If the bank forecloses on my home and sells it for an amount greater than what is owed and the sale covers all other debt/liens tied to the house, am I entitled to the remaining proceeds?
Yes, if the selling price exceeds the total amount owed, then the owner will receive any remaining balance. For example, let's say the bank forecloses on your home and sells it for $100,000. You owe the bank $50,000 for the balance of the mortgage and a lien holder $10,000. From the $100,000 sale, $60,000 is paid to those two creditors. The remaining $40,000 is paid to you, minus any fees for the cost of the sale that may apply. Again, those numbers are an illustration and I have no way of knowing if they apply to you.
However, let's consider the opposite situation where the selling price is less than the amount owed. For example, let's say the bank forecloses on your home and sells it for $100,000. You owe the bank $120,000 for the balance of the mortgage. From the $100,000 sale, the bank takes the entire amount and asks you to pay $20,000 in what is called the "deficiency balance." In many situations, however, to avoid a foreclosure the bank will work with the homeowner to stay in the home while paying a reduced monthly house payment. The bank will put the house on the market in what is called a "short sale," where the bank agrees to waive any deficiency balance when the house sells.
Let us return to your original question. If you think you may be in a situation where the value of your home exceeds the balance of your mortgage and you are facing the prospect of foreclosure, by all means clean up the house and yard ruthlessly, call in a real estate agent, and put your house on the market now.
You want to do this for two important reasons. First, if you face the loss of your house, it is better for you to take control and be the driver of 1) exactly when you must move out, 2) the listing price of the house, 3) which agent sells the house, and 4) the condition of the house while it's being shown. Also, as a general rule, prices of foreclosure properties are less that non-foreclosure properties. If you can sell the house you will get a better price than the bank ever will, and that's money in your pocket.
The other important reason for selling the house instead of waiting for foreclosure is that you will avoid the terrible effects of a foreclosure on your credit rating. Consider these two questions: Will it be easier for you to rent an apartment with a good credit rating or with a credit rating that contains a foreclosure? Also, when your financial picture improves in the future, will it be easier or more difficult to buy a house with a foreclosure on your credit record?
I hope you get my message: Avoid foreclosure if you can.
The Bills.com Web site contains many resources for you to learn about foreclosure, short sales, refinancing your mortgage, and credit reports that may help you understand the issues you are facing.
The following Web page is a good starting place to learn more about your credit score.
This Web page offers a great start to learning more about foreclosure. If you are in a situation where a mortgage refinance my help you reduce your monthly mortgage payment and stay in your home, go to our Home Refinance 101 page to study this option: A short sale is a better option to foreclosure. Read more about Foreclosure Short Sale.
One last idea: See if you qualify for a refinance as per the plan announced by President Obama by visiting Making Home Affordable.
I hope this information helps you Find. Learn & Save.