DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.
Life sometimes brings harsh rain — like death, divorce, job loss, or medical bills. And on top of that rain might come thunder — missed mortgage payments.
It’s natural to feel paralyzed with sadness, and a sense of panic when those overdue notices come from your mortgage company. As the storm rages, you might ignore the problem, hoping it’ll just go away. Or perhaps you start to believe that the only solution is to lose your house. But then a sliver of sunlight carries a question to your mind — “Can I sell my home if it is in foreclosure?”
The answer is often “yes.” Sean Anderson is an experienced real estate agent in Cartersville, Georgia, who sells houses 49% faster than the average agent in his area. During the economic downturn of 2008 to late 2011, he sold about 650 homes, many of them in foreclosure. It is possible, but you’re going to need to acknowledge the situation, and then take prompt, decisive action.
“The best advice I can give to sellers facing foreclosure is don’t wait till the last minute. Don’t wait until your foreclosure is 30 days away from the sell date,” says Bethany Mendoza, top real estate agent in the Modesto, California area who’s helped clients navigate selling their home to avoid foreclosure.
“That’s what homeowners typically do because they’re in denial. That just puts you in a dire situation where you have to sell aggressively, which leaves money on the table.”
If you’ve exhausted your options for working out an arrangement with your lender to stay in the property, then you need to act sooner than later to get the house sold — or prepare to face the ramifications of foreclosure.
When does foreclosure begin?
If you’ve missed a few mortgage payments, you’re probably wondering when your lender will begin the foreclosure process. The answer is: it depends.
Foreclosure rules, processes, and timelines vary by state and among mortgage companies. According to HUD, mortgage companies typically begin foreclosure three to six months after your first missed mortgage payment.
After about three months of missed payments, you’ll likely receive a Demand or Notice to Accelerate letter. This letter tells you how much you owe and typically gives you 30 days notice to get your balance current. Lenders send registered letters so that they have legal proof of communication.
From the date of the Demand Letter, HUD’s guidelines note that it can be two to three months to the scheduled sale of your property if you take no action to square up with the mortgage company.
Depending on your location, the timeline could be much longer. In New Jersey, foreclosures take an average of 1,477 days total, while in Arkansas, a foreclosure takes an average of 253 days. Nationally, it takes an average of 922 to foreclose on a home.
Foreclosure and the COVID-19 Pandemic
Due to circumstances surrounding the coronavirus pandemic, the government has offered additional mortgage relief options through the CARES Act. These options will be available as long as the COVID-19 National Emergency is in place (currently set to expire on Feb. 24, 2022).
This included forbearance plans which allow you to temporarily pause making payments on your mortgage or reduce them. It’s only available if you have a mortgage backed by HUD/FHA, VA, USDA, Fannie Mae, or Freddie Mac, though other lenders may offer their own programs. Forbearance plans do not wipe out your mortgage debt — you still owe that money once payments resume.
Can I still sell my home if I am behind on my payments but not yet in foreclosure?
The pre-foreclosure period is typically the best time to sell. When you still have months before the bank initiates foreclosure, you have time to prep your home for sale so that it sells for the best possible price. The advantages to selling pre-foreclosure include:
- Time to have small repairs done, the home cleaned, and staged to get top dollar
- The ability to work with an agent and get top dollar
- Avoiding a foreclosure hitting your credit report and limiting your ability to buy again
- Move on your timeline, not a bank’s, depending on negotiations with the buyer
If you list too late in the foreclosure process, you won’t have time to prep the house. You might have to list at a lower price than market value just to sell it in time to beat the foreclosure clock.
Don’t let the stigma of foreclosure keep you from making wise financial decisions about your home sale. You’re not alone in facing foreclosure. It can happen to almost anyone:
“I had one foreclosure where the house was worth over half a million, and it went into foreclosure over a loan of $10,000. Unfortunately, that homeowner waited too long, and left me with just 60 days to sell it,” explains Bethany Mendoza.
