Can You Sell a House if You Are Behind on Payments?

It is possible to sell your home even when facing the challenge of falling behind on mortgage payments. Understanding the available options for selling a property in this situation can provide a clear path forward. This article guides you through the process, from assessing your current financial standing to navigating the different pathways for selling your home and the practical steps involved in the sale.

Assessing Your Financial Position

Understanding your financial standing is a foundational step when considering selling your home with mortgage arrears. Begin by determining the exact amount of your mortgage arrears, including past due principal, interest payments, late fees, and penalties. Your mortgage servicer can provide a detailed breakdown of these charges. Identify any escrow deficits, which are shortages in funds held by your lender for property taxes and homeowner’s insurance, as these also contribute to the total amount owed.

Next, ascertain your total outstanding mortgage balance. This figure includes the remaining principal, accrued interest, and any unpaid fees or charges. Request a mortgage payoff statement directly from your loan servicer. This document provides the precise amount required to fully satisfy your loan on a given date, including per diem interest. The payoff statement will also include an expiration date, after which the amount may change due to additional accruing interest.

Simultaneously, estimate the current market value of your home. This can be achieved using online home value estimators, which offer an initial assessment based on public data and recent sales. For a more precise valuation, consider engaging a local real estate agent to conduct a comparative market analysis (CMA). An agent’s CMA evaluates your home’s characteristics, location, and condition against recently sold, comparable properties in your neighborhood, offering a more tailored estimate.

Calculating your equity position involves subtracting your total outstanding mortgage balance from your estimated current market value. If the market value exceeds the total amount owed, you have positive equity, which can be used to cover the mortgage and selling costs. Conversely, if the amount owed is greater than your home’s value, you are in a negative equity position. This assessment helps inform which selling pathways might be available to you.

Direct communication with your mortgage lender is also necessary to understand their specific policies regarding defaulted loans and any available loss mitigation options. Lenders are often willing to work with homeowners facing financial hardship to avoid foreclosure. They may offer solutions like repayment plans, loan modifications, or forbearance, which could temporarily suspend payments. Discussing your situation openly with them can reveal alternatives that might align with your goal of selling the property.

Selling Pathways with Mortgage Arrears

Once your financial position is clear, you can explore distinct methods for selling your home while behind on payments. The most suitable pathway often depends on your home’s equity and your ability to cover selling expenses. Understanding these options provides clarity on how to proceed.

A traditional sale is an option if your home holds sufficient equity to cover the entire mortgage debt, including all arrears and associated closing costs. This process mirrors a standard real estate transaction where the property is listed, marketed, and sold. The proceeds directly satisfy the outstanding loan and any accumulated fees.

For homeowners in a negative equity position, where the home’s market value is less than the total amount owed on the mortgage, a short sale may be a viable solution. A short sale occurs when the mortgage lender agrees to allow the property to be sold for less than the outstanding mortgage balance. This agreement is sought when a homeowner faces significant financial hardship and cannot afford mortgage payments, or the home’s value has declined below the loan amount.

The purpose of a short sale from the lender’s perspective is to minimize potential losses they might incur through a foreclosure, which can be a lengthy and costly process. By agreeing to a short sale, the lender avoids the expenses associated with foreclosure proceedings, property maintenance, and the uncertainty of a foreclosure auction. A short sale requires the lender’s explicit approval, as they must agree to accept a lesser amount than what is fully owed on the loan.

The Sale and Mortgage Resolution Process

Executing the sale of a house when behind on mortgage payments involves a series of practical steps, regardless of whether it’s a traditional sale with equity or a short sale. These steps are designed to facilitate the transaction and resolve the outstanding mortgage debt.

The process begins by engaging a real estate agent, preferably one with experience in distressed properties or short sales. An experienced agent can provide guidance on market conditions, pricing strategies, and the specific documentation required for transactions involving mortgage arrears. They also play a significant role in preparing the home for listing, which may involve minor repairs or staging to enhance its appeal to potential buyers.

After preparation, the property is listed on the market, and the agent actively markets it to attract offers. As offers come in, the agent assists in negotiating the terms, aiming for the best possible price and conditions. For a short sale, any accepted offer must be submitted to the mortgage lender for review and approval, along with a comprehensive package detailing the seller’s financial hardship. The lender will conduct their own valuation of the property to determine if the proposed sale price is acceptable.

The closing process is the final stage where ownership of the property officially transfers to the buyer. During closing, the outstanding mortgage balance, including any agreed-upon short sale amount, is paid directly from the sale proceeds. The title company or closing agent ensures that all funds are disbursed correctly, including paying off the mortgage, covering real estate commissions, and settling other closing costs.

Throughout the sale process, ongoing interaction with the mortgage lender is necessary. This includes providing them with the purchase agreement, the buyer’s pre-approval letter, and any other documentation they require to assess and approve the sale. For a short sale, the lender will issue an approval letter detailing the terms and conditions under which they will release the lien on the property for less than the full amount owed. This ensures that the mortgage is properly resolved at the time of closing, allowing the property transfer to proceed smoothly.