If you’ve bought or sold a home in the past, you know the process can be full of surprises. If you’re selling a home in pre-foreclosure, the process is even more complicated.
We’ll tell you how it works and what you need to do to sell your home, get out of debt, and keep your credit rating in good standing.
How Is Pre-Foreclosure Different from Foreclosure?
In a short sale, the bank knows that it will be difficult to recover the full amount of the loan but agrees to recoup as much as it can. In a foreclosure, the lender repossesses the property and auctions it off to get the money back.
Short-sale occurs in one of two conditions:
- Inability of owner to make mortgage payment
- Decrease in property values that makes home worth less than the loan
When You Can’t Pay Your Mortgage
Your credit record takes a big hit when you don’t make your mortgage payments, but that doesn’t mean you’ll never be able to buy another home. Depending on the loan, the wait varies from two to eight years.
Knowing what to do and what not to do can keep you from losing your home, entering bankruptcy, or ending up with a bad credit rating.
If you sell before the house goes into foreclosure, you can use the money from the sale to pay off the lender and walk away. If you owe more than you make from the sale, you still have to pay the balance, late penalties and interest.
It may not be possible to sell your home and pay off the mortgage. It depends on the real estate market, the demand for your particular home, and the time you have to find a buyer.
If you can’t sell the house for enough money to pay off the balance of the loan, a short sale might be the best solution. The bank wants to recoup as much of its investment as possible and avoid the cost of a legal battle.
If you’re approved for a short sale, the lender may settle for less than you owe. Because regulations vary and every sale is unique, you’ll need an experienced realtor to help you with the deal.
If you aren’t able to sell the house and pay the lender, your home will be auctioned in a sheriff’s sale. Until the auction, you can:
- Catch up on payments
- Get your loan modified
- File for bankruptcy
How Pre-Foreclosure Works
If you’re late on your payments but haven’t received notice of official foreclosure, you’re still in pre-foreclosure. Pre-foreclosure starts when you’re warned about late payments and ends when your home goes into foreclosure.
Lenders are usually willing to work with you because they lose money when they foreclose your home. You’re in a good position to negotiate.
After you reach a compromise with the bank, you won’t own your home any longer, but you won’t have a foreclosure on your credit report either.
What You Need to Do to Avoid Foreclosure
Talk to your lender
The first thing to do if you can’t make your mortgage payment is to talk to your lender. Ask if they’ll put off any actions toward foreclosure while you look for a buyer, and let them know you’ll put the property up for sale immediately.
State laws on foreclosure vary, and some state regulations are friendlier to homeowners in distress than others. The longer you have to sell, the more likely you’ll be able to get the price you need.
Find an experienced real estate agent
Because sellers are eager to sell pre-foreclosures and buyers know they can be good deals, there may be a lot of interest in the property.
Pre-foreclosures come with uncertainty, and some banks and lenders prefer not to work with them. An experienced real estate agent can navigate the legal process and increase the odds of success.
Impress the bank
If you go in early and let the lender know you’re doing everything you can to pay them off, you’re more apt to get what you ask for. Some sellers walk away and leave their property in poor shape without even talking to the lender.
Sell your house to a Home Buyer Company
Another option is selling to a home buyer company in your local area or online. Companies vary from small, independent businesses to huge internet buyers, but all of them buy homes from owners who need to sell quickly.
Two kinds of companies buy homes:
- Local companies that invest in your community
- Internet companies, or iBuyers, that make online offers
Cash buyers buy homes from owners who are in distress and need to sell quickly. They market their services to sellers in situations like these:
- Job-related moves
- Homes that won’t sell
- Vacant or damaged homes
- Tenant evictions
The company pays cash, and you usually close within a few days. You don’t have to do repairs, pay a realtor or get your home ready to show.
Sometimes, you can negotiate moving dates or get help with tasks like clearing clutter. You may even be able to rent from the buyer and stay in your home after the sale.
The concept of internet buyers is relatively new. They work in specific areas of the country and make offers online, usually within a few hours.
Local investors may have an interest in your community and be familiar with a specific real estate market. After you contact them, they’ll visit your property and make an offer.
How to Choose a Home Buyer Company
Your home is filled with memories, and you may feel vulnerable because circumstances are forcing you to sell. You still need to do your homework before you make a decision.
- Do the research – For sellers who need to sell their houses fast without a lot of red tape, companies that buy homes provide a necessary service. Search websites and local businesses to find reputable companies and understand how they work.
- Look for a reputable company – Check with the Better Business Bureau to see if there are complaints against the company. If so, did they settle the complaints fairly and promptly?
- Ask for referrals – Local companies should be able to give you a list of homeowners they’ve worked with in the past. Talk to them, but check online reviews too.
- Look for experience – Be wary of hand-lettered signs or mailbox flyers that make promises sounding too good to be true. Choose a company with experience and a reputation for getting the job done with honesty and speed.
- Be honest and open with the buyer – While companies that pay cash for homes are more lenient with repairs and renovations than other buyers, they need a straightforward description of your home’s condition. Full disclosure is the best policy.
Find the Best Option for You
Whether you find a buyer yourself, ask for loan modifications, or accept a cash payment for your home, selling it in pre-foreclosure protects your credit history and spares you from a long, tedious foreclosure process.
Every situation is unique, and the only way to know which is best for you is to research your alternatives and talk to reputable real estate agents, property attorneys and home buyer companies. .