“So, if you’re in financial trouble and facing foreclosure, don’t wait. Get your house on the market so you have the time to sell at a fair price.”
Am I allowed to sell my home after I have received a foreclosure notice?
Even if the foreclosure process has begun, you can still sell your home independently prior to your scheduled auction date. If you’re facing long-term financial struggles, rather than a short-term loss of income, selling your home could be your best option. Not only will it get you out from under your mortgage, you could make some money on the sale.
Many homeowners have equity built up in their house that could help them out of their current financial difficulty. As of this writing in 2022, home values are rising quickly as buyers desperately search for houses, putting seller’s in the driver’s seat.
“We have a huge inventory shortage in our area. We’re at a 1.2 months’ supply. So our inventory would have to quadruple, and our buyer demand would have to drop in half in order for home values to start going down,” explains Bethany Mendoza.
If homes in your area are selling for more than you paid, and you’ve owned your home for several years, you likely have some equity in it.
What are my next steps for a pre-foreclosure home sale?
Don’t despair — take action! Follow these steps to successfully sell your home pre-foreclosure.
1. Find out roughly how much your home is worth
Use an online tool like our Home Value Estimator to get a home value estimate in less than two minutes. We’ll compare information you tell us about your home to housing market data to get a better understanding of your home’s worth. (Note that you’ll use this number as a starting point and to run some preliminary math — but you’ll want an expert’s opinion before actually pricing your home.)
2. Calculate what you owe on your mortgage, plus any late fees
Reach out to your lender and ask exactly what you’ll owe if you decide to sell, so you can be financially prepared. If you’ve received notice of foreclosure, you’ve likely missed several months of mortgage payments. When you sell your home, you’ll owe that money and any additional late fees. Mortgage lenders typically charge late fees 10-15 days after the first missed payment.
You may have also accrued fees from the mortgage company’s attorney for your delinquency. Look at any recent foreclosure communications from the bank to determine what’s owed, including all outstanding principal and interest, and subtract it from your estimated sale price.
3. Subtract selling fees
It costs money to sell a house. You’ll also need to deduct any fees for staging and preparing the house for sale, the real estate agent commission, closing fees, seller concessions, and moving costs from the final sale price.
Consult our guide on the fees associated with selling a house for a full rundown, and use our Net Proceeds Calculator to estimate your final payout. The — “How much is left on your mortgage?” — section is a good place to input your outstanding mortgage balance, including any missed payments and late fees. It will tell you if your home sale would be enough to pay off the mortgage, fees, closing costs, and other selling expenses.
With any luck, you’ll be in the black and even have some cash leftover. If your sale proceeds won’t cover your mortgage and other costs, your next option is to bring money to the table to cover them. If you can’t afford to bring money to the closing, then you’re probably looking at a short sale (which we’ll discuss more in depth further down).
Most agents, when they hear the word foreclosure, think that means a bank has taken the house back and are kicking the now former homeowner out. If an agent doesn’t know where to start, or know the questions to ask, it puts the homeowner at risk of not being able to sell the home in time.
- Sean Anderson
Real Estate Agent
Real Estate Agent at Atlanta Communities
Currently accepting new clients
- Years of Experience
- Average Price Point
- Single Family Homes
4. Take your next steps with a qualified agent
The proceeding steps get you to a “back-of-the-napkin” number to estimate your financial position. But selling a house, especially with a potential foreclosure hanging over you, is no easy task.
Rather than face it alone, reach out to a real estate agent who’s well-versed in facilitating pre-foreclosure home sales. Anderson stresses that it’s very important for homebuyers to find an agent who’s experienced in these sales. “Most agents, when they hear the word foreclosure, think that means a bank has taken the house back and are kicking the now former homeowner out,” he explains, even though that isn’t the case. “If an agent doesn’t know where to start, or know the questions to ask, it puts the homeowner at risk of not being able to sell the home in time.”
At HomeLight, we’re happy to help connect you with a few qualified agent candidates with the experience you need. Your agent can help you confirm your proceeds calculations with a seller’s net sheet and is there to help you prep, stage, list, and market your home for what you hope to be a quick sale.
