Can I Sell My House Before It Goes to a Foreclosure Auction?
Even though the information on this web page is provided by a qualified industry expert, it should not be considered as legal, tax, financial or investment advice. Since every individual’s situation is unique, a qualified professional should be consulted before making financial decisions.
This article will show you how foreclosures work and how homeowners can successfully manage to sell their houses during this difficult event in their life.
I’ve seen this situation many times as a real estate investor during my over 20-year career and have personally bought pre-foreclosure homes for investment.
If you’ve asked yourself, “Can I sell my house to avoid foreclosure?”, then it’s time to ask the experts that question. Let’s look at the answer.
Can I Sell My House Even if It's in Active Foreclosure?
The foreclosure process is a series of steps that can take up to a year or more. It starts with the lender notifying you that you are late with your payment. Along the way, the lender will be required to send you notifications when your case has reached the point that they will take other action.
If you don’t make your mortgage payments, then eventually the lender will declare you in default. If you still can’t make up the missed payments and you don’t make other arrangements, then they will announce that they are foreclosing. This means that they will take the property from you and sell it to pay the amount you owe.
During this time, if you decide that you can’t catch up and keep up with your payments, then selling your house may be the best course of action for you.
Depending on location, “active foreclosure” is considered either the period starting when you are declared in default or starting when the lender announces that they intend to foreclose.
In both cases don’t worry — you can sell your house fast if it is in active foreclosure proceedings. You can do this at any point right up until the foreclosure auction.
How Much Time Do I Have for Selling a House in Foreclosure?
The time that it takes for a lender to foreclose on a property and auction it for sale is different from state to state. It can take as little as a few months or as long as a year or more.
In most states, the lender can’t declare you in default until you have missed payments for 90 to 120 days. You then have another 90 to 120 days to work something out with your lender or bring your account current. If no resolution is reached, they can announce a foreclosure auction and sell your home.
I can’t stress strongly enough how important it is for you to communicate with your lender. If you avoid them and they have to chase you for information, they will look at you differently than if you respond promptly. The lender will appreciate your cooperation and often they will help you if they can.
When you borrowed money to buy your home, you either signed a mortgage or a deed of trust. A deed of trust is a lien on your house that protects the lender’s interest in the property. Some states are mortgage states and some use deeds of trust.
If your state uses mortgages, and the mortgage document doesn’t have a “power of sale” clause, then the lender will have to go to court to get approval to foreclose (judicial foreclosure). This will add time to their foreclosure efforts.
In states that use deeds of trust, the lender can do a non-judicial foreclosure which can be done more quickly.
The state in which your property is located will have a large effect on the amount of time you have to sell your house before a foreclosure sale. You should consider consulting with an attorney to make sure that you don’t make a costly mistake.
What Is the Fastest Way of Selling a House to Avoid Foreclosure?
How Long Does a Regular Home Sale Take?
Sometimes you don’t have a lot of time to sell your home before the lender auctions it off for payment. Your state may not require the lender to give you very much time, or you may have exhausted other options first.
There may not be enough time to sell your home the traditional way. That would involve marketing the property to the general public either with a broker or listing it For Sale By Owner (FSBO).
A sale like that, where the buyer is another homeowner, may take 1.5-2 months to complete on average across the USA. But for properties with problems (homes needing serious repairs, located in a bad neighborhood, etc), or homes in cities with slow real estate market it can take much longer.
The length of time to close can be impacted by the availability of home inspectors, appraisers, surveyors, attorneys, and even realtors willing to dedicate their time to selling your preforeclosure home among other deals they also have. In addition, the title insurance company and the lender need time to process their work which can make it hard to meet a scheduled closing date.
There is always the possibility that after going through all the loan procedures, the buyer doesn’t qualify for the loan so you have to start marketing the property all over again.
What’s the Faster Alternative to a Traditional Sale?
Selling your house to a real estate investor would be faster and more certain to close on time.
A real estate investor is someone who makes their living buying and selling or renting residential properties. They are regularly looking for homes to buy as an investment. They make money by either fixing up the home to sell right away (called “house flipping”) or they keep the property to rent. We have an entire guide on selling a house to a real estate investor. But in this article, let’s discuss the basics.
Why Investors Buy Houses So Fast
Investors take significantly less time to buy and close on properties. They often buy homes in under a week. There is a number of reasons for that:
- Investors pay cash for properties. This means no long loan approval process, and no possibility of them not qualifying for the loan at the last minute.
- Marketing time to the public is eliminated. Instead of dealing with real estate agents, you are dealing directly with the buyer who is knowledgeable about all procedures involved in a property purchase.
- With an investor, you eliminate most of the closing costs such as costly realtor’s commissions.
- Investors are professionals. This is an unemotional business decision for them unlike for homeowners meticulously choosing their new home among many other available options. You negotiate directly with the buyer (and not their agent) saving time and avoiding uncertainty.
- Professional real estate investors are capable of inspecting the property for themselves. They don’t require the long due diligence period that homeowners need.
- They buy homes as-is without making you handle repairs that you can’t afford and that takes up more time.
- You and your family don’t have to keep leaving your home for showings to the public. For a family that is undergoing foreclosure, this can add to existing stress.
