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Can You Sell a House to Avoid Foreclosure? How Home Investors Can Help
Home investors often receive calls from homeowners who are behind on their mortgage payments, property taxes or HOA dues and have either received notice of intent to foreclose or expect to receive it at any time. The first question they ask is “Can I sell my house to avoid foreclosure?”
Yes, in many cases it is possible to avoid foreclosure by selling your house. Your options to sell will depend on a number of factors including how far behind you are on payments, if the foreclosure process has begun, and how much time you have left, among others.
Avoid Foreclosure by Selling to a Home Investor
For many struggling homeowners behind on mortgage payments, one of the best ways to prevent a foreclosure is to sell the house to a home investor. This helps pay off a mortgage fast.
Though handling your mortgage this way still means giving up the home, it helps you avoid other consequences, and you may even walk away with money to start over again.
The Consequences of Foreclosure
Losing your home is not the only consequence of going through a foreclosure. There are tax and credit consequences that can haunt you for a very long time.
For example, the IRS considers a foreclosure to be debt forgiveness. This means if you still owed thousands of dollars on your house when it was foreclosed on, the IRS may consider that money “income” and tax you accordingly.
Foreclosures also remain on your credit report for more than seven years, and can lower your credit score by as many as 150 points. In addition to lowering your credit score, this can make it difficult to secure housing in the future, even rental housing. Getting a new home loan isn’t impossible after foreclosure, but you may have to wait a long time while you rebuild your credit.
And, of course, if you wait too long to leave the home, you might even have to deal with the indignity of watching the local sheriff cart all of your belongings out onto the lawn in front of all of your neighbors.
One way to mitigate some of these financial and personal consequences is to sell your house fast before foreclosure. Reputable home buyers are perfectly positioned to help you and may be your best option.
To better understand why, you need to understand the Texas foreclosure process. It moves very fast, and you must move quickly, as well, to avoid foreclosure.
Options When Selling Your Home
When selling your home to avoid foreclosure, you’ll have two options: a “short sale” or selling to a home investor for cash.
A “short sale” means you will sell the home for less than the amount owed on the mortgage. This is typically the last resort of people who are upside down in their homes; they may sell the home at market rate yet still end up with a balance that will need to be paid.
Your lender must approve the short sale, and this is where things get sticky. It can take them up to 120 days to make the decision. Unless they decide to halt the foreclosure proceedings, you may not get an approval before your deadline. If you think you might want to do a short sale, start talking to your lender the moment you’re in trouble.
While short sale approvals typically take time, banks do move a little faster for a cash sale. As home investors, Big State Home Buyers often presents banks with attractive terms that help expedite approvals.
However, if have enough equity in the home, you may be able to avoid this process altogether. For example, if you owe $70,000 on an $150,000 home, we would be able to offer you enough on an as-is cash sale to cover the remaining amount owed and more.
This helps pay off the rest of the mortgage. Additionally, it gives you some money for starting over.
Depending on how much you owe you may have enough money to escape foreclosure and put a deposit and first month’s rent on a new apartment, make a down payment on a new, more manageable mortgage, or even to purchase a small condo or townhouse for cash. Either way, you’ll be far better off than if you allow the foreclosure proceedings to take you all the way to an auction and eviction.
How Fast? Real Fast.
The good news about selling your home as-is to investors like us is that we can get an offer to you very quickly. You’ll have a cash offer in your hands within 24 hours following your home assessment, and we can complete the closing in as little as three days. We even give you time for packing so you can move on to your next home, on your timeline.
Can You Buy the Home and Sell it Back to Us?
Unfortunately, no. But we may be able to lease it back to you.
If we work with you on a fast short sale, you’ll be asked to sign an Arm’s Length Affidavit at closing. That’s a lender requirement. They don’t want you benefiting financially from the short sale. Attempting to remain in the home after a short sale is a form of mortgage fraud.
If you’re facing this scenario it’s best to look at this as a chance to downsize and realign your finances. A better, brighter financial future awaits. You have a chance to rebuild within your current means. Trying to hold on to a house for too long is one of the biggest mistakes we see homeowners make. If you get into financial trouble…don’t let this mistake trip you up.
How Big State Helped One Homeowner Prevent Foreclosure
Each situation is a little bit different, but here’s how Big State Home Buyers was able to help Kate, a homeowner who was right on the edge of foreclosure before she reached out to us.
Kate was behind on her payments, and her mortgage company refused to negotiate. She came to us, and when we learned the situation we got straight to work. First, we received an authorization from Kate to negotiate on her behalf. Then, our title processor, Sonya, started negotiating with the mortgage lender. This is what happened, as told by Sonya:
“We solved that case at the last very last minute. They were using deceptive methods to force the homeowner into a very short window to avoid foreclosure, giving us only a window from the 19th of November to the 30th. They weren’t budging.
First I sent the authorization, and I sent that separately, because I didn’t want them to think I was only asking for a pay off. Then, I resent the whole package: I sent my request letter, the authorization, the contract and my proof of funds. I make sure that whatever the amount the homeowner is short, that my letter says clearly that we have enough money to pay for the foreclosure and the bank can rest assured that they will get every dime owed to them. Big State has a line of credit that I’ll send with my request to postpone foreclosure.”
