A pre-foreclosed home sale will have a different set of rules than a normal home sale, which is why sellers need to be on their toes to ensure everything goes smoothly. Of course, this is a tall order to ask from homeowners who may feel as though they're in an unwinnable situation. In fact, many homeowners don't even realize that selling is an option once they fall behind on their mortgage payments and learn of a possible foreclosure oin their home. They may think they have to leave immediately or that the home already belongs to the lender.
Homeowners are usually allowed to sell their home prior to an actual foreclosure and the home being sold (either at auction or through a normal listing) If the home is sold prior to an actual legal foreclosure, the seller can use the funds from the sale to pay back their lender. This would usual;ly also include any back interest payments and late penalties. However, in the event the home is sold for less than what is owed, sellers may also have the option of a short sale, depending on their lender and the circumstances surrounding their debt.
How It Works
A home seller that is behind on their mortgage payments and has not yet been formally foreclosed on is technically in pre-foreclosure. This occurs from the time an owner is notified of any late mortgage payments with associated penalties, to the moment the home is actually placed into foreclosure. Most lenders do not wish to foreclose on a home and are usually happy to work with homeowners who can pay back what they owe—even if it's later than the lender would have liked. Ideally, the amount of unpaid interest and penalties, plus the unpaid balance of the mortgage loan, would be completely covered by the proceeds from the home sale. As in all regular home sales, the homeowner won't own the property anymore after the sale, but they would have avoided the black mark of foreclosure reported on their credit score.
If a homeowner finds themselves falling behind on their mortgage payments, they should talk to their lender first. They can then request them to postpone any foreclosure actions so that the owners have some time to locate a buyer for the home. Sellers should make it clear to the lender that by listing the home immediately, they have a better chance of settling their debts. Every state has their own laws about how long a lender has to officially foreclose on the home. Some states give homeowners a year to make amends—others only give it a month. The more time a seller has to sell their home, the more likely it is they'll get the price they want.
Find a Qualified Agent
A pre-foreclosure may attract a lot of potential buyers by the sheer nature of the sale. Buyers can often get some truly incredible deals by purchasing a property from a seller who doesn't have much leeway when it comes to their deadlines. The right real estate agent may be short on time to market the home the way they do in a traditional sale, but they can still usually help the sellers get more money for their property.
Most real estate agents can assist homeowners when they speak to their lenders about the amount of proceeds from a home sale that they'd be willing to settle for. Most lenders and banks would prefer not to handle the work and uncertainty of a complete foreclosure. They may be willing to reduce certain amounts the homeowner may owner so they can save themselves the time and expense of a foreclosure.
Additionally, a motivated homeowner who's proactive in contacting their lender and working with them will likely make a positive impression on the lender. In contrast to many homeowners who may abandon their home, not contacting the lender and then leaving the property in disarray and possibly in danger of being vandalized. In other words, lenders may be more willing to work with those in financial distress than one might think.
The Art of a Short Sale
A short sale refers to a sale where the lender has agreed to settle a homeowner's debt for less than what they're owed. A qualified real estate agent will know more about short sales, making it more likely they can advise the homeowner of the best possible strategy for them. States have different rules when it comes to how short sales work and how the proceeds from a short sale are used, so it's important to seek professional help.
No matter what a mortgage lender is likely to do, homeowners who are behind on their mortgage payments and facing a foreclosure are better off by confronting the problem early-on. By explaining the situation, proposing solutions, and negotiating a plan, it's possible to lessen the negative ramifications of having a foreclosed home on ones credit report. Enlisting the help of a Murfreesboro real estate agent with experience in pre-foreclosures and short-sales is usually the best place to start.
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