Can I Sell My House If I’m Behind on Payments?

When facing the challenge of falling behind on mortgage payments, selling the home can be a viable path forward for homeowners. This approach can help resolve missed payments and potentially avert more severe consequences, such as foreclosure. Understanding the process involved can empower homeowners to make informed decisions about their property.

Assessing Your Current Mortgage Situation

Before initiating any sale, homeowners should gather precise details about their mortgage. Contacting the mortgage lender is a necessary first step to obtain accurate information regarding the total outstanding loan balance, the exact amount of any arrears, and any accumulated late fees or penalties.

When speaking with the lender, it is important to ask for a payoff statement. This document provides the exact amount required to fully satisfy the loan on a specific date, including the principal balance, accrued interest, and any unpaid fees. The payoff amount is typically higher than the current loan balance listed on a monthly statement because it accounts for interest that accrues daily and other charges. Inquire about the current status of the loan, specifically asking if any foreclosure proceedings have been initiated or are imminent, as a Notice of Default might be issued after several missed payments.

Gathering information about the loan’s status, such as how many payments have been missed, is important. Understanding the type of mortgage loan held can also influence potential solutions. A clear picture of the financial obligation, directly from the lender, helps in evaluating the feasibility of selling the property.

The Process of Selling Your Home

Selling a home when behind on payments generally follows a standard real estate transaction, with the added element of coordinating with the mortgage lender. Homeowners should engage a real estate agent who is familiar with these types of situations and can help price the home appropriately for the current market. The agent will then list the property, market it to potential buyers, and help manage offers.

Once an offer is accepted, the sale proceeds are typically directed to pay off the existing mortgage and any associated closing costs. The lender’s approval is necessary, as they must release the lien on the property at closing, ensuring clear title for the new buyer. The mortgage loan is paid in full from the sale funds, and any remaining amount, after all debts and selling expenses are covered, goes to the homeowner. This process is common when the home’s market value exceeds the amount owed on the mortgage, indicating there is sufficient equity to cover the outstanding debt.

Navigating a Short Sale

A short sale becomes a necessary consideration when the amount owed on the mortgage is greater than the home’s current market value, a situation sometimes referred to as being “underwater.” In such cases, the lender must agree to accept less than the full outstanding mortgage balance to release the lien. This process requires specific approval from the mortgage lender.

The short sale process typically involves submitting a comprehensive package of documentation to the lender. This often includes a hardship letter, which explains the financial circumstances preventing the homeowner from making mortgage payments, such as job loss or medical emergencies. Other required documents can include financial statements, bank statements, tax returns from the last two years, pay stubs, and an income and expense balance sheet. The lender’s approval process involves reviewing these documents to determine if a short sale is a more favorable outcome than foreclosure.

Negotiations with the lender for a short sale can extend the timeline of the selling process compared to a traditional sale. An experienced real estate agent or a short sale negotiator often plays a role in facilitating these discussions and ensuring all required paperwork is accurately submitted. Even after lender approval, the sale still proceeds like a standard transaction, but the lender retains the authority to accept or decline a buyer’s offer.

After the Sale

Following a successful home sale, the financial outcomes for the homeowner depend on whether the sale price covered the entire mortgage debt. In a traditional sale where the home’s value exceeded the loan amount, the proceeds are used to pay off the mortgage, closing costs, and any other liens, with the remaining equity distributed to the homeowner. This scenario typically results in a clean break from the mortgage obligation.

When a short sale occurs, the sale price is less than the amount owed on the mortgage, resulting in a deficiency balance. The lender might pursue the homeowner for this remaining debt through a deficiency judgment, depending on state laws and the terms negotiated during the short sale. However, it is possible to negotiate with the lender for a waiver of this deficiency balance, which should be explicitly stated in the short sale approval letter. Some states have laws that limit a lender’s ability to pursue deficiency judgments.

The act of selling a home while behind on payments, especially through a short sale, will impact the homeowner’s credit report. While a short sale is generally considered less damaging than a foreclosure, it still reflects that the mortgage was settled for less than the full amount. The exact impact varies based on individual credit history and how the lender reports the settled debt to credit bureaus. Late payments leading up to the sale also negatively affect credit scores.