Selling a House in Foreclosure

Selling a House in Foreclosure

One of the frequent questions we get asked is “Can I sell my house while in foreclosure? You should absolutely consider selling a house in foreclosure as a way out of your financial dilemma. Then at closing, you pay the lender everything you owe, including back payments and penalties. Is there a way to get the house back if I come into a lot of money or win the lottery? Most states allow a “statutory right of redemption.” This is essentially a take-back period after the foreclosure—from 30 days to as much as two years in some places —in which you can repurchase your home.

Selling a House in Foreclosure

Selling a house in foreclosure could include a short sale or foreclosure in Virginia Beach. A mortgage short sale occurs when a financially distressed borrower arranges a sale for less than the outstanding mortgage balance. The lender accepts the proceeds of the house sale which is short of the full repayment of the mortgage. The borrower, then, receives a release from the mortgage obligation. The lender does this to avoid larger losses if it were to foreclose on the mortgage.

Is a short sale better than selling a house in foreclosure in Virginia Beach?

NOLO says saving your credit score may be the most touted reason for a mortgage short sale, however, according to myFICO, short sales, foreclosures, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts and are considered the same for purposes of your FICO score.

A short sale may be considered to be a derogatory mark on your credit even though credit bureaus do not use the word “short sale” on your credit report. Your credit report may read “paid in full for less than agreed” or “settled for less,” among other categories.

It is generally agreed that selling while in pre-foreclosure is better than going through foreclosure or going through the process of short selling. Sure you will take dings on your FICO credit score for late payments, but that’s nowhere as bad as a foreclosure on your record.

Then there are Waiting Periods

There are differences in the waiting period before you can apply for a new loan. Fannie Mae’s will allow you to reapply for a mortgage four years after a short sale. You must put down 10 percent as a down payment.

With a foreclosure, if your foreclosure was due to extenuating circumstances, you may be eligible to buy another home in three years. Otherwise, the standard waiting period remains seven years, notes Fannie Mae in its latest guidelines.

When you have waited the required time after a short sale or foreclosure, lenders don’t ask if you have sold a house as a short sale. They do ask if you ever had a foreclosure.

Short Sales Don’t Always Cancel the Remaining Debt on the Mortgage

When a lender approves a mortgage short sale, what does the lender agree to do? At the very least, the lender agrees to remove or release the lien on the property. A seller would have a near-impossible task in selling a property without this lien release.

Is the lender also agreeing to cancel the seller’s obligation to repay the loan in full? Not necessarily

The seller and the short sale lender often negotiate judgments.

Banks are generally unwilling to negotiate deficiency judgments with the homeowner after a foreclosure.

You May Owe Taxes on the Deficiency

If your lender forgives you for a deficiency after a mortgage short sale, you may owe taxes on the forgiven amount. The IRS considers this income and you may owe federal and state income taxes on the forgiven amount. Under the federal Mortgage Forgiveness Debt Relief Act of 2007, you may be able to exclude from your income all or a portion of the amount of forgiven debt in a short sale.

Hire an Attorney to review all documents

Since foreclosure and short sales are complicated transactions, we recommend you hire an attorney to review the documents. The release of lien and protection from tax deficiency are very important to your financial welfare.

Ask now for our FREE information about How to Sell Your House Fast.

I am Christian Dunlap and my company,, buys houses all across Hampton Roads, including Virginia Beach, Norfolk, Chesapeake and Portsmouth.

Give me a call today at 757-705-8812.  

I will do my best to provide you with the fastest and fairest home selling solution you need.

Christian Dunlap

I am a family man with four kids and one heck of a beautiful wife. For work, I'm one of those, "We buy houses" guys, which basically means I buy houses for cash through out Hampton Roads, fix them up and then resell them. It's a very rewarding career that affords me to the opportunity to meet and help out people from every walk of life.