Receiving a foreclosure can feel like the worst piece of mail you’ll ever receive in your life. While it’s definitely not good news, ignoring your notice won’t make the problem go away. And failing to respond or take the appropriate action can create a situation that’s infinitely worse.
Selling your home before foreclosure is a viable option, and it could be the only option you have. Despite what you may think, this is the perfect thing to do in most cases.
It may not make the problem go away entirely, but even in that worst case scenario, selling your home facing foreclosure, can drastically reduce the debt you owe your lender.
Keep reading to learn more about the foreclosure process and how to sell your home before foreclosure.
What Is a Foreclosure?
Foreclosure occurs when you fail or aren’t able to keep up with your mortgage payments and fall behind. Your lender can eventually seize the home.
In some cases, you may voluntarily give the property over to the lender. In other cases, you may try to maintain ownership of the property for as long as possible and overcome the default.
Types of Foreclosure
There are two types of foreclosure you may experience: a nonjudicial foreclosure or a judicial foreclosure.
Let’s walk through each type, along with the consequences of each one.
It’s important to understand how these processes work.
1. Nonjudicial Foreclosure
A nonjudicial foreclosure is the most common method used by lenders to recover their losses in California. Rather than going through the courts to obtain their investment back, the lender will repossess your home back and sell it. This is possible due to what is called a power-of-sale clause in the deed of trust.
Most lenders prefer non-judicial foreclosures because they’re less expensive. Rather than dealing with court costs, representation, and debt collection agencies, the majority of lenders would rather cut their losses. It’s the most economically efficient option for the lender to let the difference go.
But before this can take place, several steps must be taken by the lender.
Steps your lender will take:
- First, the lender must contact you to learn more about your financial situation and any solutions that could help you avoid foreclosure. If you prefer, you can find a lawyer or HUD-certified counselor to help represent you during this discussion. You’re also entitled to one additional financial assessment meeting within 14 days of the first.
- After 30 days, the lender can initiate the foreclosure process if you haven’t reached an agreement or solution. The lender starts with a Notice of Default.
- If you haven’t caught up with payments within 90 days, the lender can issue a Notice of Sale. It can then be sold at auction after 21 days.
- If the home is sold, you’ll then receive a three-day written notice to vacate the property. If your home doesn’t sell during the auction, ownership is then transferred to the lender.
2. Judicial Foreclosure
Judicial foreclosure takes a long time, and unless you owe a tremendous amount of money on your mortgage, your lender probably won’t want to go that route. In this scenario, your lender will petition the court to formally repossess your home.
Once they’ve sold your home, you will be mandated to pay the difference between the selling price of the home and the total amount of your mortgage. This is possible through what is called a deficiency judgment. Judicial foreclosures end in debt, and they’re much harder for both parties to handle
On the plus side, a judicial foreclosure in California offers the original property owner the right to redemption. For one year after the auction, you are allowed to buy back the property from the auction winner.
You will have to pay the price the buyer paid at the auction, in addition to some other fees and charges.
It’s rare for property owners to get their property back after a judicial foreclosure, even though the door is open for it to happen. The entire judicial foreclosure process in CA is rare.
It’s much more expensive for lenders to take this route and it’s also a longer process. In most cases, where you’re on the brink of foreclosure, you can expect to go through the non-judicial process.
How Foreclosure will damage your credit score
In addition to losing ownership of the property, a foreclosure does lasting damage to your financial health. Your credit score will drop significantly, and you’ll likely find it difficult to buy a home in the near future or qualify for other types of credit.
A foreclosure generally stays on your credit report for seven years unless you can file for Chapter 7 bankruptcy. After two years, your foreclosure will begin to repair itself.
If you don’t want to wait, your best options are to completely avoid foreclosure by selling the house, attempt to be forgiven for the debt, and be strict with your money from there on out.
How to Avoid the CA Foreclosure Process
1. Act before your lender does
If you decide to sell, you should commit to that decision from the beginning.
If your lender acts first they have 1 of 3 actions they can take according to the One-Action-Rule law in California.
- They can foreclose non-judicially (most common)
- Foreclose judicially (rare)
- Or, file a personal lawsuit on the promissory note for the balance of the debt. (Rare)
If you go into judicial foreclosure the court will allow your lender to sell your home and come after you for the difference, because homes at auction will generally sell for less than what is owed.
This is why it’s so important to try and sell your home before you receive your foreclosure notice. This will give you time to find a buyer before any of the above can happen.
2. Avoid traditional sale methods
Up until the foreclosure is finalized, you’re able to sell your home. However, now may not be the time to contend with a Real Estate Agent for several reasons.
Why you should avoid Realtors
- A real estate agent will have to list and advertise your home.
- An agent will take a large commission out of the sale price.
- You may not able to afford that commission, especially if your home sells for less than what you owe.
- Selling with a real estate agent typically takes an average of 3-6 months. If the housing market isn’t thriving in your area, this can spell trouble for you.
A lot of formality goes into selling your home on the Market. Even if you find a Realtor who can help you move quickly to avoid foreclosure, they’re unable to guarantee they’ll find a buyer within the timeline.
If they do find a buyer and the buyer can’t secure a loan, you’ve effectively wasted all the time you’ve spent setting up that deal.
3. Sell your home before the time limit
Technically, you still own your home until the moment the lender auctions it off. You don’t want to wait that long to make your move though. The second you know you’re going into foreclosure and don’t have the funds available to bail yourself out, you need to find the right buyer.
You need someone who can pay cash, and can purchase your home immediately.
Many homeowners trying to beat the clock on their foreclosure opt to sell the house to a Real Estate investor. Real Estate investors are private buyers who already have funds available, which drastically simplifies the selling process.