Home Investors Give You an Essential Edge In Negotiation
Access to capital is a key reason why working with a home investor gives you an essential edge in negotiation. With a home investor, you go from being completely at the mercy of the bank to having a great deal of leverage in the form of the investor’s capital. Working with an investor puts you in a much better position with your creditor.
Having sent her documents to the mortgage company, Sonya got them on the phone:
“I always get a name, and I notate the system, notate the file folder of who I spoke with, if there’s an agent ID I get that information, I make detailed notes every time. That is what will save you, and it saved us in this circumstance. We were in negotiations for weeks, and they repeatedly said there was no fixed foreclosure date. But then out of the blue they said that there was, and it was imminent. They did this to rob the homeowner of the opportunity to avoid foreclosure in time.
When I called, they said, ‘No, we didn’t say that we didn’t have a foreclosure date.’ And I said, ‘Actually on the 19th you said you didn’t have a foreclosure date, agent ID number 244233 said they didn’t have a foreclosure, agent 12442 said they didn’t have one, and here we are on the 21st and you’re saying it’s a foreclosure date and it’s this month.’ So I said, ‘You said our conversation is recorded right? Please pull that tape. Because you had 4 agents that told me that there was no foreclosure date, and now you’re saying it’s in 10 days. Pull that tape.’ Just simply asking them to pull the tape stopped the foreclosure. First, they stalled for days to find the tape, and that window alone gave us all the time we needed.”
Closing On The Property
Sonya went on to explain,
“The funny thing is, in the time it took for them to pull the tape, we didn’t even need the postponement, we just needed a few days to close it out. We didn’t need for them to postpone because we found a buyer for the home in that window and it was ready for purchase.
When they finally called back, they said, ‘Okay, we’re going to pull the tape.’
I said, ‘Wait a minute’, and I grabbed my recorder and recorded it on the phone.
I said, ‘Please repeat the agent ID, please repeat whether or not it’s a foreclosure date.’
He said ‘Nope, it’s not a foreclosure day.’
I said ‘Please repeat your agent ID again’, and he did, and I said ‘Okay. I just want you to know that you have been recorded, in stating that there is no foreclosure.’”
After that ordeal was finished, we closed on the house. Kate had the money she needed, moved to San Antonio, and started a new life and career.
So to recap, here’s the path we recommend for halting foreclosure:
- Find a reputable home investor with experience in negotiating with lenders, and authorize them to negotiate on your behalf.
- The investor negotiates with the lender while at the same time finding a buyer for your home.
- Once a buyer is found and the lender agrees to release, you sign your house to the new buyer, get your payment and breathe a sigh of relief.
You may now be wondering, “Why can’t I just take this advice and negotiate with the lender myself?”
The reason we don’t recommend doing that is because your lender is not motivated by your story. They are motivated by money. You would need proof of funds to have leverage. Our company provides that leverage.
In fact, most lenders are ecstatic to work with us because banks are not in the real estate business. Foreclosing on a home can mean they will need to secure it, clean and winterize the property, hire inspectors, prepare the house for sale, put it back on the market, and wait for a buyer.
It can cost as much as $30,000 to foreclose on a property, so most banks are happy to work with us. It’s easier for them to get the money they’re due than it is to sell the property again. They’re in the business of making profit on interest through financial services, and selling houses is a roadblock banks would rather avoid.
Not All Home Buyers Are the Same
Many home investing companies don’t have the tools or the resources to do what Big State Home Buyers does. They simply buy and sell houses.
What we offer is a bit out of the ordinary. With Big State, you’re working with a company with a unique combination of available cash and negotiating experience that make us a powerful ally if you need help going head-to-head with a bank.
Set Realistic Expectations About Selling to Home Investors
When selling to a real estate investor, you should also set realistic expectations for the outcome. Most lived-in homes need work before they’re ready to sell or rent. Take that into account when you receive a cash offer. The investor absorbs those costs, and the company will need to make a profit to remain in business. While home investors can come to your rescue, depending on the severity of your situation, you might not be able to capture all the profit you would if you put the house on the open market and sold to an end buyer.
Final Thoughts to Consider
Through our years in the real estate business, we have seen all types of situations and can provide a few words of advice:
- Don’t stay in a house that’s too expensive for you.
- If you’re facing foreclosure, be wary of predatory loan modifications that sound like the perfect solution.
- Never take bankruptcy advice from someone who isn’t a lawyer.
- If you’re really underwater on a mortgage, take this opportunity to work with someone like us so you can downsize and bring your financial house back in order.
- If your home investor is honest he will tell you to look into every option to stop foreclosure at the last minute, including refinancing, loan modification, payment plans or other deals.
- Before contacting a professional home buyer, research the company’s reputation. Interview the investor. Get answers to every question on your mind before accepting the offer. Good home investors will happily answer.
We want to help, but we can’t do that until you call. No problem is too big, we’ve seen it all. If the threat of foreclosure is hanging over your head, contact Big State Home Buyers. Ask us all your questions. We will be happy to answer, even if you don’t ultimately sell the home to us. We are proud to be real estate problem solvers in Houston and DFW