How to Sell Your House to Avoid or Stop Foreclosure

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 large reduction in your credit score. However, you maybe able to sell your home to stop foreclosure and avoid the 4 to 7 years of dealing with bad credit. 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 price that you sell your home for is larger than what you owe the back including back payments and interest, 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. If you owe more one your mortgage than what you can sell your home for you may be able to negotiate a short sale with your lender to avoid foreclosure.

What’s a Short Sale?

A short sale occurs when you sell your home for less than the outstanding loan balance. The bank then accepts the sale price and lets you walk away from the property with no further action required. While it may still cause damage to your credit score, it does stop the foreclosure and allows you to move on with your life with no further obligation to pay the lender. If you do decide to complete a short sale with your bank it is important to get a signed agreement from your lender that binds them to not hold you accountable for the remainder of the loan balance. This may take a little negotiating but it happens with more than 50 percent of the short sales.

Does the Bank Need to Agree to the Sale?

In a short sale situation, the lender will have to agree to let the you sell your 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 their property. 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. Ask your lender if you have a prepayment requirement on your mortgage.

A foreclosure is not something that an individual wants to go through but some times it may be the best option. 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. This will allow you to pay for back payments, interest and your overall loan balance.