Whether your home is valued for less than the amount owed on the mortgage, or equity has built beyond the mortgage amount, you own your home until the day it’s sold at auction by the lender. The fact that you’re behind in your mortgage payments triggers the lender to begin the action of repossessing its collateral. This may take months, and in some cases, years. A lender prefers a short sale to foreclosure, so contact it and start the sale process.
Your house is worth more than the amount owed on the mortgage but you're facing a financial hardship and can't make the mortgage payments any longer. The lender has instituted a foreclosure. Act quickly and put your home on the market for sale as a "fair market" listing before the actual foreclosure sale takes place. You'll sell the house, the lender will be repaid and you'll walk away with a few dollars in your pocket and won't sustain any credit damage. It's a win-win situation for all.
When to Short Sell
When you’ve determined that paying your mortgage is a hardship, you can’t afford it and the ancillary payments that go with it, that’s the time to investigate listing your home as a short sale – selling it for less than is owed on the mortgage. With your lender's approval based on your current financial distress, list the home with a certified short sale specialist from a local real estate brokerage. Do this even before missing your first payment.
You’re in a downward spiriling market and have missed at least two payments. Your lender has sent you a demand letter asking that the payments be brought up to date. When you’re 90 days behind is when the foreclosure clock starts ticking. The lender sends you an official notice of default and notifies its foreclosure department to put your home into its database. You have another 90 days to negotiate with the lender regarding the back payments and can ask for a loan modification. In the meantime, your real estate agent is actively marketing the house for sale. If you haven’t had any offers, lower the price and hope your lender will accept the reduced amount. Do what you can to make your home attractive to buyers. You’re working to beat the foreclosure clock at this point.
Lenders prefer to work with an owner on a mortgage refinancing arrangement, and if necessary, a short sale. It costs them less than a foreclosure. Your job is to be in touch with your lender throughout the process, without putting your head in the sand. Your agent helps with pricing, your lender's asset manager works with your agent on vetting offers, and you work to keep your home in pristine condition. Don’t let your homeowners association – HOA – creep up and foreclose ahead of your lender. Pay your dues monthly.
Trustee Sale Notice
When you get the notice of trustee sale from your lender, you know your timeframe for selling is nearing a close. A minimum of three weeks will pass before the actual sale. You are still allowed to sign a purchase contract from a buyer at this point and have it submitted to your lender’s loss mitigation department’s asset manager handling your file. This is different from your lender’s foreclosure department.
Two things can happen simultaneously: you close on the short sale and a trustee’s sale, or auction, takes place. The short sale takes precedence and paperwork putting the short sale above the foreclosure is signed at the closing table.
Jann Seal is published in magazines throughout the country and is noted for her design and decor articles and celebrity *in-home* interviews. An English degree from the University of Maryland and extensive travels and relocations to other countries have added to her decorating insight.