Selling at a Loss

Can a homeowner sell their property for less than the mortgage is due?

Yes, there are situations where you can sell your house for less than the amount of the mortgage that is still owed, but this is tricky and depends on the lender. A "short sale" is what is happening here. The difference between the sale price and the loan amount, which must still be repaid, may occasionally be split by a lender. If the loan has been sold to the secondary market, a short sale might be more challenging because the lender would need the approval of Freddie Mac and other important secondary market players. The lender must also involve the mortgage insurance firm that insured the low-down loan if it was a low-down payment mortgage with private mortgage insurance.

When does foreclosure start?

When customers fall behind on their mortgage payments, usually after three missed payments, lenders will start foreclosure proceedings. The borrower will then receive a notification from the lender that they are in default. The property may be sold at public auction by judicial foreclosure or a trustee's sale, as requested by the lender. After the notice of default is recorded, usually no later than a few days before the property is sold, a borrower may cure the default by making the past-due amount and the awaiting payment. Some auctions allow the winning bidder to take possession right away. If the previous owner refuses to leave the property, the court may issue an unlawful detainer, which gives the sheriff permission to go to the property and evict the person. One of the worst things that can happen to someone's credit history is foreclosure, so borrowers should take every precaution to prevent it.