If you are suffering from financial hardship and facing home foreclosure, you may be able to sell your house before it is foreclosed on in order to avoid having a foreclosure sale report on your credit report and walk away with some of the equity you have built up over the years.
Living in the Seattle metro area, you would have to have had your head buried in the sand to not know that the Seattle metro area is the fastest growing city in America causing house prices to skyrocket. This means that if you purchased your house more than a few years ago, you likely have a significant amount of equity in your home. With that increase also comes the increase in property taxes that you are now responsible for based on your homes’ tax assessed value with the county in which you live.
While most of the people I talk to on a daily basis suffering from financial distress are looking for ways to keep their primary residence if possible, many in fact would not mind selling the home if they are able to do so prior to a scheduled foreclosure sale. These consumers can use proceeds from the sale to pay down debts, use the equity as a nest egg or a down payment on a future less expensive home, perhaps in a lower cost of living area such as eastern Washington, Bremerton or even Phoenix, Arizona just to name a few.
If you are considering selling your home and under financial distress you should start planning your exit strategy as soon as possible to maximize the equity you are able to get out of your home. This is because once a minimum of 180 days go by of non-payment you could be facing a foreclosure sale, in which case you will lose significant equity that you could have saved to legal fees of foreclosing attorneys, possibly your attorneys to prevent a foreclosure through applying for a loan modification or bankruptcy, or having to sell the property at a bargain basement price just to avoid a foreclosure sale. If you don’t see your financial circumstances changing by the time you receive a notice of trustee sale, it may be time to list your property on the open market. If however you do want to keep your home and think you will be able to afford the future payments or make up arrears applying for a loan modification, going through foreclosure fairness mediation, or filing a chapter 13 bankruptcy may be advisable. These options can also delay a foreclosure sale for a significant time or buy time to work things out with selling the property.
Unfortunately, most people are not that proactive when it comes to digging their way out of financial distress and most are eternally optimistic about retaining a home. So if you have waited until the last 30 days prior to a scheduled foreclosure sale or you already have had a loan modification denied or a bankruptcy case dismissed, you will need to act fast as most purchase and sale real estate transaction take at least 30 days to close under normal circumstances. This is because the property must be ready to list and go through the escrow process of clearing any liens and getting payoff letters from lenders in default. In the days approaching the foreclosure sale date you will most likely receive a few cash offers to purchase your property, however these offers will be from investors looking to either make a profit flipping your home or renting it out. The general rule for investors is that 1% of the purchase price should allow for that amount to be had in rents. This is in contrast to investors who would flip the property for a profit may pay up to 70% of the fair market value which may still be profitable. A seller on the other hand would profit the most from a buyer who wishes to live in the property and build up equity over the long term. Unfortunately, a person looking to live in the property does not have all cash available to close on a deal quickly and any offers they make will likely be contingent to them obtaining financing. Therefore, you would be left dealing with speculators and have to accept that you would have to sell at a price that is well below the fair market value.
What Happens If I Let A Property Foreclose?
If you take no action or make no deal with anybody prior to a foreclosure sale, your property will head to the county auction. Here investors will bid against each other for the right to purchase your property. If there are no bids, then the bank gets the property and can sell it on the open market. Auctions mostly consist of professional investors or representatives from banks or companies as any winning bids need to be paid in cash at the time of the auction. It is also likely that most consumers would be outbid by companies or professional investors who work in the space as they generally have more resources, however at the end of the day everyone needs to decide if the property being bid on would be a good investment as the properties are bid on site unseen.
Once the winning bid is paid, the bank and any other junior lienholders would be paid in order of recording position. If there is not enough funds to pay everyone, then the junior liens would be wiped out as to the property, but not to the original owner who owed the money on a non first lien on a primary residence. If the winning bid exceeds the moneys owed recorded against the property, then the excess funds are placed with the county superior court. As the former owner you can apply to claim these funds as can any former owners or lien holders who may have an interest in the funds. Therefore, its possible you could still get some equity out of your property if all the debt is paid off by the highest bidder however, as previously mentioned there are attorney fee’s/bank fee’s/HOA fees incurred for having to go through a foreclosure and then you may need to hire an attorney to obtain the funds out of the court by making a claim to the funds and providing notice to anyone else who may have an interest.
Additionally, by allowing the home to foreclose you will have a foreclosure listed as a public record on your credit report which will hurt your credit score and ability to obtain favorable credit. You may also have to wait 3 years to get a new home loan post foreclosure sale.
What if I don’t Have Enough Time to Sell My House Before It is Foreclosed On?
It is advisable to avoid foreclosure if at all possible, therefore many consumers end up filing a chapter 13 bankruptcy in order to delay a foreclosure sale. Chapter 13 bankruptcy can be filed at any time prior to the scheduled sale date to stop the sale. With that said, filing chapter 13 does leave a public record on your credit report and can prevent you from getting a future home loan for 2 years. The benefit of filing the bankruptcy is that it could buy you time to list your house for sale on the open market to obtain the best offer available from a consumer who may want to live in the property. Going through foreclosure fairness mediation also delays a foreclosure sale without having to file bankruptcy but it requires planning as it can only be requested at the latest, 20 days of receiving a notice of trustee sale date.
Therefore, in order to extract the most equity out of a distressed property a consumer should list their property on the MLS rather than on the eve a trustee sale date. With that said, a consumer can delay a trustee sale in order to extract the most equity out of a property if they are proactive and act early or are open to chapter 13 bankruptcy. Alternatively, if the ability to purchase a home in the future is of primary importance, selling your property to an investor for below market value may make the most sense and provide the most convenience if you are willing to sacrifice some equity.
If you live in Washington State and are looking for a real estate attorney to assist with a real estate transaction or prevent a home foreclosure, give Symmes Law Group a call at 206-682-7975 to get the counsel you need.