Foreclosure Sale: Can You Sell Your Property In Pre-Foreclosure?

Foreclosure Sale: Can You Sell Your Property In Pre-Foreclosure?

Lenders filed 95,712 foreclosure filings in the first quarter of 2023, up from the previous quarter. 

Fortunately, foreclosures don’t happen overnight. Instead, it can take months from start to finish. So when your lender initially files the foreclosure documents, your home is technically in the pre-foreclosure state.

Many homeowners wonder if they can sell their homes during this time. Can you have a foreclosure sale? If so, how does it work?

Keep reading to learn more about selling your home during the foreclosure process.

Details About Foreclosure

When you buy a house with a loan, you agree to pay the lender each month for the money you borrow. As the years pass, you build equity in the home. However, you don’t actually own the house until you pay off the loan.

If you stop paying your loan, your lender can take your home. Lenders must follow the legal foreclosure process when this occurs, which takes time.

A foreclosure is a process, and it begins with a letter. When you fall behind on your property payments, the lender will send you a letter. This letter notifies you of their intention to foreclose on the property.

This is the start of a foreclosure, but you won’t lose your house until the process is complete. The process can take months or years, but there are ways to stop it.

First, the lender will stop the foreclosure process if you pay your past-due balance. Your lender can’t put the property in foreclosure if you’re current on your payments. This option is a guaranteed way to stop the foreclosure.

In most cases, a homeowner can also sell their home to avoid foreclosure.

When your lender informs you of its intention, you must act. You shouldn’t wait too long, and you shouldn’t ignore the letters. Instead, it would help if you created a plan to avoid the foreclosure from going through. 

Reasons to Consider Selling

Selling a house before foreclosure is a goal you should consider as you face this issue. Therefore, talk to your lender to determine if you can sell it. Your lender is likely to tell you that you can. 

It would help if you tried to sell your house for several reasons. Here are a few of the top ones:

To Avoid Losing Your Equity

How long have you owned your home? The length of time you’ve owned it plays a role in the equity. Your home’s equity refers to how much of your home you own.

For example, if your home is worth $200,000, you have $50,000 of equity if you owe $150,000. Most homeowners initially have little equity, but it grows with time.

You will lose all the equity in your home if your lender forecloses on it. This is the number one reason to sell a house before foreclosure occurs. You can keep some of this money if you sell it.

If the bank forecloses, you lose all the money plus the home. 

To Protect Your Credit

The second top reason is for credit purposes. Your credit score might already suffer if you’ve missed a few payments. However, you can recover from a few missed payments.

When a lender forecloses, the foreclosure posting appears on your credit report. This posting remains for seven years

A foreclosure on your credit reduces your credit score. It also presents challenges in getting another mortgage loan and other credit lines. 

You can prevent this posting by selling your home before the foreclosure goes through. 

Selling Feels Better Than Losing a House

Additionally, losing a home to foreclosure is embarrassing. It’s hard to go through this event. Therefore, you’ll feel better about yourself if you sell the house. In contrast, losing it can be devastating. 

Ways to Sell

Because foreclosure is a process, time is not on your side with your home sale. If you want to sell the house, you must sell it quickly. You can use various options, but some are better than others.

Traditional Sale

If your lender agrees to let you sell the house, you can consider a traditional sale. A traditional home sale involves a real estate agent.

First, you list the house. Then, the agent looks for a buyer.

The downside with selling a home traditionally is timing. First, you must look for a buyer. Next, you must negotiate the sale.

After reaching an agreement, both parties work toward closing. The process takes months, which you might not have.

If you can’t close fast enough, you might lose your home to foreclosure. Unfortunately, the foreclosure eliminates your ability to continue with the sale.

Selling through an agent will result in fees. You must pay a commission to the agent when closing. The commission amount cuts into your profit, so remember this when selling this way.

Cash Sale

A better option is to sell your home for cash. You can look for a cash buyer and negotiate the cash offer. Once you reach a deal, you can close within days or weeks. 

Selling a house for cash is the fast way to sell a house. So if time is running out, this is the best choice. 

Selling quickly is one of many benefits of selling for cash. Another benefit is that you won’t pay a commission fee. In addition, the buyer purchases the home as-is, so you won’t have to do any work. 

Short Sale 

You can also talk to your lender about using a short sale. This option lets you sell a house for a lower amount than you owe. You can avoid foreclosure if your lender lets you use this method.

However, lenders might not allow it. In addition, short sales take time. 

Choosing a Foreclosure Sale

The foreclosure process ends with your lender selling your home through a trustee’s or sheriff’s sale. Lenders advertise these sales for months and invite people to make offers.

Lenders generally name a price for starting bids and won’t accept offers less than this amount. They aim to get the most of the sale as possible, but lenders typically lose money on the sale.

A foreclosure sale also costs lenders money. If the lender can’t sell the house for a high-enough price, they lose too much money. They must also care for the property during this time, which also costs money.

Therefore, most lenders encourage homeowners to sell their properties before this occurs. If a homeowner can sell, the lender can avoid the work and hassles of a foreclosure sale.

Stages of Foreclosure 

Foreclosure occurs in stages, and the first stage is the default. It happens when you miss one to three payments. After that, your lender notifies you by sending a letter. 

If you want to avoid foreclosure, you must act when you receive this letter. You can try to pay the past-due balance to stop the lender from proceeding. You can also try to sell your home during this time.

The foreclosure moves to the next step if you don’t sell your home or repay your balance. This stage generally occurs after missing four payments. 

During the second stage, the foreclosure process is still considered informal. However, you won’t have a lot of time to act at this point. 

The lender will pursue formal foreclosure proceedings if you don’t pay your balance. You can sell your home during this stage, but you must do it quickly.

If you’re in this stage, you can contact a cash buyer, as this offers a remedy. 

The third stage is the formal foreclosure process. At this point, the lender files the foreclosure proceedings with the local court. 

You can still sell your home during this stage, but again, you must act quickly. Once your lender files these documents, the house might foreclose within two months. 

The actual time varies from a few months to a few years. But waiting too long is not a wise move. After all, you might lose the home to foreclosure if you wait too long.

The primary thing to know is that you can sell your home during foreclosure. But you only have so much time. Waiting too long can jeopardize your chances of selling before losing the house.

Get a Cash Offer

You can sell your home during the foreclosure process, but you need to do it before the foreclosure sale. Selling your home before foreclosure offers several benefits, and it might be the right option for you.

Would you like a cash offer for your home? Contact us at We Buy Houses Memphis. We buy all types of homes in the Memphis area and offer free quotes. Call us today to learn more. 

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