If you have fallen behind on your mortgage payments, your lender could choose to foreclose on the loan. This means that you will lose your house and suffer a huge hit to your credit score. However, you may be able to sell your home to stop foreclosure. How does selling your home potentially put an end to your foreclose dilemma?
The Lien Goes Away When the Loan Is Repaid
As long as the purchase price of the house is enough to cover the loan, the lien on the property goes away and the lender has no reason to foreclose. This means that there is no foreclosure and no potential damage to your credit score. In some cases, you may be able to negotiate a short sale of your property to avoid foreclosure.
What’s a Short Sale?
A short sale occurs when a homeowner sells the home for less than the outstanding loan balance. The bank then accepts the sale price and lets the owner walk away from the property with no further action required. While it may still cause damage to an individual’s credit, it does stop foreclosure and allows an owner to walk away from the home with no further obligation to pay the lender. This is happen when a buyer makes an offer to the loan holder for a lesser amount than what is owed or is an option lenders may use for stops of foreclosure.
Does the Bank Need to Agree to the Sale?
In a short sale situation, the lender will have to agree to let the property owner sell the home for less than the loan amount. However, the property owner is free to sell the home at any time prior to a foreclosure taking effect. This is because the property has yet to be repossessed and the homeowner is free to sell. The only thing that may make a sale harder is the existence of a prepayment penalty. While rare, some mortgages contain clauses that force the mortgage holder to pay a fee if the mortgage is paid off early for any reason.
A foreclosure is not something that an individual wants to go through. The good news is that it can be avoided by simply selling the property and walking away. As long as you have a mortgage that is not upside down, it may be easier than you think to find a willing buyer long before the foreclosure process is complete.