Home values skyrocketed in 2019-2022, but many homeowners are now struggling to keep up with their mortgage payments due to factors like inflation, job loss or divorce. If you stop making mortgage payments, it may lead to a foreclosure event – depending on your lender and state laws in your area.

Can You Sell a House in Foreclosure?

The short answer is yes, but there are some nuances. In general, the process can be more complicated than a typical home sale. But the important question is how much equity you have in the property.

If you’ve fallen behind on your mortgage payments and the lender has initiated the foreclosure process, you might still be able to sell the house and avoid foreclosure. The specific options available to you will largely depend on how much equity you have in the home. In other words, is your payoff less than the value of the property?

How much equity do you have?

The amount of equity you have in a property can significantly impact your options for avoiding foreclosure or simply selling your home on the market. Equity is the difference between the current market value of your property and the amount you owe on your mortgage. If you have positive equity (the property is worth more than you owe), it can give you more options.

Here’s how your equity amount can affect foreclosure and the various paths you can take:

Sell the Property Before the Bank Forecloses

If you have equity in your home, you might be able to sell the property and use the proceeds to pay off your mortgage, potentially even making a profit. In this scenario, you could fully satisfy your mortgage debt and avoid foreclosure altogether.

Refinance

If you have significant equity in your home, you might be able to refinance your mortgage. Refinancing could help you lower your monthly mortgage payments, making it easier for you to keep up. However, to refinance successfully, you’d generally need a good credit score and reliable income.

Loan Modification

If you’re struggling with your mortgage payments but have equity in your property, your lender might be willing to modify the terms of your loan. This could include reducing the interest rate, extending the length of the loan, or even deferring some of the principal.

On the other hand, if you’re “underwater” on your mortgage—meaning you owe more than the property is worth—these options might not be available. In this case, you might need to consider a short sale, in which the lender agrees to accept the sale proceeds even if they’re less than the mortgage balance. However, a short sale can have a significant negative impact on your credit score.

Conclusion

Navigating foreclosure is complex and can have lasting financial implications. It’s crucial to seek advice from a professional, such as a real estate attorney or a housing counselor, who can help you understand your options and make the best decision for your circumstances.