Facing foreclosure? Selling a home in foreclosure is one way to get out of a mortgage that's no longer affordable. Here’s what you should know.
The United States experienced an unprecedented collapse of its housing market in 2008 and 2009. According to the US Department of Housing & Urban Development (HUD), between 6 and 8 million US homeowners were sent foreclosure notices during that period and while the housing market has slowly recovered, many homeowners still haven’t. The historic number of foreclosures in the country forced many homeowners to consider every 
option available to them to avoid foreclosure. For some, selling the house was one of those options.
If you are faced with this situation and have been considering selling a home in foreclosure, there are several things you should know. We’ve tried to break it down into a few steps:
Step 1 – know where you are in the process
Facing foreclosure can be emotionally unsettling. It can also be technically confusing. There are distinct and separate steps along the way in the process and at each step, rules, terms, conditions and options change – in some cases dramatically. Being “in foreclosure” puts you in that period of time between being in “pre-foreclosure” and being “foreclosed”. If you have missed enough consecutive mortgage payments to provoke your lender/mortgagee to send you an official Notice of Default (NOD), you are in pre-foreclosure.
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In the NOD, your mortgagee will spell out the steps you can take to right your economic position with them and the timeframe in which you must complete those steps. Failing to meet the NOD requirements without any adjustment or accommodation by your mortgagee will trigger an official Notice of Foreclosure. In that notice, you will be given specifics on the time still available before your property will be totally foreclosed on and scheduled for a sale by or on behalf of the mortgagee.
Knowing where you are in the process may entail taking the second step…
Step 2 – contact your lender
As difficult as it may seem to respond to the calls and letters you have been receiving from your lender as you careen toward foreclosure, communication can be a key step in possibly keeping your home. If keeping your home just isn’t going to be possible, communicating directly with your lender may help you find a resolution 
that doesn’t devastate your credit for years. One option still available to you when you are in foreclosure is to speak with your lender about a short sale.
A short sale occurs when the listed price and expected proceeds from the sale are knowingly less than whatever outstanding liens or encumbrances are attached to the home, but in which the lender and/or lienholders agree upon a sale price, as a fulfillment of the outstanding obligations. While some private lenders are reluctant to enter into a short sale agreement, the federal government backs most home loans in the US and the federal government is a strong supporter of short sales as an option for distressed homeowners.
(To see the guidelines on short sales for federally backed mortgages, click here.)
Another option your lender may be open to is finding a prospective buyer for your home in foreclosure prepared to assume the loan you are behind on or in default of. While you would still lose the home in this case, you would avoid being formally foreclosed on and the damage to your future credit prospects that would create.
Step #3 – seek representation
Recruit a real estate agent and/or an attorney to help with the sale of your home in foreclosure. While this may seem counterintuitive when you are feeling financially pinched as it is, enlisting professional help will benefit you in the long run and could actually wind up saving you more money then you invest.
Selling a home in foreclosure? Find out about assistance programs you may be eligilbe for by clicking here.
In the case of enlisting the help of a real estate agent, be sure you pick one with experience in dealing with homes in foreclosure. Any real estate agent working with you to help sell your home in foreclosure is going to take his/her fees from the proceeds of your sale, so you won’t be out any upfront investment (at least you shouldn’t.)
If you choose to bring on an attorney with experience in handling sales of homes in foreclosure, discuss the possibility of paying them out of the sale proceeds just as you would a real estate agent. There are some real estate agencies with legal staff supporting them and perhaps you can get a “two-for-one” package with a real estate agent and good legal counsel.
Step #4 – set a price and prepare your home for sale
Setting a price for a home you are trying to sell in foreclosure is different than setting a “market” price for a home in a more traditional fashion. If you are in foreclosure, chances are good that getting an appraisal and running “comps” on other sales in your area won’t be as helpful, and you may not have the time for it. After discussing the options you have with your lender, set an asking price that is as close to whatever you owe (higher if you think you can get it) and/or whatever you and the lender have discussed will be an acceptable price if it’s a short sale.
Once the price is set, you’ll want to do what you can to make the property attractive enough to prospective 
sellers that they will offer that price. Complete whatever deferred maintenance or minor repairs you can (within your budget and time constraints) and be sure to offer full disclosure of any liens or encumbrances that may be associated with the property.
Step #5 – solicit and review offers
Once your home in foreclosure is on the market, you will want to be sure you let your lender know of each and every bona fide offer that comes through. Remember, you are working against time here. If your mortgagee winds up completely foreclosing on your property and dispensing of it with an auction sale, the highest bid will have to be taken (no matter how low). Having a bona fide offer in hand will be an attractive alternative for most lenders.
Step #6 – be wary of deficiency judgments
If you get an offer and proceed with the sale of your home in foreclosure, be sure you have protected yourself against any deficiency judgments. These are actions taken against you by a lender or lienholder to collect any outstanding debts attached to the property not satisfied through the proceeds of the sale. If your home is mortgaged through a government-backed loan, any prospects for a deficiency judgment should have been waived. In the case of private mortgages, you and your team of advisors should have negotiated the prospect of a deficiency judgment with your lender and included appropriate provisions into whatever agreements you have governing the sale of your home in foreclosure.
If you are in the position where you have to sell your home in foreclosure, it will be a challenge, but it’s not an impossible one. Having the support and counsel of qualified professionals with experience in this area will help and Reply! can connect you to local real estate professionals who have just the experience you’ll need to successfully navigate through the process.