Since there’s no agents to satisfy, there’s no fees or commissions involved in the process. On top of that, Real Estate investors will generally pay all closing costs for you and can close escrow in as little as a week.
They will often times also negotiate with your lender on your behalf to push the deal through before the process moves along any further. This removes a major headache and allows professionals to handle the hassle for you.
4. Don’t fall victim to Foreclosure Scams
The second your property goes into foreclosure, you may get bombarded by investors and companies with big wallets who’re willing to take your property off your hands. Some of these companies are reputable, and they may be able to provide you with the help you need.
Others can be scam artists looking to prey on homeowners while they’re at their lowest. You need to learn to distinguish between the two. Since you’re in a touchy situation right now, there’s a lot of people who might want to kick you while you’re down. Foreclosure scams are common in this day and age. If you think that an offer is too good to be true, then trust your instincts – don’t sign anything!
It’s important when speaking with investors to do your due diligence in researching the companies you’re considering. Because of the dire situation of foreclosure, some people will unfortunately try and take advantage of your situation.
Make sure you investigate all potential investors before you sign anything and read any fine print if their words sound too good to be true.
Is it worth it to File for Bankruptcy?
Despite what some homeowners believe, bankruptcy may not eliminate your financial responsibility to your lender or protect your credit score. It can put a halt to the foreclosure process until the court reaches a decision regarding the validity of your bankruptcy, but it’s only temporary.
There are two common types of bankruptcy, and each has distinct advantages and disadvantages when it comes to working through a foreclosure.
Chapter 13 bankruptcy
May allow you to keep your home. It won’t alleviate your debts – it will create a plan that restructures your debts in a way that may be more manageable. This kind of bankruptcy comes with a detailed payment plan that will span over several years.
Unsecured loans will be stricken from the record (which is good news if you’re juggling upside down second mortgages), but the initial debt to your lender will remain. This is the best strategy for people whose hardships are only temporary.
Chapter 7 bankruptcy
Cannot and will not save your home. You’ll still go through a foreclosure with chapter 7. The only difference is that your lender won’t be able to pursue you for a deficiency judgement if this kind of bankruptcy is granted.
If your goal is to save your home, only chapter 13 will provide you with the tools that you need.
What about a Loan Modification program?
In many states, lenders aren’t allowed to employ two foreclosure strategies at once. This is called dual tracking, and most homeowners are protected from this type of action. Requesting a loan modification can temporarily halt a foreclosure, and being granted one can stop the foreclosure altogether as long as you’re willing to comply.
If you don’t wait too long to request a loan modification program, you may be able to get it. You’ll need to continue to make payments on your home, but they’ll be structured differently. You need to have your first payment ready when your loan modification plan takes effect. If you continue to pay on time, you won’t face foreclosure again.
If you know that you can’t make payments, it’s not worth wasting valuable time pursuing a loan modification.
You’ll only be stalling the inevitable, and that time would have been better used attempting a different strategy.
You don’t have a moment to waste.
Selling quickly will always be better than trying to squeeze out a few more weeks.
How much can I sell my Home for before a Foreclosure?
You can sell your home for as much as anyone is willing to pay for it. This is great news if you don’t owe very much on your defaulted mortgage. If you owe $40,000 to your lender, and your home is valued at $300,000, the difference belongs to you.
You’re only responsible for paying your lender the full amount you owe, as well as any interest that applies to the loan. You may not be able to wait for a buyer who is prepared to offer $300,000 in cash before your foreclosure is finalized though.
In this scenario, regardless of which Investment company you choose to sell with, you will likely receive lower than market-value. But as long as you can cover what you owe you will be in a much better position than not.
Selling at a lower than market price makes your home immediately attractive to Real Estate Investment companies or property flippers. Real Estate Investment companies won’t wait around either. They’ll jump on the opportunity to purchase your home the moment it becomes available.
Since they pay cash, you’ll be able to pay off your lender before the foreclosure and use any profits to set yourself up in a new living situation.
Short Sale: Can I sell my home for less than I owe?
If you owe more than your home can be sold for, the situation becomes a lot different.
It still may be worth selling, but you won’t profit much. If you owe $200,000 on a home that’s depreciated in value by $50,000, you’ll have a difficult time short selling your home.
Even then, you’re still out a significant amount of money and will still end up with a negative mark to your credit, despite this being the preferred route by the bank.
If you plan on going the Short-Sale route, sell the home facing foreclosure for as much as you can get, and hand the money over to your lender. You won’t get anything out of the process, but your debt will be drastically reduced.
Find an honest Investor to buy your home Facing Foreclosure
When you’re looking to avoid foreclosure, in most cases the best option is to find a reputable investor. If an investor is making you promises that are too good to be true however, they probably are. Since time is of the essence, you may not be able to thoroughly scour local investors and vet them for trustworthiness.
At SoCal Home Buyers, we can make things easy for you so you don’t have to deal with the hassle. The sooner you contact us, the sooner your foreclosure can be put to rest and the sooner you can get on with your life and be free from all of this stress.
We’d be delighted to provide you with a fair cash offer for your home, allowing you to avoid adding a foreclosure to your credit history!
Simply, submit your contact information and property address, and we’ll have one of our awesome team members contact you about your home immediately. You deserve the best of service in your time of need and we would love for the opportunity to do that for you!
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We buy houses from homeowners that need to sell houses facing foreclosure in Los Angeles, Riverside, San Bernardino, San Diego, and Orange County. You can either fill out our online form below or give us a call at: 951-331-3844 to find out how we can help you with selling a home facing foreclosure, today!