Foreclosure is a long and heartbreaking process for a homeowner. But, it’s not hopeless. When looking for a solution to defaulting on their mortgage payments, many owners float this question: “Can I sell my home if it is in foreclosure?” The short answer is yes.
Up until the home is sold at auction, you can rescue your home by selling it and paying the lender everything you owe, including back payments and penalties. And in some states, you are allowed a “statutory right of redemption.” This is essentially a take-back period after the foreclosure—from 30 days to as much as two years in some places —in which you can repurchase your home.
“If you can pay off what you owe the mortgage company, including all interest and fees, you can take the home back or sell it if you have a buyer,” says Lou Sansevero, a Realtor® with Atchley International Realty, in Lakewood Ranch, FL.
How does foreclosure work?
A foreclosure starts when the homeowner is issued a notice of default after your fourth missed payment. The whole process can take from six months to one year or more, depending on the negotiations between you and your lender.
Can I sell my home after foreclosure has begun?
You can sell your home up until it is sold at auction or the bank takes possession of your house. During this period of time, the home is considered to be in “pre-foreclosure” and you can try to settle your debts with the lender.
One way to avoid foreclosure is to sell your home (with the help of an experienced agent) and net enough to pay off everything you owe the lender, including back mortgage payments, penalties, and fees. You won’t own your house anymore, but you won’t have the house foreclosed upon, which would do serious damage to your credit.
If you decide to sell, tell your lender that you plan to list the property for sale with the intention of paying off the mortgage. Ask the lender to postpone a foreclosure auction or sale and give you a chance to find a buyer.
Of course, making the decision to sell sooner than later will take some of the pressure off the deal and allow you more time to get the best price for the property. Make sure you ask the lender how long you have before the property will go on the auction block. It all depends on which state you live in. In some states, a lender can auction off a property in less than a month; in others, lenders can’t auction off a home for more than a year.
Hire a real estate agent
When time is of the essence, hiring a real estate agent should be your first priority so you can figure out how much your home is worth. A good agent can run a market analysis to help you anticipate how much money your home will fetch and if it’s enough to pay off the mortgage.
A real estate agent can also negotiate with lenders to reduce the amount they’ll take in a short sale to rescue the property from foreclosure.
Short sale to the rescue
Lenders hate foreclosures because, even for them, they are legal, financial, and PR headaches. That’s why some lenders agree to a short sale, where you sell your home for less than everything you owe.
Agreeing to a short sale is a desperate action for a lender to take. Lenders don’t want to lose money on mortgages, but they also don’t want to spend their time foreclosing on, owning, and selling property.
“The banks really don’t want to foreclose because it costs them money,” says Rosanne Nitti, a Realtor with RMN Investments & Realty Services, in Laguna Beach, CA.
So, after you spend a lot of time filling out paperwork and explaining how you got into this financial predicament, you might be able to persuade your lender to work with you on a short sale.
Short sales avoid foreclosure and the huge hit your credit score can take as the result of a foreclosure.
Other ways to stop foreclosure
The worst thing you can do when you fall into mortgage arrears is attempt to hide from your lender.
Reality check: Lenders will find you or start foreclosure proceedings if they can’t. It’s much better to call your lender, explain your financial problem, and beg for mercy and a little more time to catch up on your payments or to refinance.
If that isn’t feasible, here are other ways to rescue your home:
- Restructure the loan: Some lenders will restructure your monthly payments and allow you to repay missed payments over time. They might also allow you to reduce your interest rate.
- Ask for forbearance: Your lender might agree to reduce or suspend your payments temporarily to give you time to sort out short-term financial difficulties (e.g., waiting for your new job to start).
- Search for money: Make sure you’ve liquidated everything you can before losing your home. Can you raise money by selling a car and taking public transportation? Pawning jewels? Cleaning out closets and selling items on eBay or Craigslist? Also, consider asking your parents or other flush family members and friends for a loan or gift. Make sure you draw up papers so everyone is clear about the details of the loan and repayment schedule.
- Find new ways to save: Go over your monthly budget with a magnifying glass and see where you can save money, and brainstorm about how you can earn more. Maybe you can find a temporary second job, or earn money on weekends by baby-sitting or walking dogs. This is the time for everyone to pitch in and pinch their wallets.