If you have fallen behind on your mortgage payments, your lender may choose to foreclose on the loan. This means you will lose your home and suffer a big drop in your credit score. However, you may be able to sell your home to stop foreclosure and avoid 4 to 7 years of credit problems. How can selling your home end your foreclosure dilemma?
The lien disappears when the loan is paid off
As long as the price you sell your home for is more than the amount owed, including late payments and interest, the lien on the property disappears and the lender has no reason to foreclose. This means no foreclosure and no potential damage to your credit score. If you owe more on a mortgage than your home can sell, you may be able to negotiate a short sale with your lender to avoid foreclosure.
What is a short sale?
A short sale occurs when you sell your home for less than the outstanding balance of the loan. The bank then accepts the sale price and allows you to walk out of the property without taking any further action. While it can still cause damage to your credit score, it stops the foreclosure and allows you to get on with your life without further obligation to pay the lender. If you decide to complete a short sale with your bank, it’s important to get a signed agreement from your lender that obliges them not to hold you responsible for the remainder of the loan balance. This can take a bit of negotiating, but it happens with more than 50 percent of short sales.
Does the bank need to agree to the sale?
In a short sale situation, the lender will have to agree to let you sell your home for less than the loan amount. However, the property owner is free to sell the home at any time before the foreclosure takes effect. This is because the property has not yet been repossessed and the owner is free to sell his property. The only thing that can hinder a sale is the existence of a prepayment penalty. Although rare, some mortgages contain clauses that require the mortgage holder to pay a fee if the mortgage is paid off early for any reason. Ask your lender if they have a prepayment requirement on your mortgage.
A foreclosure is not something a person wants to go through, but sometimes it can 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 isn’t 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 your late payments, interest, and the full balance of your loan.