5. Keep in close touch with your lender
As tempting as it is to hit “decline” on the phone calls and throw the letters in the trash, it’s important to communicate with your lender. Keep them informed about your plan, even if it continues to evolve. Most lenders would rather work with you to get your house sold, rather than foreclose and sell your house at a loss.
Your agent also needs to be in touch with the bank. Anderson explains that, after gathering as much information on the pre-foreclosure as he can, he asks sellers to “complete a document(s) that will allow me the authorization to speak with the bank, asset manager, or whoever is handling this foreclosure process.”
Even if there’s equity in the house, and they could sell it for more than the mortgage amount, the bank still incurs expenses with a foreclosure. Lenders aren’t in the business of buying and selling real estate, nor do they want to hold it on their balance sheet. If a sale is pending, they could hold off on foreclosure (either voluntarily or by law).
“Here in California we have a Homeowners’ Bill of Rights. It states that if we have a legitimate offer on the table from a qualified buyer that we can prove to the bank, then the bank cannot foreclose,” explains Bethany’s husband and real estate partner, Tony Mendoza. Lenders have to give homeowners an additional 30 days on the foreclosure timeline, but that means that you have to get your house sold within those 30 days.
Unless home values drastically drop or demand in your area is uncharacteristically low — you can potentially sell your home for a profit before the bank forecloses. Do that, and you’ll be able to pay your mortgage in full and maybe walk away with some cash in hand to help start over.
Can I stop my foreclosure once it starts?
At any point in the foreclosure process before the final day, you can work out an arrangement with your lender or pay them what you owe, according to HUD. HUD recommends working with a housing counselor as soon as you miss a payment to advise you of all your options.
Once the lender’s attorney is involved, you’ll likely need to cover those fees — in addition to your missed payments and late fees — to stop the foreclosure. Whether you bring that money to the table independently or by selling the home to unlock equity is up to you.
“Sellers can always call the bank to make arrangements to avoid foreclosure. Some homeowners will decide to do a deed in lieu of foreclosure, which is basically just giving the house back to the bank,” explains Bethany Mendoza.
In the current hot market, few homeowners are upside down on their mortgage, so she isn’t seeing this much now. Instead, “they’re all walking away with money by selling prior to foreclosure.”
How long does it take to sell a foreclosure home?
Selling a home facing foreclosure is typically not much different than a traditional home sale. How long it takes a home to sell is all about pricing, the home’s condition, and the local market, not its foreclosure status. But when foreclosure is a possibility, you need to price to sell.
“You don’t have time to waste when you’re headed into foreclosure,” explains Bethany Mendoza, “so you need to price your home fairly yet competitively. If it’s priced right, it’s going to sell within a week or two.”
For example, let’s say the home values in your neighborhood are between $300,000 and $315,000. When you’re up against a ticking clock, you’ll want to list your home closer to $300,000 so that it attracts more offers than other higher priced homes.
However, you don’t need to let the threat of foreclosure force you into selling your house for a lot less than it’s worth. There’s no requirement to disclose a potential foreclosure to buyers, though you’ll want to be upfront with your agent so they can help you price the home to sell quickly.
“Never disclosing to the buyer’s agent the circumstances, I accelerated the closing date (day before the looming foreclosure),” she says “and further negotiated a short rent back for the seller as the seller had a place to go but no money for movers.” Once they had the sale proceeds, they could afford to move.
Most buyer’s agents aren’t going to pull up the tax records to see if a home is flagged for foreclosure. They’ll never know that they’ve found you in financial straits, which could result in lowball offers, and you could get fair market value for your house.
“It’s only when you’ve waited too long and you’re facing a hard sell-by date due to impending foreclosure that you may need to mention it to push things along a little faster,” says Bethany Mendoza.
Is a short sale a good option for me?
Homeowners who are behind on payments, out of work, and upside down on their mortgages may be eligible to do a short sale instead of foreclosure. In a short sale, you ask the bank for permission to sell your house for less than you owe.