- Perhaps the best thing is that real estate investors regularly buy properties that are in foreclosure. They know the procedures involved and can work with you and your lender to make sure that you close in time to avoid foreclosure.
If you want to sell your preforeclosure house to a real estate investor, the best way to do it is by requesting a cash offer from HouseCashin. Fill out this form to get multiple cash offers for your property from up to five local real estate investors vetted by HouseCashin’s reputation and professionalism standards. Choose the best offer and walk away with cash in days.
What Happens if You Sell Your House for Less Than You Owe on the Mortgage?
Selling Your Home for Less Than What You Owe on the Mortgage
If you sell your home for less than you owe without involving your lender, it can put you in a difficult position with them and with your buyer.
If you sell your home for less than the amount you owe the lender, they don’t have to release the lien on the property. This will stop the sale. Or, they can allow the sale, get a deficiency judgment against you, and come after you for the difference. The unpleasantness continues and you can’t move on with your life.
It may be hard to believe, but sometimes a lender will let you sell your house for less than you owe them and write the difference off. It’s called a short sale.
Why would they do this? Lenders don’t like foreclosures. It costs them time and money. If there are no buyers at the auction, they will have to keep the property themselves or keep trying to sell it again. If a lender has to hold onto your home for a long time, it could hurt their financial statements.
If a sale of your home will not make the lender whole, and you can’t make up the difference, sometimes it makes more sense for them to take a loss and move on.
To learn about the whole short sale process in detail, I suggest that you read our other article Step-by-Step Short Sale Process and Timeline for the Seller. You may also be interested in reading about:
- How a Short Sale Affects Your Taxes
- How Long a Short Sale Stays on Your Credit and How Bad It Hurts It
- Pros and Cons of a Short Sale and Its Difference from a Deed in Lieu and Foreclosure.
Do You Qualify for a Short Sale?
First, the lender will make the determination on whether you qualify for a short sale. It will depend on the value of the property and your ability or inability to meet your financial obligations.
Your lender will order an appraisal on the property to determine whether or not it can be sold for the amount that they are owed. If your home is worth less than what you owe, it could be because you haven’t had the funds to maintain the property, or because a weak economy has caused home values to drop in your market.
If you haven’t done so already, you will need to provide your lender with any financial information or statements that they require. They will underwrite your ability to make up your missed payments and to make payments on time in the future. If they believe that you are able to pay them, they probably are not going to settle for less than what you owe.
If your property is worth less than the amount you owe, and you are unable to get current and stay current with your payments, then your lender will probably allow a short sale.
To sum up, you can qualify for a short sale if:
- Your house is underwater (its fair “as is” market value is lower than what you owe on your mortgage).
- You are behind on your mortgage payments.
- You are experiencing a valid financial hardship.
If your lender allows a short sale, they will control the transaction. They will have to be involved in every step of the sale. The lender reviews all offers on the property and will decide whether an offer is accepted or a counter-offer is made.
What Is the Best Way to Start a Short Sale Process?
You may think that you can simply ask the loan officer you’ve been dealing with if they will agree to a short sale. If you do this, you will likely be transferred to someone in the collections department whose job is to make sure that the lender gets every possible cent.
The details in a short sale negotiation are complicated and will impact your interests. It is difficult for someone who is not familiar with this type of sale to protect themselves through the transaction.
Some brokers advertise that they perform short sales for clients. Their expertise usually only covers the marketing and sale of the house, not what could happen to you after the sale. You are pretty much on your own in dealing with the lender.
Short sale processing companies are experts in helping you achieve a short sale with your lender and in protecting you throughout the negotiation. They will explain the entire process to you and what needs to be done on your behalf. If you want to read about how they can help more in detail, here is our article What Does a Short Sale Negotiator Do for the Seller?.
Many short sale processing companies won’t charge you anything for their services: they get paid by the buyers who are often local real estate investors looking for short sale properties that often sell for less than normal listings.
When you are interviewing companies, make sure that you tell them that this is a requirement. This makes the transaction a no-lose proposition for you.
Short sale processing companies will handle all of the details and paperwork that the lender will need. This takes the pressure of an already difficult situation off of you and your family. The benefits to you include:
- Short sale experts will handle communications with the lender to make sure that all conditions are met on time.
- The processing company will ensure that the lender puts off the foreclosure to give you time to complete the sale.
- You have professionals taking care of the multitude of forms and keeping up with the lender’s rules and policies.
- You have experts on your side working to convince the lender to cancel your obligation and not pursue you for the remaining balance after the sale.
- Short sale processors know that some lenders will give you assistance with your relocation and will push for them to help you with this.
The use of a short sale processing company to handle the upsetting, emotional experience of foreclosure, at no cost to you, may be the answer to your prayers. You literally have nothing to lose by using them, and the possibility of losing a lot if you don’t.
Where to Get Free Professional Short Sale Processor’s Help?
As mentioned above, many short sale processors offer services for homeowners for free. But some of them don’t. And not all companies that advertise free help act in the best interests of the homeowners.
As an extensive go-to resource for distressed homeowners needing to sell their house fast, we maintain relationships with reputable short sale processing companies throughout the USA, meticulously vetted according to our high professional standards.
To get a 100% free help from a professional short sale negotiator in your area, fill out our form and get contacted by a reputable local short sale specialist shortly after.