If you’re facing foreclosure, you may be wondering what your options are to sell your house.
You have several options available to you, and each option has its own set of pros and cons.
In this blog, we’ll discuss the most common ways to sell a house in foreclosure.
Let’s also look at the benefits and drawbacks of each option so you can make an informed decision about selling in a foreclosure.
What is Foreclosure?
Foreclosure is the legal process by which a mortgage lender takes back property from a borrower who has defaulted on their loan.
This usually happens after the borrower has missed several mortgage payments and the lender has been unable to work out a payment plan with the borrower.
Once the foreclosure process begins, it can take several months for the lender to take ownership of the property. During this time, the borrower has the option to sell the property in order to pay off the loan and avoid foreclosure.
Can you sell a house in foreclosure?
There are two ways you can sell your home before the foreclosure process is completed.
The first is through a short sale. The second is through a standard real estate sale, the same way you would sell any other home.
You can sell your home before or during the foreclosure process. However, once the home is foreclosed, it is no longer in your possession, and you won’t be able to sell or recover any money from the home.
The benefits of selling your home pre-foreclosure
Selling your home pre-foreclosure process begins is always the best option if possible. If you sell your home before foreclosure, you’ll some freedom in the following benefits.
Avoid foreclosure on your credit report
A foreclosure can crush your credit score and make it tough to get a mortgage in the future. Many lenders don’t approve mortgages until seven years after the foreclosure.
Avoiding foreclosure is best for your long-term interests. Selling before the foreclosure process is complete is key.
Keep any equity you have in your home
If you sell your home through the traditional route, be sure to get a price that covers everything you owe your lender. With the loan paid off, you keep any equity you had built up in the home, just like a traditional sale.
Get out from under an expensive mortgage that you can no longer afford
Selling through the traditional route gives you the option of cashing out and starting over. If you’re facing financial hardship, selling is the best option. It gives you the opportunity to get out of debt to the mortgage company and align your finances with your current situation.
Relieve the stress of dealing with a foreclosure process
The foreclosure process can be nerve-wracking and scary. Selling before the process begins, or even during, can bring peace of mind.
A home is usually the biggest asset an individual owns. With that comes great stress, especially in times of financial insecurity. Selling your home and stopping the foreclosure process can help eliminate that stress.
The drawbacks of selling your home before foreclosure
The biggest drawback of selling your home before foreclosure is that you may have to sell it for less than it’s worth. Some buyers may try to take advantage of your situation by trying to get a better price for themselves.
Additionally, selling your home during a foreclosure can be a time-consuming and stressful process.
When the foreclosure process begins so does the time crunch and the pressure of the lender to obtain the money they are owed.
If you’re financially stressed, consider your options before it gets to this point.
Is a short sale a good option for me?
If you’re trying to sell your home before the foreclosure process is complete, you may be short on time.
Lenders can begin the foreclosure as soon as a month after your first missed payment. Using the short sale, you’re selling the home for less than what you owe on the mortgage.
With short sales, the lender agrees to take the loss and terms of the sale, not the seller.
The catch of a short sale is that the lender doesn’t have to agree to a short sale. Even though you still own the home, the bank can deny the sale if it leads to a loss they aren’t comfortable with.
Pros and cons of selling your home in a short sale
There are many benefits to selling in a short sale.
You’re off the hook for your loan
If the bank agrees to the short sale and you’re not held responsible for any of the loss, you will be completely cleared of your loan.
Therefore no foreclosure will show up on your credit report saving you from a severely lowered credit score.
With the short sale, you will be relieved of the mortgage and be able to refocus your finances. If your financial situation has changed, it can be the easiest way out of a large loan that you can no longer afford.
Get relief from the mortgage company asking for payments that you can’t afford and stop the stressful and time-consuming foreclosure process.
Drawbacks of a short sale
The biggest drawback of selling your home in a short sale is that you will have to sell your home for less than its worth.
You’ll lose any equity you have in the home and you won’t make any money on the sale of the home.
Ultimately you lose your investment, but you save yourself from further loss and save your credit score.
The best option for you will truly depend on your situation and your plans after the foreclosure.
Should I let the house go into foreclosure?
While not ideal, if you let your home go into foreclosure, you’ll be able to walk away from the property with no financial obligation.
The lender will take ownership of the property and attempt to sell the home in order to recoup the money owed on the home. In the end, you can get out from under the mortgage that’s no longer affordable.
Drawbacks of going into foreclosure
The biggest drawback of letting your home go into foreclosure is the impact it will have on your credit score. A foreclosure can stay on your credit report for seven years and makes it difficult to get approved for new credit during that time.
This will greatly affect your chances of getting a loan in the future and even renting a home. You will also lose any money you have invested in the home with no way to get it back.
Selling to an iBuyer with an instant cash offer
An iBuyer is a more recent development in the selling and buying of homes. They use technology to locate, estimate, and make an offer on a home.
If you’re facing foreclosure, they can take over the stressful process of selling your home and purchase your home with cash, as-is, and then find a buyer later on.
Armed with the knowledge above, you now know the best options for getting through this tough affair.
If you decide to simply get out of the situation and avoid foreclosure, Simple Home Offer can sell your home in as few as seven days, get fair cash offers in 24-48 hours, and gain flexibility for your next move.
Contact Simple Home Offer for more info and to help you through the process.
Photo by Pavel Danilyuk