Why doesn't a person sell their house when it is in a "pre-foreclosure" to get out of debt?
Question:
Answer:
There are a number of possible reasons: they owe more than the house is likely to bring at a firesale; they can't afford to rent a place (no first, last and security) and can't afford to move. Their credit is shot, so they can't borrow for these expenses. They have had it on the market, but no one will pay what is needed. The house needs so much work that no one will touch it. Who will pay full price for a house when they just wait for the auction and get it for a third of what it's worth?
I don't know. My guess is the house is not worth what they owe, so they can't get out of the debt that way, because they still wouldn't have enough to pay off the mortgage.
That's a problem with taking 2nd mortgages.
That's my guess.
Typically, it's because the property has a lien against it. You can't sell the property because it's owned by someone else (namely the bank). With the bank's permission, of course you can sell, but since a pre-foreclosure situation means you're behind on the mortgage, the bank is normally willing to take posession and have it sold themselves to ensure they get a fair return on their money.
If you can sell it for more than the payoff amount, most banks will allow you to, they just want to be involved.
A person can still sell a property prior to the involvement of the lender's foreclosure attorneys. Once the attorneys have it, a deal is next to impossible. Selling at a loss is much, much better than foreclosure if you ever hope to purchase again. Many lenders want a foreclosure to be three years old before giving you another mortgage. Plus, a foreclosure blasts your credit score.
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