Selling Before the Sale
The short answer
When the payments can't be caught up, selling the house before the trustee's sale usually leaves the owner far better off. The lender is paid from the sale, and whatever is left over stays with the owner instead of being lost at auction.
What to do now
Find out what it's worth
Compare the likely sale price with everything owed: the loan, missed payments, fees and taxes.
Tell the lender
Let the lender and your counselor know the house is being sold. A signed sale can be a reason to ask for more time.
List with time to spare
A sale usually takes weeks to close. Listing early leaves room for offers, inspections and closing before the sale date.
Why selling usually beats foreclosure
At a trustee's sale, the house goes to the highest bidder, often for less than it would bring on the open market, and the costs add up. A normal sale reaches every buyer, and after the loan and costs are paid at closing, the rest of the money goes to the owner.
Many older owners have paid down their loans for decades, so the equity at stake can be large. Protecting it can pay for the next home.
How much time a sale needs
Preparing the house, finding a buyer and closing usually takes several weeks to a few months. The earlier the decision, the better the price and the less pressure to take a low offer.
Once the Notice of Trustee's Sale is recorded, there are at least 90 days to the sale. That is enough for a sale only if the work starts right away.
If the house is worth less than what's owed
A short sale is a sale the lender agrees to accept for less than the loan balance. A deed in lieu of foreclosure hands the house to the lender in exchange for ending the loan. Both usually do less damage than a foreclosure, and both need the lender's approval.
For a HECM reverse mortgage, federal rules allow cash for keys: up to $7,500 for a short sale or deed in lieu, plus up to $5,000 toward probate costs when heirs are handling it.
Taxes and what happens to the money
At closing, the escrow company pays off the loan and any missed amounts, and the rest goes to the owner. A CPA can explain any tax on the sale, and on any debt a lender forgives in a short sale.
Beware of anyone offering to buy the house fast for cash on condition that the owner signs the deed over before closing. See Avoiding Foreclosure Scams.
Professional Disclosure
Real Property Planning is an educational and connection hub. It does not provide legal, tax, accounting, financial, brokerage, or appraisal services. Professionals referenced on this site are independently licensed and operate through their own separate businesses. Real estate brokerage services are provided by David Stein, a licensed Washington broker, through eXp Realty. Appraisal services are provided by David Stein through Stein Appraisal. Read the full disclaimer.