Selling a Property with a Notice of Default
I'm in one of these situation right now, so I thought it would be good to revisit this subject.
Selling a property with a Notice of Default (NOD) can be a complicated process. A Notice of Default is typically issued by a lender when a borrower has defaulted on their mortgage payments and is in the early stages of foreclosure. It serves as a formal warning that the lender may initiate foreclosure proceedings if the borrower does not catch up on their payments. If you're in a situation where you want to sell a property after receiving a Notice of Default, there are some important considerations and steps to take:
1. Understand the Situation
- Notice of Default: This is not a foreclosure yet, but it means you're behind on mortgage payments. The lender gives you a chance to pay the overdue amount or make arrangements before moving forward with foreclosure.
- Timeframe: After the NOD is filed, you typically have a period (often 90 days) to cure the default by making the overdue payments. During this time, you can sell the property.
2. Determine Your Options
You have several potential options:
- Short Sale: If the property is worth less than what you owe on it, and you can't afford to bring it current, you may be able to sell it as a short sale. In this case, the lender agrees to accept less than the full mortgage balance as payment for the property. A short sale requires lender approval.
- Traditional Sale: If you have enough equity in the property (meaning the sale price will cover the mortgage balance), you can sell the home like any regular property transaction. The sale proceeds will pay off the remaining mortgage.
- Deed in Lieu of Foreclosure: If selling is not an option, you may offer the property back to the lender (giving the deed back), which may be preferable to them compared to a full foreclosure.
- Foreclosure: If you do nothing, the lender may proceed with foreclosure after the NOD period expires. This results in the lender taking ownership of the property, and you lose it.
3. Contact the Lender
If you're in a NOD situation and considering selling, contact your lender immediately. They may be willing to work with you in one of the following ways:
- Extend the default period: They may give you more time to bring the mortgage current or allow a short sale.
- Approve a short sale: If the property's value is less than the loan amount, a short sale may help you avoid foreclosure and minimize damage to your credit.
4. List the Property
If you’re planning a sale, you’ll need to:
- Get the property appraised to understand its current market value.
- Hire a real estate agent who has experience with distressed properties, such as those in foreclosure or with a Notice of Default.
- Price appropriately: If selling as a short sale, you must price it based on what is acceptable to your lender.
5. Consider the Impact on Credit
Selling a property during a Notice of Default may impact your credit score. However, it can be less damaging than allowing the property to go into full foreclosure, which is more harmful to your credit history.
6. Know the Legal Process
In some states, the foreclosure process is judicial, meaning it goes through the courts. In other states, it's non-judicial, and the lender can begin foreclosure without court involvement once the default period has passed.
7. Talk to a Real Estate Attorney
It can be helpful to consult with a real estate attorney or financial advisor who understands foreclosure law and can guide you through the process to ensure you’re making the best decisions.
Conclusion
Selling a home after receiving a Notice of Default is possible, but time is of the essence. If you're facing foreclosure, it's essential to understand your options, communicate with your lender, and explore solutions such as a short sale. Being proactive can help you avoid the negative consequences of foreclosure and may allow you to sell the property before losing it to the lender.
I have done short sales and learn from one of the best in the business way back early in my career.
Let's discuss your options.
Nancy Bergman
Salt Lake Home Pros / Fathom Realty
nancybergmanrealtor@gmail.com
www.saltlakehomepros.com
858-617-9449