Realtors can be helpful in a normal home sale situation. Unfortunately, in a foreclosure scenario, their high commissions, 30-day time frame for most buyer loans, and being locked into a long-term listing agreement can actually make it harder to sell.
If you try to just market it yourself, it will take marketing money, running ads, dealing with showings, and making repairs. All with just the hope that it will pay off in time. Most can’t afford that. This also doesn’t take into account the complexities of trying to work with your lender to facilitate the sale during the foreclosure process.
What are the Steps in Selling a House in Foreclosure?
- Find out how much you own the bank
- Get your bank notices and statements together
- Contact a local cash buyer
- Receive a free, no obligation offer on your home
- Accept the offer, and sign the sales contract
- Select your moving date
- Get help moving
What to Look for in a Buyer
If you are in foreclosure, or think you may soon fall into foreclosure, you cannot afford to gamble on a buyer who needs conventional mortgage financing which make not come through.
- A reputable buyer
- Someone who is local and understands your local market
- A buyer who is happy to answer all of your questions and explain the process
- Experience in buying homes in foreclosure
- An as-is offer, with no requirements to make repairs
- Someone who treats you with respect throughout the process
The Advantages of Selling Direct to an Investor
Selling a house in foreclosure direct to an investor has many benefits.
This can include:
- No waiting time
- Can close in 1-2 weeks
- No need to make repairs
- Cash buyers won’t be held up by financing
- An experienced partner who knows how to sail through the process with the bank
There’s no just waiting and hoping, or having to gamble the last of your savings or credit on a buyer eventually coming through, or investing in fixing up your place. Qualified cash paying investors can close very quickly, will typically buy your home just as-is, and can work with your bank to make the sale happen. It’s the easiest, fastest, and surest way to avoid foreclosure, get cash, and get a fresh start.
In fact, selling to an investor is quite easy. Read more about how to sell a house fast in just 5 easy steps.
Foreclosure is never fun. It can be a very scary and stressful time. Unfortunately, it can, and invariably gets worse, the longer owners take to take action and secure a buyer for their properties. Every day means less time, more penalties, fewer options, and less cash back in your pocket. Exactly how long it will take for the bank to sell your home and evict you can vary widely.
In the pit of the crisis it could take more than a year. Today it can be a matter of a couple of months. There is no time to waste. Fortunately, there are cash buyers who can help.
If you are in foreclosure, are about to fall behind on payments, or are just struggling with other bills related to your home, contact us today. We have a nationwide directory of cash buyers and investors. We can put you directly in touch with those who can be of the best assistance to you, and will offer you the most money for your home, just as it is.
There is a brighter future just over the horizon. Just one call could make all the difference in being able to avoid foreclosure, and quickly bounce forward to better things. You deserve that chance. Help is waiting, if you take the easy step of reaching out, and taking advantage of it. Don’t become another victim of the system.
We have local home buyers all over the country who are ready to help with. Just search here for your buyer or fill out the contact form below and we’ll connect you.
Frequently Asked Questions
Q. Can I sell a house in foreclosure?
A. Yes. If you act quickly, and find a qualified buyer you can still sell.
Q. How long does it take to sell a house in foreclosure?
A. Selling to a buyer can take as little as a few days to two weeks.
Q. Can I still sell my house if it has no equity?
A. Yes. Even if you are upside down, underwater, and owe more on your mortgage than the home is worth, you can sell.
Q. Can you do a short sale while in foreclosure?
A. Regulations have dictated that lenders choose foreclosure or a short sale or loan modification. However, if you are already in foreclosure, a new buyer may be able to work directly with you bank and achieve a short sale.
Q. What if I already have an auction date?
A. Even if your property is already scheduled to go to foreclosure auction, you can sell, but time is of the essence. You must get help immediately.
Q. What is my home needs repairs?
A. With the right buyer, you will not need to make repairs or even clean your home. Some will buy it just as is.
Q. What if I have liens against my home?
A. Experienced buyer can help buy your home, even if you have HOA liens, property tax liens, and mechanics’ liens against your home or code violations.
Q. What can I do to ensure a faster sale?
A. The more information you can provide your seller and the closing agent, the faster they can close. Being able to provide your last mortgage statement, prior title policy, survey, and an old appraisal may all help.