You can also ask them to forgive any loan amount you still owe above that selling price. However, forgiveness of the remaining balance is not guaranteed. The lender may still go after the homeowner to collect all or part of the difference through a deficiency judgment. In some states, lenders are required by law to write off the difference in a short sale.
A short sale is typically preferable to a foreclosure. “When you short sell a house, it’s recorded on your credit as paid for less than or settled,” Bethany Mendoza says. “Your credit will bounce back a lot faster with a short sale on your report rather than if the property is foreclosed on.”
A short sale has its downsides, though. Not only is any forgiven debt considered taxable income, but these sales also tend to be anything but short:
“Short sales can take longer and will be more expensive if you are using an attorney,” explains Justin Meyer, a real estate attorney licensed in Florida, New York, and New Jersey.
“Everything will need to be negotiated with the bank, including any money that you are taking out of the sale, if there is any. Depending on the bank, it can be an easy process or a difficult one.”
Lenders won’t approve a short sale just because you tell them you can’t afford the mortgage. To get approval for a short sale, you have to prove that you can no longer afford the house on your current income. You’ll also have to prove that you don’t have other assets you could liquidate to pay the mortgage.
They’ll request proof that your hours were cut, or that you have lost a portion of your income and therefore can’t make your mortgage payments. They could also request statements of other assets — such as 401Ks and retirement funds — available to pay the mortgage. The bank reviews those financial statements to determine if you qualify for debt forgiveness.
You can get in serious trouble if your financial statements aren’t accurate. “We had one individual that was hiding money and didn’t report it to the bank. They did get in trouble because they were not honest about their financials,” says Tony Mendoza.
What happens if my home is foreclosed on?
Forget anything you’ve seen in the movies — no one’s showing up to march you out of your house in handcuffs.
“A lot of people are embarrassed to reach out for help when they’re facing foreclosure. Many people move out of their homes in the middle of the night because they think the sheriff is going to escort them out of the property. That does not happen,” explains Bethany Mendoza. The sheriff only gets involved if you fight the bank and won’t work with them.
Traditionally, once a bank forecloses, the house goes to the courthouse steps to be sold at auction. However, it typically takes months for the bank to actually foreclose on you, which gives you time to sell if you know that you can no longer afford to keep your home. Oftentimes there’s no need to ever get to those courthouse steps — especially if you have already built up equity in your home.
In Temple’s situation, the seller avoided foreclosure and he didn’t lose $250,000 of equity that he had in the property. “Not only did he get a fresh start, his self-worth was restored,” she says.
It’s easy to get emotional when faced with selling a house you worked so hard to buy in the first place, but remind yourself that this is just a financial decision.
Will I still owe money after the foreclosure?
Possibly. If during the foreclosure auction your home doesn’t sell for enough money to clear the debt, you might still owe your lender the deficiency. This is the balance remaining on the mortgage.
Because the house is now sold, the deficiency is an unsecured debt. The bank can take this deficiency to court and get a judgment, after which they can place liens on other property that you own, garnish your wages, or freeze your bank accounts. You might have to work out a repayment plan with them.
Bottom line – If you’re facing foreclosure, don’t wait. Act now!
Don’t panic and avoid dealing with foreclosure until the last minute. You have options, some of which can help preserve your credit score and shorten the waiting period until you can buy another home. Facing the situation head on increases your chances of selling the house while it’s still rightfully in your possession.
“In this current housing market, almost every homeowner has equity. So, don’t be in denial and go into foreclosure. That just gives your equity back to the bank,” explains Bethany Mendoza. “If you hit the point where you’re 60 days behind and you know you can’t catch up, call a real estate agent, get the house on the market, and get as much money out of it as you can.”
To find a top-rated agent in your area, try the HomeLight Agent Match tool. It analyzes sales data to find agents who sell faster than average in your area, someone who can help you get out from under the cloud of foreclosure and move onto sunnier days.
Header Image Source: (Steve Johnson / Pexels)